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What is equipment finance?
Equipment finance refers to business loans or commercial leases used to buy or gain use of new business equipment. It’s used to finance tangible assets, including heavy vehicles, machinery, electronics, etc.
Equipment loans are usually secured by the equipment being purchased, which means:
- Lenders can finance 100% of the equipment price (plus GST and stamp duty)
- Businesses don’t have to contribute upfront capital towards the finance.
According to Money.com.au's borrower data, the average amount requested for machinery or equipment finance is $181,434.
Business equipment finance features
- Borrow anywhere from $10,000 to $1,000,000+
- Fixed interest rates starting from 7.50% p.a.
- Loan terms from 1-7 years (for prime business borrowers)
- Weekly, fortnightly or monthly repayments
- Equipment loan and lease options available
- The finance can be set up with or without a balloon payment option
- Can be used for purchases from an equipment dealership or through a private sale
What can equipment finance be used to pay for?
Business equipment categories explained
Lenders will generally finance any business equipment with a unique identification number. They generally categorise equipment into:
Primary equipment
- Agricultural machinery & equipment (e.g. tractors, harvesters)
- Construction equipment
- Earth-moving machinery
- Yellow goods (e.g. excavators, diggers)
- Rock crushers
- Light trucks (under 3.5 tonnes)
- Heavy trucks (over 3.5 tonnes)
- Trailers, buses & coaches
Secondary equipment
- Medical, dental & laboratory equipment
- Mining equipment
- Trade tools
- Plant services (e.g. compressors and generators)
- Printing & packaging equipment
- Forestry machinery & equipment
- Engineering & toolmaking equipment
- Woodworking & metalworking equipment
- Mechanical workshop equipment
- Food manufacturing equipment
Tertiary equipment
- Fitness equipment
- POS systems
- IT assets
- Renewable energy
- Pallet racking
- Fit-outs
- Air conditioning units
- Cool rooms
- Catering and hospitality equipment
- Portable buildings
What are the interest rates on equipment finance?
Equipment finance interest rates are fixed and start from around 7.50-15% p.a. The actual rate you pay will depend on your credit profile, the equipment you’re financing, and whether you’re an asset backed borrower (i.e. a homeowner).
Based on analysis by Money.com.au, industry-specific and specialised equipment (e.g. fit-outs, solar equipment) tend to come with higher rates than ‘primary’ equipment typically necessary for carrying out business operations (e.g. machinery, vehicles).
Who’s eligible for equipment finance?
Eligibility requirements for equipment finance will vary between lenders, but generally include:
- Australian citizenship or permanent residency
- An active ABN or ACN
- At least six to 12 months of trading history
- Your business must be GST-registered
- You must be able to provide bank statements & other requested documents
- A good credit score — the minimum business credit score is 475, and for company directors, it’s about 500 (it could be less if you’re a homeowner)
- You must be purchasing or leasing equipment that will be used for business at least 51% of the time
Compare equipment finance rates & repayments
| Equipment finance | Monthly repayments with 7.50% p.a. interest rate | Monthly repayments with 9.50% p.a. interest rate | Monthly repayments with 11.50% p.a. interest rate |
|---|---|---|---|
$10,000 | $200.38 | $210.02 | $219.93 |
$20,000 | $400.76 | $420.04 | $439.85 |
$30,000 | $601.14 | $630.06 | $659.78 |
$40,000 | $801.52 | $840.07 | $879.70 |
$50,000 | $1,001.90 | $1,050.09 | $1,099.63 |
$60,000 | $1,202.28 | $1,260.11 | $1,319.56 |
$70,000 | $1,402.66 | $1,470.13 | $1,539.48 |
$80,000 | $1,603.04 | $1,680.15 | $1,759.41 |
$90,000 | $1,803.42 | $1,890.17 | $1,979.33 |
$100,000 | $2,003.79 | $2,100.19 | $2,199.26 |
Who qualifies for the best equipment finance rates?
Here are some factors lenders generally consider when determining your equipment finance interest rate.
1. The type of equipment you’re financing
Interest rates are generally lower if you’re financing ‘primary’ equipment with high resale demand, like forklifts, earth-moving equipment and trucks. ‘Tertiary’ equipment with limited resale demand (e.g. cool rooms, spray booths) tends to fetch higher rates. Lenders may charge a 2-6% loading on this type of equipment.
Example interest rates on different types of business equipment
| Equipment loan amount | Primary equipment | Secondary equipment | Tertiary equipment |
|---|---|---|---|
$10,000 - $20,000 | 13.50% | 14.00% | 16.50% |
$20,001 - $50,000 | 11.00% | 11.25% | 15.80% |
$50,001 - $150,000 | 9.25% | 9.50% | 14.50% |
$150,001+ | 8.75% | 9.00% | 13.50% |
2. Whether it’s new or used equipment
Equipment finance rates are generally lower if you buy new business equipment or showroom models. Secondhand or used equipment will be subject to higher rates.
According to Money.com.au's analysis, lenders usually offer financing for yellow goods, construction, and farming equipment that are up to 20 years old. For vehicles and general commercial equipment, the age limit is usually 12-15 years old.
3. Your business revenue & trading history
From a lender’s perspective, established businesses with a higher annual turnover and a long trading history are typically considered less risky, and will generally benefit from lower interest rates when financing equipment. Businesses with an annual turnover of less than $1 million will typically pay a higher interest rate than businesses with a revenue over $5 million, for example.
4. Your business assets & debts
Your business assets & debts Lenders will typically evaluate your business revenue and expenditure, plus your balance sheet. They will look at your current debts (and other financial obligations) relative to your business assets and income. Generally speaking, having fewer debts relative to your business income can qualify you for a better interest rate and also means you could borrow a higher amount.
5. Your personal & business credit profile
During the application process, lenders will check your business credit score and the credit rating of your company directors. They want to see a history of responsible credit management. Having a good credit score will qualify you for a lower rate and vice versa.
Based on our analysis of various business lending criteria, lenders generally look for a minimum director credit score of 500-600 and a minimum company credit score of 475-500.
6. Whether it’s a dealer, auction or private sale
Interest rates are generally lower if you buy equipment via a licensed dealership or showroom, as you typically get a statutory warranty (a warranty that covers defects on goods) with the purchase.
On the other hand, lenders tend to charge higher rates for equipment purchased through a private sale or at auction. Some lenders may apply a 0.50-1% rate loading on those purchases. Additionally, some lenders will only allow certain types of equipment to be purchased privately or at auction (namely primary equipment).
7. Whether you’re a homeowner
Business borrowers who own a home or residential property in Australia generally qualify for lower interest rates compared to renters. Homeowners are ‘asset-backed borrowers’ who are considered less risky from a lender’s perspective. That’s because they may be able to borrow against their home equity to settle their outstanding debt.
Compare equipment finance options
There are two main types of equipment finance for business — equipment loans and equipment leases.
Equipment loan
With an equipment loan or chattel mortgage, you borrow money from a lender to buy business equipment or machinery. The equipment is collateral for the loan, which you repay with interest over a fixed term (similar to a mortgage).
Your business owns the equipment from the start and is responsible for all upkeep costs. However, the lender can repossess it if you default on your repayments during the finance term. Once you've fully paid off the loan, you’ll own the equipment outright (i.e. there will be no security interest on it and it cannot be reclaimed).
If there’s a balloon payment at the end of the finance term, you’ll have a couple of options:
- Pay the residual balloon and choose whether to retain or sell the equipment
- Refinance the balloon amount into a new loan (with a new interest rate) and continue paying it off in regular instalments
- Trade in your equipment under a new finance agreement, and pay the outstanding balloon amount as part of the trade-in process.
Equipment lease
Financing equipment through a lease gives you use of the equipment for a set period of time in return for lease payments. But your business doesn’t own the equipment during the lease term. There are two types of equipment lease agreements:
1. Finance lease
Under a finance lease, the lender buys the equipment on your behalf and leases it to you in exchange for regular payments (and interest) over a fixed period. Maintenance and servicing costs may be included in the finance or your business may be responsible for upkeep costs.
At the end of the finance lease term, you’ll have the option to purchase the equipment from the lender by making a final residual balloon payment. Alternatively, you’ll have the option to:
- Pay the residual amount and return the equipment at the end of the lease term
- Refinance the residual amount into a new lease agreement
- Trade in your equipment for an upgrade under a new finance agreement. You could use the proceeds from the trade-in to pay the balloon payment.
A finance lease is a longer-term finance option commonly used for high-value equipment or equipment with a longer lifespan, like vehicles, heavy machinery and yellow goods.
2. Operating lease
Under an operating lease, your business can lease equipment in exchange for fixed regular repayments, including all upkeep costs. You can generally upgrade the equipment within the lease period, but there’s no ownership option at the end.
Typically, you’ll have two options at the end of an operating lease term:
- Return the equipment (it is then usually sub-let or sold to a third party)
- Renew the equipment lease under new terms.
An operating lease is a shorter-term finance commonly used for equipment that needs to be upgraded frequently, such as IT equipment, security hardware, point-of-sale (POS) systems, etc.
Equipment loan vs equipment lease compared
| Type of equipment finance | Pros | Cons |
|---|---|---|
Equipment loan |
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Finance lease |
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Operating lease |
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How to apply for equipment finance
1
Compare equipment finance rates & lenders
Consider comparing indicative rates, fees and features from different lenders. The best way to do that is via a finance broker, as they’ll be able do it on your behalf without impacting your credit. Keep in mind that your personalised rate will generally be different to the lender's advertised rate — it will be unique to your business credit profile. It may also be worth comparing customer reviews for different lenders to see how satisfied their customers are.
2
Prepare your documentation
Your lender will request some financial documents to verify your business revenue. Generally, they will ask for six to 12 months of business bank statements, BAS statements and/or tax returns. Remember that the higher your loan amount, the more information you'll need to provide to the lender. If you’re borrowing more than $150,000, some lenders may require that your financials be prepared by an accountant.
3
Submit your equipment finance application
Most lenders have an online application portal you can use. You’ll be asked some standard questions like how much you want to borrow, your preferred loan term and what type of equipment you’re purchasing (including age, make and model). Then, the lender will likely inquire about your business income, history and activities.
4
Speak to a lending specialist
If you meet the preliminary requirements, a lending specialist may call you to discuss your application. This is when they’ll likely discuss the terms and conditions of the product(s) they offer to ensure you get the right equipment finance for your business needs.
5
The lender will check your credit score
Your lender will conduct a credit check through one of the main credit bureaus in Australia (e.g. Equifax, Experian, illion). This will provide a summary of your credit history, including how you’ve handled previous debts, and whether you've had any late or missed payments, and defaults in the last few years. If the lender is satisfied with your credit report, you’ll progress to the final stage of the application process.
6
Get your equipment finance application approved
If you haven’t yet found the equipment you want to buy, the lender may grant you pre-approval. This means you’re approved ‘in principle’ to borrow a certain sum before you actually purchase the equipment. You’ll need to sign a contract to purchase and provide registration paperwork for the equipment before you can get unconditional approval.
Should you get equipment finance with a balloon payment?
You can typically include a balloon payment as part of your loan or lease, depending on the equipment you’re buying and your lender. A balloon payment is a residual lump sum you pay at the end of the finance term to clear the remaining debt on the equipment. It can range from 20-40% of your loan or lease amount, depending on how you structure your finance with the lender.
With a balloon payment, your monthly repayments will be lower, but you'll pay more interest overall. That’s because you'll effectively pay interest on the full balloon payment amount over the entire loan term (instead of paying down the full loan amount gradually).
Top 5 industries requesting equipment finance
| Industry | Average finance amount requested |
|---|---|
Building & construction | $84,608 |
IT services | $63,397 |
Cleaning services | $42,421 |
Electrical & lighting | $55,113 |
