Equipment Finance

Submitted by Share Trading on 10 July, 2010 - 17:12

Equipment Finance allows business owners to have access to equipment for their businesses without investing their cash reserves in purchasing equipment at full price. A lot of business owners these days consider leasing necessary equipment by utilising the leasing services provided by the banks, accountants and finance brokers instead of buying them.

With the emergence of a significant number of small and medium sized businesses, having access to all the necessary equipments for doing business often turns out to be a major concern for many business owners due to lack of capital. This is when equipment finance or leasing can help an organization to have access to the necessary accessories without spending too much for them.

How does Equipment Finance Work?

In case of equipment finance, a business organization uses the purchased equipment as the collateral for the loan, something that the business needs to pay off through installments. Whether the owner of the business will gain the ownership of that equipment or not will depend on the equipment itself and the kind of facility that has been utilised.

In the past, it was only the major financial institutions which used to offer the leasing services. However these days, you will find many financial planners as well as accountants and finance brokers in the market who are now dealing with services like equipment finance for their clients.

Equipment Finance: Things to Remember

If you are looking for a good deal to lease equipments for your business then the best thing would be not to depend only on the headline interest rates to compare different offers since the providers may come up with competitive rates but the monthly repayments can vary. Therefore, it is advised that you consider the dollar value that you will be charged every month for the equipment lease. Always remember, if the commission of the financial adviser or broker is built in the repayments, then you will not get benefited from a lease which is offered with the lowest rate due to the fact that the interest will not reflect this.

Types of Leasing Products

The leasing products can be divided into five major categories:

  1. Commercial hire purchase
  2. Chattel Mortgage
  3. Operating Lease
  4. Finance Lease
  5. Novated Lease

In each case (except for the Operating Lease) you will be able to gain ownership of the leased items or will be able to purchase it when the term ends which is done usually by paying a residual.
A majority of the lenders usually provide equipment finance for people who are self-employed. Therefore, the salaried employees do not have to worry about the commissions that the lender charges for the leased equipments. Although you can lease a car for your personal use but you won't be getting any tax advantages for that. However, the business owners do have the right to claim GST on the purchase price equipment and depending on the type of loan that has been utilised, the GST on the repayments of the lease. However, it is suggested to assign an accountant to deal with the tax related issues.

Glossary List