commercial equipment

Toby Simmons Dec 30, 2020

When it comes to financing equipment for your business, there are four main options available. Deciding which one is most suited to your needs can be a little confusing, so we’ve put together the following article which should help you better understand each option and its potential benefits.

There are indeed some considerations to think about that will assist with the decision-making process, too:

  • Is it additional or replacement equipment?
  • Which brand/model do you want/need - and why?
  • Is the equipment considered new, used or refurbished?
  • Will you be using it during operations every day, intermittently, or perhaps seasonally?

There will also be taxation advantages that differ depending on the type of financing you go with, but it’s always a good idea to speak with your accountant to learn about that in more detail!

 

1. Asset lease

 

What is it?

With an asset lease, the financier purchases the equipment but your business is able to use it in its operations while paying the financier a monthly repayment for the length of the lease term. Once this term ends you have the option to either pay a residual amount which gives you total ownership of the equipment, refinance the residual to continue the lease or sell the equipment and start a new lease with new equipment.

 

What are the benefits?

There are several benefits to asset leasing, including:

  • Fixed interest rates and monthly repayments which help with budgeting
  • Flexible contract terms
  • Possible tax deductions for the lease repayments (consult with your accountant to confirm)

 

2. Commercial chattel mortgage

 

What is it?

Unlike asset leasing, through chattel mortgages the customer takes ownership of the vehicle (chattel) at the time of purchasing (using funds that have been advanced by the financier). The financier then takes out a mortgage over the vehicle as loan security through registered interest via the Personal Properties Securities Register (PPSR). Once the loan has been paid in full and the contract is completed, the financier removes the interest which means the customer then has a clear title over the vehicle.

 

What are the benefits?

The benefits of a commercial chattel mortgage are:

  • Fixed interest and monthly repayments (beneficial for budgeting purposes)
  • Flexible terms from 1 to up to 7 years
  • You can add a residual value which lowers the monthly repayment amount
  • As the vehicle is used for business purposes there are potential tax deductions available (check with your accountant about this and other possible claims)

 

3. Equipment rental

 

What is it?

Similar to asset leasing, in an equipment rental setting the financier purchases the equipment and you’re able to rent it from them by paying fixed monthly repayments over a fixed term. Once the contract has been completed, you can then choose to either give the equipment back, continue renting or buy it outright from the financier at fair market value.

 

What are the benefits?

The benefits of going with equipment rental are:

  • Fixed interest and monthly repayments (beneficial for budgeting purposes)
  • All costs are known in advance
  • It’s possible in some cases to add a residual value to lower your monthly rental amount
  • Contract terms can be quite flexible
  • The equipment isn’t seen as a business asset, nor is the debt seen as a liability
  • Your rental payments may be tax deductible (speak with your accountant about this and other tax advantages of equipment rental)
  • More cost-effective than paying upfront, especially with gear that has a short operational life

 

4. Cashflow funding

 

What is it?

Cashflow funding is where your future cashflow (i.e. invoices that are yet to be paid) can be used as security to borrow from financiers. Especially useful for businesses that have longer payment terms (3+ months), you’re able to use future revenue to help your business thrive right now.

 

What are the benefits?

  • Quick approval turnaround
  • Flexible terms
  • Provides an improved cashflow

 

Discuss equipment financing with us today

 

At Stratton Finance, we have over two decades of experience assisting Australian businesses of various sizes across a multitude of industries secure the best equipment financing deals that match perfectly with their needs. And you can rest assured that we’ll work tirelessly to find the perfect finance solution for your business, too. Check what your monthly repayments could be if you choose Stratton Finance by using our equipment finance quote tool - we’re confident you’ll be impressed with the results!

So give our friendly team a call today on 1300 787 288 to have a chat about your needs, or alternatively send us an online enquiry and we’ll be in touch shortly with a response.

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