Equipment Finance

What is Equipment Finance?

Equipment can be purchased outright for cash or alternatively financed.  Equipment finance offers different options to purchase or acquire the right to use the equipment and generally uses the equipment as collateral.

The different types of equipment finance (also known as asset finance) differ mainly on how ownership transfers (if at all).  Sometimes the funder owns the equipment and you ‘rent’ or ‘lease’ it over a term.  At some stage you may have the ability to own it near the end of the term of the agreement; it all depends on the contractual terms.

Deciding between these options requires careful consideration of cash flow, as well as whether you actually want to own the asset, and importantly there are tax and VAT implications.

The Different Types of Equipment Finance

Instalment Sale

This is the usual loan amortisation structure where you have monthly payments made up of a principal amount and an interest rate amount.

After the agreed repayment term, you will own the piece of equipment.

Lease to Own

This is a slightly different structure that normally involves an option to buy and a residual or balloon payment at the end of the lease period.

There are advantages of a lease-to-own structure like tax incentives. These are listed in the table above.

Rental

An equipment rental agreement is normally a fixed-period where you need a piece of equipment for, and then give it back to the rental company. You may opt for a long-term rental.

The advantages here are that you don't have to worry about maintenance or any complex accounting for the asset.

Equipment Refinance

Equipment refinance allows you to use the assets you own to pay for your business operations.

Equipment refinance is a quick and easy way to get access to cash when you have got paid-for assets.

The types of equipment you may be able to refinance include:

• Aircraft and aviation equipment,
• Yellow metal and construction equipment
• Mining equipment,
• Medical equipment,
• Agricultural equipment,
• Industrial and process equipment,
  
• And more..

Cost of Equipment Finance

Equipment finance loan interest rates can range from 8% p.a upwards.

Interest is either charged on a fixed-percentage or prime-linked basis.

This is entirely dependant on the type of equipment finance option that you opt-in for.

The pricing models for lease, rental and refinance agreements are all different.

For example, if you refinance an old piece of equipment that does not have a lot of residual value, you may pay more for the loan compared with if you used a newer more valuable piece of equipment.