Need equipment finance?

Need equipment finance?

Equipment finance is often used by businesses to purchase assets of the business. Equipment finance is also referred to as asset finance and is a common form of funding which help ease the burden of cashflow and working capital.

 

What exactly is Equipment Finance? 

Structure

Equipment finance is a loan facility sourced by a business to acquire an asset to be used by the business. Assets can range from vehicles to earthmoving machines and shop fit-outs to specialised equipment. Loan funds are then secured against the asset acquired with set installments for the life of the facility.  For more information about equipment finance structures refer to the SB Lending post ‘Equipment Finance 101’.

 

Assets & Equipment that can be acquired

The types of assets and pieces of equipment that can be acquired using equipment finance is vast and varied. The most common items include

  • Vehicles – transport, trucks, trailers, vans, utes, cars and buses etc
  • Yellow Goods – excavators, scrapers, bobcats, bulldozers and graders etc
  • Construction Equipment – cranes, boom lifts, scissor lifts and forklifts etc
  • Agricultural – tractors, headers, ploughs, bailer, seeder, spreader and fencer etc
  • Shop Equipment – ovens, coffee machines, fridges & Freezers, cold rooms and fitouts etc
  • Specialised equipment – Dental chairs and medical machinery,
  • Plant & Machinery – lathes, mills, saws & cutters etc

 

Terms

Equipment finance terms are usually between 1 year and 7 years depending on the type of asset and age of the asset. Assets with a longer life span such as prime movers and heavy earthmoving equipment can be financed over longer terms while specialised equipment such as dental chairs and coffee machines will be financed over short terms. Often for newer assets a business will elect to have a balloon or residual written into the facility.

 

What is Residual or Balloon payment?

A residual or balloon is a lump sum payment made at the expiry of the equipment finance facility.  Many businesses elect to include a residual / balloon into their facility to reduce the installments made each month during the loan term. At the conclusion of the set term the residual / balloon lump sum payment is made. This lump sum can be made a number of ways;

  1. Refinance – If you wish to retain the current asset then the residual / balloon can be restructured over a further term with set monthly installments. This option is helpful in maintaining sound cashflow.
  2. Trade – The current asset can often be traded in with the dealer when updating to a new model. In this case the trade in of your current asset will payout the current residual / balloon. A private sale of the asset is also an option.
  3. Lump sum payment – you can elect to simply payout the residual / balloon with cash savings or consolidate with another loan facility.

 

Instalment / Repayments

Installments are usually made monthly in arrears or advance, meaning they commence at the time of settlement or on that day each month commencing the following month. One of the key advantages equipment finance has over other forms of finance is the ability to configure or structure the monthly installments to align with revenue of the business. This is particularly helpful for cashflow to industries that have season income such as farming or for businesses with set closure periods during Christmas or wet seasons.

 

 

For more information about Equipment Finance contact SB Lending at enquiries@sblending.com.auor by calling (07) 3810 8355.