Equipment finance; 7 important
things to ask
Do you need an equipment
loan or an equipment
lease?
5 things to consider with
leasing business equipment
5 Things to know about leasing equipment
Did you know that rather than forking out to purchase equipment outright for your new or existing business, you can potentially lease equipment? This means you effectively rent the equipment from the lender, saving you upfront costs and giving you the opportunity to upgrade or purchase equipment at the end of the lease. Here, we break down five important things to know about leasing equipment.
1. The terminology
Let’s start with the basics. The terminology.
Equipment finance helps you obtain the equipment you need, by paying
digestible instalments, rather than needing the full amount upfront.
An equipment lease is effectively a rental agreement with the lender over an
agreed period. You pay regular payments, monthly or weekly, as agreed.
An equipment loan, on the other hand, is when the lender gives you the
money to purchase equipment, and you pay back the loan plus interest at
regular intervals.
An operating lease is the most common lease agreement. This is also known as rental finance or off-balance sheet borrowing. The
finance agreement is usually over a period of one to five years, and must follow ATO guidelines. It effectively means you pay
to use the equipment for the duration of the lease.
Taking out a finance lease means you pay agreed residual payments to the finance company over the length of the lease period
until full payment is made, and then ownership is transferred. Your tax agent can help you determine whether an operating
lease or a finance lease is best for your company.
The lessor owns the equipment. The lessee is the person using the equipment
2. Who is responsible?
Say you have leased equipment for your business, and within the lease period, the equipment breaks down. What if the
equipment was damaged by one of your employees? Who is responsible for the cost of repair or replacement in each scenario?
The lessor and the lessee need to agree to terms in a lease contract. The contract specifies who is responsible in the case of
fault or disrepair. You will also need to ask about insurance. Is insurance included in the lease arrangement, or does this need
to be arranged separately?
Your Mortgage Choice Broker can help you understand the agreement, so you know your rights and responsibilities, should any
damage occur.
3. What happens after the lease?
A lease is effectively a temporary arrangement. At the end of the lease period, you will generally have a couple of options. One
is to renew your lease and potentially upgrade equipment. This can be a good solution for businesses that use equipment which
needs upgrading, like computers and software.
Another option you may have is to purchase the equipment at fair market value at the end of the agreement.
4. Do you need a deposit?
Unlike when you take out an equipment loan, you don’t need a deposit when you apply for an equipment lease
5. How do I find the right equipment lease?
Your tax agent can help you understand which kind of equipment lease your company needs. They can also help you identify tax
benefits. An equipment specialist at Mortgage Choice can help you find a competitive lease agreement, and complete the
paperwork.
Equipment finance; 7 important things to ask
There are many expenses associated with setting up a small business. One of the most significant costs, of course, is equipment.
Equipment finance, can help 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 seven important questions you need to ask, when considering equipment finance for
your company.
1. 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 money so you can purchase 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, say one to seven years, and after that you’ll need to update the equipment, leasing
might be a suitable arrangement for you.
If the equipment you require is likely to last for a long period, or holds its value over time, an equipment loan may suit you
better. You will own the equipment outright once the loan is paid out.
Talk to your Mortgage Choice broker or accountant about which pathway suits you and your business best.
2. Who is responsible for equipment during the finance period?
Find out who is responsible for 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.
3. 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 to pay 10-20 per cent deposit.
For both equipment lease and loans, the equipment itself is used as collateral.
4. What is the interest rate?
Find out what the interest rate is for an equipment loan and calculate this additional cost over the finance period. Your Finance
Partners broker will help you source the most competitive rate.
5. What are the establishment fees?
You will also need to know the finance establishment fees. These can be around PGK 2,500, so factor this in when you are
deciding on your approach.
6. What happens at the end of the finance period?
Before you sign an agreement, you need to understand what happens with your equipment at the end of the finance period. If
you are leasing equipment, you may have the option to buy it at a fair price, return the equipment and/or update the equipment
to a newer model.
7. How do I obtain equipment finance?
Although there’s a lot to know about equipment finance, securing a lease or loan finance is relatively straightforward with the help
of a Finance Partners broker with commercial expertise. Book a chat now to discuss your options.