Equipment Financing

They are distinguished by the way in which the asset is acquired – by purchasing, leasing or renting the equipment.

Each one will have its advantages and disadvantages depending on your business goals and needs.

The repayments represent a principal and interest portion and after the final repayment, the registered interest is cleared. The final repayment may be a preset larger lump sum known as a “balloon payment” or “residual value.”

This is the same facility as a chattel mortgage except it is for other equipment that may not have wheels like a “chattel” does.

The repayments are made up of principal and interest such that the equipment is paid down to its fair market value and the final repayment would represent exercising the purchase option.

This facility is similar to an equipment loan where a balloon payment would be equivalent to the fair market value purchase option. However with a commercial hire purchase the ownership of the equipment is at the granted end of the loan term rather than the start.

This means the lessor purchases the equipment, leases it to you and at the end of the loan term takes it back from you. In some instances they may offer to sell it to you instead.

This means the operating lease appears as an expense whereas a finance lease appears as a loan repayment. Under an operating lease the equipment is not an asset on your balance sheet but it is for a finance lease.

If you do not want to assume residual value risk and prefer to have all expenses wrapped into a single forecastable repayment this can be a quick deciding factor.

Some common examples are medical devices, gym equipment, plant machinery, chattels, trucks, specialist devices, IT equipment, computers and fit outs.

For an equipment loan, as your business holds ownership at the start, the tax implications are:

• Equipment is part of your assets
• Loan facility is part of your liabilities
• Deductions can be made for interest and depreciation
• Input tax credit for GST on the purchase price

Similarly for a commercial hire purchase and Finance Lease there is an intention to own the equipment at the end of term, you can still deduct interest and depreciation as well as claim the GST as an input tax credit.

Note for commercial hire purchase agreements entered into after 1 July 2012 the whole hire purchase repayment, including the principal component is subject to GST.

This means for a chattel mortgage and commercial hire purchase of the same amount, the commercial hire purchase would have higher repayments.

This can be a quick deciding factor between an equipment loan or commercial hire purchase. It is important to check with your Accountant so you can decide based on the overall benefits and costs.

For an Operating Lease Lease there is no ownership or set intention to own the equipment so the whole repayment can be tax deducted but no depreciation. GST is applicable to the whole repayment and it can be claimed as an input tax credit. Similarly for an operating lease there is definitely no intention to own the equipment so the same tax implications apply.

There are so many implications with each of these facilities and different ways they may apply. We’ve summarised them in a matrix below to make the comparison easier. We always recommend an introduction to your accountant so we can work together to provide recommendations backed up by professional tax advice.

The more specialised the equipment the longer the you need to be registered for.

As a general rule of thumb you would need at least 6 months.

However an exception may apply if you have been in the industry for 5 years.

• If you are not a homeowner
• Your business has been in operation for less than 12 months
• You have never had credit before
• You have bad credit history

If you meet the ABN/GST requirements there isn’t really a maximum and it would be on a case by case basis.

• Full documentation – 2 to 5 days to approval
• Semi low documentation – 1 to 3 days
• Low documentation – 1 to 2 days

We encourage you to get in touch with us as early as possible. We have the in-house expertise to give you an accurate view of what the outcome would be, without even needing to apply (or marking your credit file).

Other costs on average would be:

• Lender establishment fee $350 – $450
• PPSR fee – $10
• Monthly admin fee – $5

As there can be significant analysis, enquiry and negotiation involved our fees do vary but we will let you know before beginning work what the maximum would be. The fees can be added to the loan so they are not an out of pocket expense.

Typically a dealer will provide a quote from 1 – 2 lenders with 1  being their own.

We have access to over 20 lenders and this means it is very likely we can get you a better deal.

Keep in mind that rate is not the biggest driver of cost. The ability to make extra repayments or payout early can make a significant difference to what you actually pay overall.

To give you certainty and focus on car shopping we can get you a pre approval first. Then when you find the car it is no fuss price negotiation and quick delivery!

Even more valuable is our experience with the process mechanics unique to each lender. For example a lender who can make real time gross settlement payments versus one who doesn’t can get you the equipment up to 2 business days faster.

We understand this makes all the difference at a critical time.