Equipment finance can help you purchase assets without eroding your working capital. It is a popular form of finance for businesses that want to better manage their cash flow.
Asset Finance Lending Facilities
Under a Chattel mortgage a finance company lends money to the customer to purchase a car or other motor vehicle (the “chattel”), and the customer makes regular repayments.
The customer takes ownership of the vehicle at the time of purchase, but the finance company also takes out a “mortgage” over the vehicle by way of an ASIC-registered Fixed and Floating Charge to provide security for the loan.
Once the term of the loan is completed and any residual (balloon) value is paid, the finance company removes the Charge, giving the customer clear title to the car. Alternatively, the customer can “trade in” the vehicle or re-finance the residual value.
A lease is a legal document outlining the terms under which one party agrees to rent property from another party. A lease guarantees the lessee (the renter) use of an asset and guarantees the lessor (the property owner) regular payments from the lessee for a specified number of months or years. Both the lessee and the lessor must uphold the terms of the contract for the lease to remain valid.
A finance lease is a way of providing finance – effectively a leasing company (the lessor or owner) buys the asset for the user (usually called the hirer or lessee) and rents it to them for an agreed period.
Offer to Hire
This Offer to Hire Goods and Equipment is an offer by the hirer to hire from the owner the goods and equipment. For the Hire Fee for those Goods and Equipment as set out in the Owner’s published current Hire Fee List and on the Owner’s Standard Terms and Conditions of Commercial Hiring of Goods and Equipment. If this Offer to Hire is accepted it will, with the Owner’s Standard Terms and Conditions, constitute the contract between the Owner and you, the Hirer, for the hire of the Goods and Equipment ordered.
Insurance Premium Finance
Unsecured or secured by policies financed
Finance is generally available without tying up other business and personal assets.
In most instances no additional security is required. Directors’ guarantees are required for company borrowers when financing >$250K.
Potential tax benefits
Deductions may be available on the interest paid on the facility.
Finance a variety of insurance types
Can be used to finance Professional Indemnity, Workers Compensation, General Business Insurance, Motor Vehicle Fleet registrations and CTP.
Uses of equipment finance
Using this form of finance removes the need to spend large sums on equipment by enabling you to essentially rent or lease items over a set period of the contract.
This form of finance can be used to acquire a range of expensive equipment, such as vehicles, forklifts, IT hardware, telephony systems, industrial machinery and other forms of plant and assets. This finance does not cover trade and operating expenses or property.
Equipment finance is particularly helpful for businesses that want to manage their cash flow, and finance companies may take into account seasonal cash flow variation when creating a finance payment plan.
Choose the right arrangement
Various types of equipment finance are available, including hire purchase, finance leases and equipment loans.
Hire purchase will suit a business that wants to eventually own the assets outright, although the finance provider owns the equipment until the contract is paid out. A deposit is usually not required.
An equipment finance lease is similar to a hire purchase arrangement, but rather than making payments with the goal of owning the equipment, the business negotiates a new arrangement at the end of the lease contract, and either continues leasing the existing item or opts to lease a new item. This enables a business to have access to the latest equipment without constantly spending capital.
Another option is an equipment loan (sometimes known as a chattel mortgage), which is a fixed interest loan secured by a mortgage over the asset. This arrangement has some tax advantages, in that GST is not paid on loan repayments.
Advice on equipment finance
If you need equipment finance, speak with our brokers. They can help guide you and give you the information you need to find the right equipment finance package for you.