There are many expenses associated with setting up a small business. One of the most significant costs, of course, is equipment. Equipment finance, though, helps your business get going, by leasing you the equipment, or offering you a loan so you can purchase the equipment outright.
To get you started, we put together a list of important questions you need to ask when considering equipment finance for your company.
- Do I need an equipment lease or an equipment loan?
Equipment loans and equipment leases are different.
An equipment loan is when the lender loans you the money so you can purchase the equipment outright. You pay back the loan over a period of time, plus interest. It’s a bit like buying your own home with a mortgage.
Equipment leasing is when the lender purchases the equipment on your behalf, and you effectively rent the equipment from the lender.
Deciding whether you need a loan or a lease can depend on how quickly the equipment becomes obsolete.
If you need equipment for a short period of time, say one to seven years, and know that after that you’ll need to update the equipment, leasing might be a suitable arrangement for you.
If the equipment you need is likely to last for a long period of time or holds its value over time, an equipment loan may suit you well. You will essentially own the equipment outright, once the loan is paid out.
Talk to your financial adviser or accountant about which pathway suits you and your business best.
- Who is responsible for equipment during the finance period?
Find out who is responsible for the maintenance, repair, and replacement of the equipment during the finance period. It is important to understand this before you sign an agreement, as you don’t want to get caught out with unexpected charges if damage or faults occur.
- Is there a downpayment?
One of the advantages of taking out a lease, rather than a loan, is that you may not need a downpayment. When you take out a loan on equipment, however, you may need a 10-20 percent deposit.
For an equipment lease and an equipment loan, the equipment itself is used as collateral.
- What is the interest rate?
Find out what the interest rate is, and calculate this additional cost over the finance period. Your Smartline Adviser will help you source the most competitive rate.
- What are the establishment fees?
You will also need to know what the finance establishment fees are. These can be around $450, so factor this in when you are deciding on your approach.
- What happens at the end of the finance period?
You need to understand what happens with your equipment at the end of the finance period before you sign an agreement. If you are leasing equipment, you may have the option to buy at a fair price, return the equipment and/or update equipment to a newer model.
- How do I obtain equipment finance?
Although there are lots to know about equipment finance, securing finance is relatively straightforward with the help of a Smartline Adviser like myself with commercial expertise. Book a chat now to discuss your options!