Probably one of the most common queries by business owners seeking finance is around what type of equipment actually qualifies for finance with equipment loans. To some, especially new business owners, the reference to equipment loans or equipment finance may be associated with heavy construction equipment. While that is a very popular and large part of our business, it is certainly not the only area in which we operate.
The types of equipment that can be financed by equipment loans through Jade Equipment Finance covers the wide range of plant, machinery and equipment used across industries. Essentially any type of equipment that is used by a business may be eligible for equipment finance. The ATO does of course have guidelines that need to be followed. More information in that respect can be obtained through the ATO or through a discussion with a business accountant.
Eligible Equipment
Equipment finance can be sought for, in general terms, any equipment that is used by a business. That may be heavy construction and earthmoving machines; engineering and production plant; delicate medical and imaging equipment; beauty and hairdressing equipment; gym and fitness equipment; machining and tooling equipment; fitouts and business furniture; and of course the IT and computer equipment used by all businesses.
Where a number of pieces of equipment are being acquired, we can discuss whether it is preferable for our customer to set-up individual finance for each item or to group the entire acquisition into the one finance contract. This may simplify the accounts payable process and ease pressure on cash flow.
Are there differences in type of finance?
The same range of finance products are available for all equipment purchases. These include Leasing, Rent to Buy, Commercial Hire Purchase and Chattel Mortgage. The decision around which product is best suited to a particular equipment purchase is made primarily around aspects of the business itself.
Different finance products suit different business set-ups. The features of each product should be considered against the objectives of the business. The variations include in the approach to the balance sheet, the tax deductible elements, suitability to either the cash or accruals method of accounting and treatment of GST.
As our role focuses on sourcing and negotiating finance, we strongly encourage our customers to discuss the choice of finance product with their accountant. The choice may revolve around how long the equipment will be retained, how often upgrades are required and of course the business structure.
There may also be variations across the lender market. While most banks and lenders offer a similar range of finance products, some lenders are better-suited to certain industries. We have accreditation with many non-bank lenders including some that tend to specialise in certain sectors such as construction.
The best way to start the process and resolve any queries you may have is to simply give us a call and have a no-obligation initial discussion with one of our consultants.
Special Tax Measures
The tax treatment varies with different types of finance and may vary with the equipment being purchased. For example, currently temporary full expensing and Instant Asset Write-Off is available. In order to utilise these accelerated asset depreciation measures, the equipment being purchased must meet the eligibility criteria as set out by the ATO.
Interest Rate Variations
The interest rate on equipment loans will vary based on the business applicant and may vary across different industries and types of equipment. Banks and lenders set their individual interest rates based on their guidelines and their risk assessment of different sectors.
The advertised interest rates by lenders will typically be the cheapest available at that time. The rate offered on a specific equipment purchase in a specific industry to a specific business may vary from the advertised rate. When preparing business plans and budgets, business owners can use our calculators and allow for contingencies to ensure there are no surprises if a higher rate is applicable.
Currently the Reserve Bank is raising the cash rate and these increases do flow through to all lender markets including for equipment loans. The next rate rise is expected in early August but some lenders will lift their rates prior to RBA announcements.
The current interest rate scenario is quite a changing landscape. Further rate rises are anticipated in several months before the end of this year. Be mindful of this situation when planning purchases with equipment loans later in the year.
Solutions for New Businesses
One area which does vary across equipment loans is finance for new businesses. Many banks and finance companies have business finance eligibility criteria which precludes new businesses. These criteria can include a minimum operating period of 12-24 months and having solid and extensive financial trading records.
This information is referred to as documentation or docs by lenders. Businesses without all the docs to complete a business application form need to consider other options. That option comes in the way of Low Docs and No Doc Equipment Loans.
Not offered by all lenders, but offered by Jade Equipment Finance through our specialist non-bank lenders. Extremely cost-effective and workable solutions at very attractive rates can be achieved for many new businesses.
For equipment loans in most industries and businesses contact Jade Equipment Finance on 1300 000 003 for a quote.
DISCLAIMER: IF MISINTERPRETATIONS, MISREPRESENTATION OR ERRORS EXIST IN THIS ARTICLE, NO LIABILITY IS ACCEPTED. THE INFORMATION IS PROVIDED ONLY FOR GENERAL PURPOSES AND NOT IN ANY MANNER INTENDED AS THE ONLY SOURCE FOR MAKING FINANCIAL DECISIONS. THOSE THAT CONSIDER THEY REQUIRE ADDITIONAL GUIDANCE OR ADVICE SHOULD REFER TO AN INDEPENDENT FINANCIAL ADVISOR.
