Business finance
Equipment finance
Equipment finance is used to buy a specific piece of plant, machinery, tooling or technology without paying for it out of working capital. The equipment itself usually acts as the security, which is the main reason it is often available to businesses that would find an unsecured facility harder to arrange.
Because the lender can identify the asset, the conversation tends to be about the equipment and what it will earn, rather than only about the balance sheet behind it.
What it is
A lender pays for the equipment and you repay over an agreed term. The structure has several common forms, and which one suits depends on how you want the asset treated for tax and accounting, and on whether you want to own it outright at the end.
A specialist will usually want your accountant in the conversation, because the structure affects depreciation and deductions and that is properly their call, not ours and not the lender's.
- Chattel mortgage: you own the asset from the start and the lender takes security over it
- Finance lease: the lender owns the asset and you lease it for the term
- Hire purchase: you hire the asset and take ownership once the final payment is made
- Rental or operating lease: you use the asset and hand it back at the end
How it usually works
You identify the equipment and get a quote or invoice from the supplier. The specialist takes your situation to lenders who write that kind of asset, and comes back with the options that fit. If you proceed, the lender settles directly with the supplier in most cases.
New and used equipment are both commonly financed, though the age and type of the asset affect which lenders will look at it and on what terms. Specialised or single-purpose equipment tends to have a smaller pool of lenders than something with a broad resale market.
What lenders look at
Every lender assesses on its own criteria, and the weight given to each of these varies a great deal between them. That variation is the whole reason comparing is worth doing.
- The equipment itself: what it is, its age, and how readily it could be resold
- How long the business has traded and under which ABN
- Business turnover and how consistently it arrives
- Whether the directors own property, which can widen the options
- Credit history, including defaults and how recent they are
- Whether the equipment is replacing something or adding capacity
When it tends to suit
- Replacing a machine that has become the bottleneck
- Taking on work that needs capacity you do not currently have
- Buying at auction or from a private seller rather than a dealer
- Spreading the cost of a large asset across the years it earns
- Keeping working capital free for wages and materials
Common questions
Can I finance used equipment?
Often, yes. Age and type matter to lenders, and older or highly specialised assets suit a narrower set of them, so it is worth having a specialist check before you commit to a purchase.
Do I need to own property?
Not necessarily. The equipment usually acts as the security, which is what makes this kind of finance available to businesses that do not own property. Owning property can still widen the options available to you.
Can I finance equipment I already bought?
Sometimes, through what lenders generally call a sale and leaseback, if the purchase was recent. Whether it is possible depends on the lender and the asset, so ask the specialist early.
Related finance types
See which lenders fit your business
A specialist compares lenders that work with equipment finance and explains the options in plain English. No cost, no obligation.
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