As a business it's more than likely at some point you’ll find yourself needing equipment, this can be larger items like smelters or forklights or basic office necessity like desks and chairs. Either way, buying a bunch of equipment upfront can not only be costly, but infeasible. This is where equipment finance steps up to the plate and helps your business get the equipment you need, while avoiding bulky lump sum costs.
What exactly is equipment finance?
In simple terms, equipment finance is a type of business loan that specifically helps business get equipment. It differs from regular business loans in that most of the time equipment finance uses the equipment being bought as security and can let new businesses get the equipment needed to start a business.
Am I eligible for an equipment loan?
Almost every vendor will have its own set of requirements qualify for a business loan, but there are some standard ones such as: are you 18 years old? Do you have a business with an ABN? are you an Australian resident? Do you have ID etc.
On top of this, every lender will have a range of stipulations determining whether you can get a loan or what type of loan you can get. Common ones are turnover minimums, a year of operations and a certain credit score.
While these are the main requirements, each lender and loan will have its own list of things that a borrower needs to fulfill before they can get a loan.
Does my business need to be operational for a year to get equipment finance?
Most business loans will avoid lending to a business if it hasn’t been functional for at least a year. Equipment loans sometimes differ from this, as it’s likely that a business who needs equipment is only just starting out. This can mean spending some time looking for startup specific financing.
Do I need security for an equipment loan?
No. For the most part, the equipment being bought with the loan acts as the security. So if you default, the lender can take the equipment and sell it to make their money back.
If you do have security, such as building or other equipment you may be able to use this for a better rate. But usually equipment loans don’t need any additional collateral.
What should I look for in a equipment loan?
With any loan the main things you are most likely wanting to look for are a low interest and low fees. As you may have assumed, interest
- Low interest rate: When getting a loan for any purpose, trying to get the lowest interest rate possible is almost always best. While you need to watch out for particularly high fees, or restrictive condition which you can’t fulfill, aiming for the lowest rate will usually result in paying less.
- Minimal/low fees: Similarly to a low interest rate, low fees mostly means lowest costs overall. Although it’s good to consider which fees are low or waived completely. No application fees, ongoing fees and settlement fees are almost always relevant. But having lower early repayment fees, late fees and drawdown fees may not effective your loan at all.
- The right loan period: Getting an equipment loan for the right period is more important than most people expect. On one side, getting a loan too short with the aim of paying less may end up biting you in the long run it clogs up you cashflow or your unable to keep up with payments. While a loan too long will mean paying extra interest, which if you want to pay it off early may mean incurring early repayment and exit fees.
- Bonuses specific to your equipment: There are some lenders which provide special rates or other bonuses to businesses are buying green equipment, buying a specific type of equipment, are apart of a certain industry etc. In some cases, it may be worth looking around to see if you are eligible for anyone of these bonuses. Although being eligible doesn’t mean that loan is better overall.
Can I apply for a equipment finance online?
Of course! The majority of lenders have online applications that focus on getting you the equipment financing as quickly and easily as possible. This often means 10-15 minute application forms and 24 hour approval. So it some cases it only takes filling out an short online form to get the funding you need the very next day.
What equipment finance fees will I need to budget for?
Any loan is likely to be equipped with at least a few fees. While it’s clear what some of them are, other can be a bit more confusing
- Upfront fees: This is usually called an application fee or an origination fee, but can also be named a number of things. It’s basically just a fee you a pay when you start the loan. These are either a percentage of the loan, or a flat rate.
- Ongoing fees: Ongoing fees are continuous fees that are paid weekly, fortnightly, annually etc. Much like upfront fees these are other a percentage of the loan or a flat rate.
- Early repayment penalty: In some cases you may find yourself wanting to pay off a equipment loan early, as this will save on interest. However, doing so may see you paying extra costs, possibly mitigating the savings made.
- Exit fee: If you completely pay off your loan earlier than expected, then you may have to pay a fee. It’s common for the fee to be larger the earlier you pay off your loan.
- Late payment fee: If you’re late to make a payment than you’ll most likely have to pay for it, literally. This may be in the form of one or multiple different fees, such as a direct debit dishonour fee.
How do I start getting equipment finance?