How to select equipment finance for your business

Posted on Wednesday, September 9, 2015 - 13:23

If you’re starting up a business or looking to overhaul your business equipment, you’ll likely need some kind of equipment financing. There are so many options to choose from, it’s might feel too confusing, especially if you want to free up capital to finance operations or grow your business. Here is a great starting point, covering all the basics for selecting equipment finance that’s right for your business.

Owning your equipment

If your business wants to own equipment as an asset, taking out an equipment loan is a great choice to build up equity in the asset and eventual ownership. It’s an option that doesn’t tie up your available cash without any initial expenditure (no money down) on your part. You won’t need to put up collateral – the equipment itself is the security. When borrowing for business, you can often deduct depreciation and interest on your BAS statements. Banks and financiers can tailor loans to your cash flow profile with many different repayment options available. A Hire Purchase is an option similar to an equipment loan. Your bank or financier buys the equipment and hires it to your business for a specific period. Ownership of the equipment passes to your business at the end of the loan term.

Leasing your equipment

If you need to keep your equipment up to date, leasing your equipment is a great option. This doesn’t tie up any of your capital and you can tailor repayments to your cash flow. Your monthly repayments are generally lower than loans, as they’re structured leases with a residual value. This means you have an option to pay the residual value and own the equipment. You’ll also be able to claim the lease payments as tax deductions in many instances, depending on how your business uses the equipment.

This is especially handy for IT and office equipment, since they often become obsolete in a matter of a few months. You have the option to hand back the equipment and start a new lease with new equipment, or pay the residual value and own the equipment.

Sale and lease/hire back

This is an option for established businesses. You can free up your capital in which you sell your already-owned equipment to a bank or financier and lease or hire it back to you.

With all these options, it’s wise to consult with a financial professional or your accountant to figure out what’s best for your cash flow situation and your business goals.

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