Commercial equipment financing in Australia: a complete guide

What commercial equipment financing means

Commercial equipment financing is any funding arrangement used to acquire business assets rather than to cover general operating costs. It covers excavators and trucks, commercial kitchen fit-outs, medical and dental equipment, printing presses, forklifts, IT hardware and agricultural machinery.

The defining feature is that the asset itself provides the security. A lender who can identify, value and, if it comes to it, recover a specific piece of equipment carries less risk than one lending against nothing but trading history. That lower risk generally shows up as a lower rate and a longer term than an unsecured loan of the same size.

This is why equipment finance is often the first form of external funding a growing business can access on reasonable terms, and why it rarely requires a director to mortgage the family home.

The three main structures

Almost every equipment finance product in the Australian market is a variation on one of three structures. Which one suits you depends on whether you want to own the asset, how you want it treated in your accounts, and how long you expect to use it.

Chattel mortgage

You buy the equipment and own it outright from settlement. The lender registers an interest over it under the Personal Property Securities Register until the loan is repaid. This is the most common structure for businesses that intend to keep the asset, and it is generally the preferred option where GST and depreciation treatment matter.

Finance lease

The lender buys the asset and leases it to you for a fixed term. You have use of the equipment but not ownership, and at the end of the term you either pay a residual to take ownership, refinance the residual, or hand the asset back. Leases suit equipment that dates quickly.

Rental or operating lease

A pure usage arrangement. Payments are an operating expense, there is no residual obligation, and the asset never appears on your balance sheet. Common for IT fleets and equipment subject to fast technical change.

What lenders assess

An equipment finance application is assessed on two fronts at once: the business and the asset.

• Time in business and ABN or GST registration history.
• Turnover and the consistency of bank statement deposits.
• Director credit history, and whether there are recent defaults or arrears.
• Existing commitments, including other equipment facilities.
• The asset: make, model, age, hours or kilometres, and whether it has an established resale market.
• Whether the seller is a dealer or a private party. Private sales attract extra checks.

Newer assets bought from dealers are the easiest to fund. Older or highly specialised equipment, or a private sale, narrows the field of lenders willing to look and can affect both the term offered and the deposit required.

Costs beyond the repayment

The advertised rate is only part of the total cost. Ask any lender or broker for a written breakdown that includes:

• Establishment or documentation fees.
• Monthly or account-keeping fees.
• The residual or balloon amount, and how it was calculated.
• Early repayment or payout figures if you sell the asset before term.
• PPSR registration cost.

A facility with a low headline rate and a large residual can cost more over the full term than a higher-rate facility with none. Compare total cost of finance, not the rate alone.

What can and cannot be financed

Most lenders will fund any asset that is identifiable, has a serial or VIN number, and holds a resale value. In practice that covers the great majority of business equipment: prime movers, trailers and light commercial vehicles, excavators and skid steers, forklifts, CNC machinery, commercial ovens and refrigeration, dental chairs, imaging and diagnostic equipment, solar systems, printing and packaging lines, and agricultural plant.

The assets lenders are reluctant to fund follow a pattern. Anything consumable, anything that cannot be recovered once installed, and anything with no secondary market is difficult. Fit-out works, software licences, stock, and heavily customised equipment built for a single site usually need a different funding structure, often an unsecured loan or a line of credit.

Imported and privately sold assets

An asset bought privately rather than from a dealer changes the process. The lender needs to confirm the seller has clear title, that no existing security interest is registered against the equipment, and that the price reflects market value. Expect an inspection or a valuation, and allow more time for settlement.

Imports raise similar questions. If the equipment is being shipped, the lender will want to know when title passes, who insures it in transit, and whether a deposit to the overseas supplier needs funding before the asset arrives. Some lenders handle this well and others will not lend until the equipment is on site.

How an application runs, step by step

The sequence is much the same across lenders, and knowing it makes the timing predictable.

• You confirm the asset, the supplier and the purchase price, ideally with a written quote or invoice.
• You provide identification, ABN details, and bank statements or financials.
• The lender runs credit checks on the business and its directors and assesses serviceability.
• The lender assesses the asset itself, including age, condition and resale market.
• Approval is issued, usually with conditions attached.
• Documents are prepared and signed, and the lender verifies the supplier and the invoice.
• The lender pays the supplier directly and registers its interest on the PPSR.
• You take delivery and the first repayment falls due on the agreed cycle.

Two conditions catch people out. The lender pays the supplier, not you, so paying a deposit or the full price before approval can complicate the funding. And insurance is almost always a condition of settlement, with the lender named as an interested party on the policy. Arrange the cover early rather than on the day.

How BizLend approaches equipment finance

BizLend is an accredited finance broker with a panel of more than 70 lenders, and has arranged over $300 million in residential and business lending. We fund business facilities from $50,000 to $5 million.

Rather than sending an application to one bank and waiting, we match the asset and the business to the lenders on our panel most likely to approve it on sensible terms, and present the comparison to you. A quote is free and carries no obligation.