One of the biggest issues I hear about from business owners is that they want to grow their business but they can’t afford to buy the assets or equipment that are crucial to help them achieve this. It’s a dilemma that is more common than you think. Whether it’s heavy machinery, technology, vehicles or specialised tools, the cost of buying outright can be prohibitive for many, especially if cash flow is tight. That’s where equipment finance comes in. When it comes to equipment finance for business, it helps to know all your options including how it works, the different types available and the relative benefits of each one.

What Is Equipment Finance?

Equipment finance - sometimes referred to as asset finance or asset lending - is a loan or leasing arrangement that enables businesses to acquire the equipment they need without having to pay the full cost upfront. The equipment itself often acts as security for the loan, meaning you can preserve cash flow while still gaining access to the assets your business requires.

Businesses can essentially choose between an equipment loan or enter into a leasing arrangement. Equipment leasing effectively means renting the assets for a specific period of time.

How Does Equipment Financing Work?

When you apply for business equipment loans, a lender provides funds to purchase or lease the required asset. The business then repays the loan or lease in agreed instalments over a set term. In many cases, the lender retains an interest in the equipment until the finance is fully repaid.

The process typically involves:

1. Identifying the Equipment – Decide what your business needs, whether new or used.
   
   
2. Choosing a Finance Option – Select the type of asset finance arrangement that suits your goals.
   
   
3. Application and Approval – Provide financial documents and details about the asset.
   
   
4. Purchase and Delivery – Once approved, the lender pays the supplier and you take possession of the equipment.
   
   
5. Repayment – Make scheduled repayments until the loan or lease term ends.
   
   

What Types of Equipment Finance Are Available?

There are several business equipment loans and asset lending options, each with different benefits. It’s important to evaluate the pros and cons of each one to determine which type of equipment finance is best suited to your business needs right now.

1. Equipment Loan

An equipment loan, sometimes known as a chattel mortgage, is where the lender provides the funds to purchase the equipment and you own the asset from day one. The lender takes a mortgage over the asset as security until the loan is repaid.

Benefits:

• Ownership from the outset
• Potential GST and depreciation benefits for eligible businesses
  
  

2. Finance Lease

With a finance lease, the lender purchases the equipment and leases it to you for a fixed term. At the end of the lease, you can either return the equipment, extend the lease or purchase it for a residual amount.

Benefits:

• Lower upfront costs
• Flexibility at the end of the term
  
  

3. Operating Lease

An operating lease is similar to renting the equipment for a set period although it typically covers a shorter period than a finance lease. The lender retains ownership and you return the asset at the end of the lease term.

Benefits:

• No obligation to purchase
• Useful for equipment that becomes outdated quickly
  
  

What Are The Key Considerations When Choosing The Type Of Business Equipment Finance You Need?

When you’re weighing up your options to acquire your equipment or assets, you need to give some thought to:

• Business cash flow: how easy would it be for you to manage regular repayments?
• Interest rates and lenders fees: which lenders offer terms that are most suited to your business?
• Longer term financial plans: what are the longer term goals for your business? Is leasing or a loan the more suitable option in this context?
• Tax implications: do you know the potential tax benefits or implications of your preferred solution?

What Are the Benefits of Obtaining Finance?

Equipment finance can make all the difference when it comes to achieving your business growth goals. Obtaining the vital assets your business needs can help you to run more efficiently and spend less time on time consuming manual processes. The main benefits of equipment finance for business are:

• Preserve Cash Flow – You can avoid large upfront payments and spread costs over time, helping you maintain business liquidity.
  
  
• Access to Latest Equipment – It helps you stay competitive and access up-to-date technology and machinery.
  
  
• Potential Tax Advantages – Certain finance types may allow deductions or GST claims (seek professional advice from a tax advisor).
  
  
• Flexibility – You have a greater choice when it comes to models and potential upgrades of equipment and technology.
  
  
• Ownership or Upgrade Options – Choose a finance option that aligns with your long-term needs.
  
  

How Long Can You Finance Equipment?

The term for business equipment loans typically ranges from 12 months to 7 years, depending on factors such as:

• The type and value of the equipment
  
  
• The lender’s policies
  
  
• Your business’s financial profile
  
  
• The expected useful life of the asset
  
  

Lenders often align the finance term with the anticipated working life of the equipment to ensure repayments are manageable.

Whether you’re a start-up needing your first set of tools or an established company expanding your operations, asset finance and asset lending can be powerful tools to help you grow without straining your working capital. By choosing the right finance structure, you can secure the equipment your business needs now and manage costs effectively.

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Frequently Asked Questions About Equipment Finance For Business

What is equipment finance?
Equipment finance is a loan or leasing arrangement that allows a business to acquire equipment without paying the full cost upfront. The equipment itself often acts as security for the finance. 

How does equipment financing work?
A lender provides the funds to purchase or lease the required equipment and the business repays the loan or lease in instalments over a set term. The lender may hold an interest in the asset until the finance is repaid in full.

What types of equipment finance are available?
Common types include chattel mortgage, finance lease, operating lease, and hire purchase. Each option has different benefits relating to ownership, flexibility and tax treatment.

What are the benefits of obtaining finance for equipment?
Benefits include preserving cash flow, gaining access to the latest equipment, potential tax advantages, flexible repayment terms and the option to own or upgrade equipment at the end of the term.

How long can you finance equipment?
Terms for equipment loans and leases generally range from 1 to 7 years, depending on the asset’s type and useful life, the lender’s policies, and your business’s financial profile.

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At Sapphire Finance Brokerage, we specialise in arranging equipment finance for business tailored to your goals. Our expert brokers compare multiple lenders to find the most competitive equipment loans and guide you through the process from start to finish.

Contact us today if you're looking to secure business finance and we’ll take the hard work out of securing your next loan.