Ho Finance: Equipment Finance That Can Help You Reach Your Business Goals

Commercial equipment Finance is quite a competitive space in Australia, with various financiers offering many Low-Doc finance options in the last 5 to 10 years.

Equipment finance refers to obtaining finance or leasing arrangements specifically for acquiring machinery. Utilizing equipment finance reduces the borrower’s capital expenditure, known as CAPEX (which refers to money a company uses to purchase or maintain fixed assets). This allows the business to free up cash flow, which would otherwise be tied into these assets.
Different equipment finance lenders have different appetites for financing certain assets. These include but are not limited to machinery, vehicles, computers, medical equipment, construction equipment, manufacturing tools and office furniture.

Unveiling The Mastery: Key Responsibilities Of Equipment Loan Advisors

The Best Financing Options for Your Business

There are several financing options for equipment acquisition, including.

Chattel Mortgage: The most common way to fund equipment in Australia. It’s a commercial finance product where a financier lends money to the customer to purchase equipment, and the customer makes regular repayments. The business assumes equipment ownership, but the financier has a mortgage until the loan is paid, including any balloon payment. GST applies to the purchase price of the equipment. Businesses that account for GST on a cash basis can claim the Input tax credit for the GST in the purchase price on their next Business activity statement (BAS).
Equipment Leasing: In a lease arrangement, the lender (lessor) purchases the equipment and then leases it to the business (lessee) for a specified period. The lessee pays regular lease payments and may have the option of purchasing the equipment at the end of the term.
Hire Purchase: The difference between this and a Chattel mortgage is that the equipment title gets transferred to the business once all the payments are made. Throughout the tenure of the loan, the ownership remains with the financier.
Equipment Rental: Instead of purchasing or leasing, businesses can opt for equipment rental agreements, which pay a periodic fee to use the equipment for a specific duration.

Low Doc Loans: What You Need to Know

Equipment Finance lenders tend to offer customers low-doc options with common criteria.

The borrowing entity must have operated and been GST registered for at least two years.
The sponsor (being the guarantor) or the director/ majority shareholder of the entity is a property owner. Some may even accept the spouse being the property- owner.
Clean credit file
Australia permanent resident or citizen

Many financiers do CAP out the exposure to the customer at a certain level when the assessment is done on the low doc. If the customer wants to increase their lending exposure to a particular financier, the financier will ask for a full doc assessment.

Protect Yourself from Equipment Finance Brokers' Mistakes

I, being the broker, was previously a senior credit manager (in my past life) for one of the bigger players in the commercial equipment finance space and have seen common mistakes made by equipment finance brokers in their submission/ assessment.

Servicing cannot be demonstrated in the historical financials with the new lender but needs to account for the fact that the machinery or equipment will generate an income. Often this will be backed or substantiated with a contract or work source letter. Brokers often neglect to articulate how much additional revenue the machinery will generate. Hence servicing fails if focusing purely on historical financials.
Commercial equipment finance brokers cannot articulate the amount of savings/ or expenses that the machinery generates. I.e. electricity cost, savings in the cost of labor, other input costs
For more complex submissions, a cost/benefit analysis shows the cost savings and the return the machinery will generate for the business.

Much of these overlooked factors mean that the application will get declined by the financier.

Full Documentation Loans: What You Need to Know

A full doc or full assessment means

The latest copies (Last two years’ worth) of financial statements and tax returns will be provided.
Two years-worth of individual tax returns along with notice of assessment
Commitment Schedule
Group Structure of the Customer
Comprehensive background notes of the customer, including the rationale for funding the equipment.

A full assessment will thus determine whether there is sufficient servicing demonstrated in the financials to service this financial commitment.

How Commercial Equipment Finance Can Boost Your Business

Equipment finance offers several benefits to businesses, including.

Preservation of Capital: Financing equipment allows businesses to preserve their working capital for other essential needs, such as inventory, payroll or expansion.
Flexibility: Equipment finance options provide flexibility regarding repayment structures, allowing businesses to align their payments with their cash flow and generate revenue.
Tax advantages: Businesses can claim the interest paid on the equipment loans or leasing payment as it is deductible (for business use).

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