Businesses seeking out equipment finance have a number of options at their disposal, and it is important to thoroughly research and consider all options in determining what is the best type of finance for your business.
A one-size-fits-all approach does not apply when it comes to equipment finance, with individual businesses having a range of specific needs – and for this reason there are a number of different methods of financing available.
Selecting the right type of equipment financing could result in significant benefits for your business over the longer term, providing access to new equipment, and helping to manage cash flow and balance your business operations.
Equipment Finance Options
It is important for businesses considering using equipment financing to develop an understanding of the range of financial products available as part of the process of determining what their best option will be.
As advised via the business.gov.au website, the following are some of the types of business financial products available:
Loans – which can vary in the amount and term of the repayment, interest rate and type, fees and security, with it recommended to carefully check the product disclosure information carefully before applying, regardless of choice of product
- Line of credit – providing funds access by allowing the borrower to draw on an account balance up to an approved limit, with the borrower able to draw funds at any time, as long as the balance does not exceed the limit
- Commercial hire-purchase – purchasing the good via an initial deposit, and then leasing it while paying instalments and interest charges, while the instalments may be reduced by opting for a larger final
- payment, often referred to as a “balloon”payment
- Chattel mortgage – while similar to a hirepurchase agreement, the purchaser owns the asset from the start, requiring regular ongoing payments that can be reduced by opting for a larger final payment
When it comes to leasing equipment, financial products may be structured to provide a business the option to purchase equipment at the end of a lease, such as via a commercial hire-purchase, while other products see the lender retain ownership.
What is best for your business will depend upon both short-term and long considerations, and it is important to look to the long term and keep in mind potential future requirements.
Research The Options And Seek Out Expert Advise
For businesses weighing up their options, it is certainly worthwhile conducting independent research, including reviewing and offers, and consulting with a range of financial institutions.
It is well worth utilising the range of online resources available, including calculators provided by some institutions, delivering businesses insight into the size of payments that will be required and how often they will need to be made, along with cumulative interest paid and the total amount paid.
Of course, this sort of commitment is nothing to rush into and it is important to take the time to assess your financial situation in determining what will be best for your business, and to also consult with experts, such as an accountant, when further information is required.
In our next instalment in this series we will look at the respective pros and cons of leasing and buying equipment.