To offer the best service to your customers and run an efficient operation, you need to be working with the right equipment. But purchasing new or even second-hand equipment can put a severe dent in your working capital.
That’s why many Australian businesses use finance to cover the costs of new equipment and maintain liquidity. With traditional lenders becoming more risk-averse and unwilling to provide funding, Equipment Finance is an increasingly popular solution for Australian businesses.
In our SME Growth Index Insight Series, 27.4% of SMEs told us that they intended to finance new growth using non-bank funding. Main bank funding is at 17.4%, its lowest since our first Index back in 2014.
In this guide, we’re going to cover everything you need to know about Equipment Finance to determine if it’s a good solution for your business.
What is Equipment Finance?
Equipment Finance is a financing solution that enables businesses to access the funding they need to purchase equipment. Funding is usually provided in a fixed-term loan repaid in regular instalments over 24 to 60 months.
The funding allows the business to spread the cost of purchasing equipment over a more extended period and use the additional revenue the equipment generates to pay for the finance cost. Equipment Finance can be used to fund:
- Business equipment
In contrast to a traditional loan, Equipment Finance is much more flexible and accessible. Because the asset’s value acts as collateral for the funding, you don’t need to put your home or property at risk to secure financing. The funding facility can sit alongside your existing finance arrangements and can be combined with other financial products.
Read our post, The Benefits of Equipment Finance, to see how a funding facility could help your business.
How Does Equipment Finance Work?
Using Equipment Finance, you can fund your business’s growth and development even if you don’t have readily accessible capital. Equipment Finance allows you to upgrade and replace old equipment without straining your finances.
For example, let’s say that you run a distribution and logistics business. To grow and take on new clients, you need to purchase a new forklift. The new forklift will cost $20,000 to $45,000, and the battery and charger will cost an additional $2,000 to $5,000. This means you need to raise up to $50,000 to purchase the equipment you need.
With Equipment Finance, you can fund up to 100% of the forklift value and spread the cost over a period of 2 years. With the new forklift, you can expand your capacity and take on new clients to raise additional revenue to pay for the financing and grow your business.
At the end of the financing period, you will own the forklift or have the option to purchase it for a nominal fee depending on the terms of the Equipment Finance facility.
Business Equipment Financing
Business equipment includes all of the tools, technology, and vehicles you need to run your business, including:
Around 30% of SMEs feel they have missed out on opportunities due to a lack of funding access. With Equipment Finance, you can capitalise on opportunities and fuel your business’s growth by funding the purchase of the equipment you need. It can allow you to increase productivity and revenue while maintaining a consistent positive cash flow.
Commercial Equipment Financing
To offer professional and scaleable services and products to your customers, you need commercial equipment. In simple terms, commercial equipment is machinery, tools, and apparatus designed for a commercial enterprise. For example, if you run a cake shop, you need commercial ovens, fridges, etc.
Commercial equipment is built to withstand the intensive daily usage of commercial operation. More heavy-duty and robust than equipment developed for the consumer market, commercial equipment is also more expensive.
A fridge designed for home use ranges from $500 to $2,000, while a commercial display fridge can cost up to $20,000. The cost of replacing or purchasing new commercial equipment can make a significant impact on cash flow.
Equipment Finance allows you to fund the purchase of commercial equipment. A funding facility can be put in place for a single piece of equipment or to fund multiple upgrades.
Small Business Equipment Financing
Equipment Finance is a funding solution designed for the needs of small businesses. In Australia, small businesses account for 98.4% of total businesses and contribute $418 billion to GDP – the equivalent to 32% of Australia’s economy.
Despite being a hugely important contributor to the economy and local communities, small businesses have increasingly found it difficult to access funding. With banks and traditional lenders becoming more risk-averse, innovative funding solutions like Equipment Finance have helped small businesses get the funding they need.
Equipment Finance can be used to upgrade or replace existing equipment with more efficient models. If you have a long trading history, you will find it easier to qualify and access more favourable credit terms.
New Business Equipment Financing
Start-ups and new businesses typically find it hard to qualify for bank loans and other traditional funding solutions. Equipment Finance is much more accessible, even for businesses without a long track record or credit history.
You can fund the purchase of the equipment and machinery needed to make your new venture a success. Because the equipment acts as collateral for the funding facility, you don’t need to provide a large deposit or use your home as security.
Rather than tieing up capital in an expensive asset, you can invest in marketing, staff, and other business areas that will help you increase revenue and profit.
To see how Equipment Finance can help a business fuel growth, read our case study on NSW transport business Computertrans.
How Long Can You Finance Equipment?
The length of an Equipment Finance funding facility depends on the value of the equipment you want to buy and the amount you can afford to repay each month. Funding terms range from 24 to 60 months.
Some businesses choose to make a lower monthly repayment to better manage working capital, with a balloon payment due at the end of the agreed contractual term.
How Can I Get Business Equipment Financing?
The right equipment can make a huge difference to the profitability of a business. You can fund the purchase of new and second-hand equipment with a ScotPac funding facility.
Most business owners need to move quickly to replace, upgrade, or acquire new equipment to capitalise on opportunities and avoid disruption to operations. While the application process for a traditional loan can take several months, we can put a funding facility in place in as little as 24 hours.
Use our straightforward online enquiry form or give us a call and speak to one of our friendly business finance advisors. We can quickly help you get the equipment you need to grow your business.