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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 will generally finance any business equipment with a unique identification number. They generally categorise equipment into:
Primary equipment
Secondary equipment
Tertiary equipment
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).
Eligibility requirements for equipment finance will vary between lenders, but generally include:
Equipment finance | $10,000 |
---|---|
Monthly repayments with 7.50% p.a. interest rate | $200.38 |
Monthly repayments with 9.50% p.a. interest rate | $210.02 |
Monthly repayments with 11.50% p.a. interest rate | $219.93 |
Equipment finance | $20,000 |
Monthly repayments with 7.50% p.a. interest rate | $400.76 |
Monthly repayments with 9.50% p.a. interest rate | $420.04 |
Monthly repayments with 11.50% p.a. interest rate | $439.85 |
Equipment finance | $30,000 |
Monthly repayments with 7.50% p.a. interest rate | $601.14 |
Monthly repayments with 9.50% p.a. interest rate | $630.06 |
Monthly repayments with 11.50% p.a. interest rate | $659.78 |
Equipment finance | $40,000 |
Monthly repayments with 7.50% p.a. interest rate | $801.52 |
Monthly repayments with 9.50% p.a. interest rate | $840.07 |
Monthly repayments with 11.50% p.a. interest rate | $879.70 |
Equipment finance | $50,000 |
Monthly repayments with 7.50% p.a. interest rate | $1,001.90 |
Monthly repayments with 9.50% p.a. interest rate | $1,050.09 |
Monthly repayments with 11.50% p.a. interest rate | $1,099.63 |
Equipment finance | $60,000 |
Monthly repayments with 7.50% p.a. interest rate | $1,202.28 |
Monthly repayments with 9.50% p.a. interest rate | $1,260.11 |
Monthly repayments with 11.50% p.a. interest rate | $1,319.56 |
Equipment finance | $70,000 |
Monthly repayments with 7.50% p.a. interest rate | $1,402.66 |
Monthly repayments with 9.50% p.a. interest rate | $1,470.13 |
Monthly repayments with 11.50% p.a. interest rate | $1,539.48 |
Equipment finance | $80,000 |
Monthly repayments with 7.50% p.a. interest rate | $1,603.04 |
Monthly repayments with 9.50% p.a. interest rate | $1,680.15 |
Monthly repayments with 11.50% p.a. interest rate | $1,759.41 |
Equipment finance | $90,000 |
Monthly repayments with 7.50% p.a. interest rate | $1,803.42 |
Monthly repayments with 9.50% p.a. interest rate | $1,890.17 |
Monthly repayments with 11.50% p.a. interest rate | $1,979.33 |
Equipment finance | $100,000 |
Monthly repayments with 7.50% p.a. interest rate | $2,003.79 |
Monthly repayments with 9.50% p.a. interest rate | $2,100.19 |
Monthly repayments with 11.50% p.a. interest rate | $2,199.26 |
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 |
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$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 |
Here are some factors lenders generally consider when determining your equipment finance interest rate.
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.
Equipment loan amount | $10,000 - $20,000 |
---|---|
Primary equipment | 13.50% |
Secondary equipment | 14.00% |
Tertiary equipment | 16.50% |
Equipment loan amount | $20,001 - $50,000 |
Primary equipment | 11.00% |
Secondary equipment | 11.25% |
Tertiary equipment | 15.80% |
Equipment loan amount | $50,001 - $150,000 |
Primary equipment | 9.25% |
Secondary equipment | 9.50% |
Tertiary equipment | 14.50% |
Equipment loan amount | $150,001+ |
Primary equipment | 8.75% |
Secondary equipment | 9.00% |
Tertiary equipment | 13.50% |
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% |
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.
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.
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.
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.
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).
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.
There are two main types of equipment finance for business — equipment loans and equipment leases.
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:
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:
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:
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.
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:
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.
Type of equipment finance | Pros | Cons |
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Equipment loan |
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Finance lease |
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Operating lease |
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GET STARTEDGET STARTEDConsider 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.
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.
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.
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.
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.
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.
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).
Industry | Average finance amount requested |
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Building & construction | $84,608 |
IT services | $63,397 |
Cleaning services | $42,421 |
Agriculture | $82,562 |
Electrical & lighting | $55,113 |
No, you generally don’t have to pay a deposit when taking out equipment finance, as the finance is secured against the asset (meaning the lender will finance the full cost of the equipment).
However, certain lenders might require a 10% deposit for equipment over $75,000 if your business has been trading for less than two years, or if you don't own property and want to buy equipment worth more than $150,000.
Alternatively, you may choose to contribute a deposit towards the purchase of the equipment to reduce your loan-to-value ratio (LVR), and therefore your interest rate. The lower your LVR, the lower the risk to the lender.
Yes, you can use equipment finance to replace or upgrade existing business equipment (e.g. vehicles, technology equipment). In fact, you may be able to use the trade-in value for your current equipment towards your next purchase. Some lenders will ask if you’re considering a trade-in when you complete equipment finance quotes online.
Yes, you can still qualify for equipment finance even if you have impaired credit, although you’ll generally pay a higher interest rate to offset the lender’s risk. It’s important to remember that lenders usually consider your business revenue, ability to repay the loan, and your credit score. You could also try applying for a bad credit business loan via a specialist lender.
Yes, you may still qualify for secured equipment finance if you’re a sole trader or ABN holder. You may not qualify for an unsecured business loan. Keep in mind that you’ll still need to provide some financial documentation that shows you can service the loan in full.
Alternatively, you could consider a low doc business loan, which requires less documentation than a standard business loan application. This will likely come with a higher interest rate.
Yes, you can generally repay an equipment loan early if you make extra repayments, although early payment fees may apply. Early payout fees may be calculated on the remaining unpaid interest, according to Bendigo Bank.
Ending a finance lease contract before its term may be difficult and could incur hefty costs, including an ‘early payment loss’ fee payable to the lender, according to ANZ.
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