The Distinct Types of Business Equipment Finance (And Where They’re Useful).

If you’re a business owner looking to keep that competitive edge, Business Equipment Finance can be the secret weapon to securing new equipment. It can also help by freeing up cash flow and upgrading your business.

You can borrow funds for construction equipment, cars, vans, trucks, hospitality equipment, machines and more.

Just like a home or commercial loan, there are different financing solutions when it comes to borrowing funds for your business equipment. For example, some let you own assets outright, while others allow you to upgrade equipment regularly. Therefore, there are solutions to help you grow your business your way. Here are some of the different options:

Equipment Loan:

An Equipment Loan, sometimes known as a Chattel Mortgage, is your standard business equipment finance solution. A business borrows funds from a lender to buy equipment. Then it pays off the loan over an agreed amount of time. The lender secures the loan with the borrowed equipment.

It can be a versatile and comprehensive finance solution for businesses.

Hire Purchase:

A Hire Purchase allows a business to secure expensive equipment, vehicles, assets, and machinery with more achievable repayment plans.

A lender buys the equipment on behalf of the business. The business pays off the equipment to the lender in instalments, plus interest. Once the Equipment is paid off, the business owns the equipment outright.

Effectively, the business rents the equipment from the lender until the equipment is paid off.

This can be an attractive solution for new businesses that haven’t yet established strong working capital, or heavy equipment businesses such as construction or freight. In some cases, lenders allow you to exit the agreement before the loan is fully paid off, provided the minimum repayment value is met. However, the lender then has control of the asset.

It’s worth noting that, unlike other loan structures, the business doesn’t own the equipment until all repayments are made, meaning that it could be repossessed more easily by a lender if repayments aren’t met.

Finance Lease:

A Finance Lease, or Novated Lease, is a good option for businesses that need flexibility. It’s similar to a Hire Purchase, with a lender buying equipment and allowing a borrower to rent it out for an extended period. However, at the end of the term, the business has the option to buy the equipment outright at its residual value. They may also lease a new asset instead.

This can be a useful solution for businesses that need to update equipment regularly, as it avoids being tied down to specific depreciating assets and allows you to access new equipment more regularly.

The key drawback with a finance lease is that you do not own the equipment you are financing. At the end of the loan, you still need to buy the equipment at its depreciated value. Alternatively, you may swap to new equipment.

Which Business Equipment Finance Solution is Best?

The right finance solution for your business depends on your industry, financial situation and goals. For guidance, speak with a financial adviser, an accountant, and a mortgage broker. We can help you explore your options and decide which solution is right for your business.

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