Ever wondered what equipment financing is or how to use it?
Well, this is a business owner’s guide to equipment finance in Australia, making it easier for you to understand and how to use it.
What is equipment financing?
Equipment financing is a diligently clever tool. And it is a very common tool at that. It usually involves a lender that supplies company or business with finance that is secured by a piece of equipment.
What makes equipment financing good?
Equipment financing has many benefits to various companies, and it can benefit your own company:
- It increases the cash flow
- Improves working capital
- It can be used as security on default payment
Equipment financing also works well for the lender:
- The lender can supply a secured loan
- They mostly don’t have to wait if the business was to default in most cases
It is worth noting that equipment financing is of better use in the short term rather than the long term use since it can work out cheaper. Whereas long term usage can become more expensive.
Who uses equipment financing?
It is used by many companies because equipment financing is something that can be, and most often is used by any type of company. Any type of company that has a problem or struggle with source tradition funding can and will benefit well from this.
What does the equipment look like?
Equipment financing is as much a physical tool, just as much as it is a conceptual tool. It is commonly mistaken that equipment finance is a physical object that contains money or is some programmed device that protects your financial transfers from being hacked, stolen, viewed, relocated or even tracked. But this is not at all what equipment financing is. It is just an idea that has been made real. To explain better, it is like a loan.
The money itself is not necessarily physical, but you can still use it. Equipment financing is not different; however, it does come in some form. When using equipment financing a lender or loan company will provide you with a physical object, paraphernalia or anything of that sorts that each has a certain value to them. As an example, you will get a refrigerator worth $500.00. This means you do not have the physical money, but you have an object that represents that exact amount. Making your money both secured and hidden. You, of course, will have to sell the refrigerator to get the money or trade the refrigerator for whatever cause the money could have been used for if that is possible.
In conclusion, one can say the equipment finance can come in any form representing a certain amount of money or price that corresponds to the value of the loan you want.
The notable equipment includes:
- Plant machinery
Do keep in mind though that the equipment itself is not something you own, but it is rather a tool used to deliver the loan that you have made. It is just a type of rental.
How to use equipment financing?
Equipment financing is very easy to understand in use, but the physical use of it requires diligence. Many things have to be taken into account when using equipment financing. It has limits, expectations, regulations and control that has to be executed fairly diligently for the most optimal use.
Let’s start with security
Equipment financing can easily be used as a form of security to protect business loans. When a business is offering money that is secured against the equipment, the total amount that is financed cannot exceed the overall collateral value. This is due to the reason that, if the borrower defaults, for any reason, the equipment will not be able to cover the complete outstanding payment. Meaning that the money is lost. Usually when a business defaults the equipment will be taken away. Since the equipment itself is the financial loan itself.
A great number of credit providers will aid with the purchases of equipment from as little as about $1984,44. This amount will be issued in the aforementioned equipment. Even so, the equipment finance companies can still have a smaller sum in total loaning repayment than the traditional methods of finance. This turns out to be cheaper since payments can be spread over a set period. Buying equipment outright can turn out to be very expensive and drains the liquidity that the equipment finance provides.
Mainly this method of finance enables companies and businesses to direct their cash towards other areas of the business itself, such as evolving and developing new customs or working with current customers.
Overall equipment financing is very similar to normal financing, but with new benefits and disagreements. This guide to equipment finance in Australia should now allow you to make use of your financial equipment and have a more diligent approach towards loans made in the future.