Equipment finance: your questions answered

Often no deposit is required, particularly for established businesses buying standard assets from a dealer. A deposit is more likely where the business is new, the asset is older or specialised, the credit profile is weaker, or the amount is large relative to turnover. Deposits typically range from around 10% to 30% in those cases. Putting money in reduces the amount financed and can improve the terms offered, but it is not always necessary.

Yes, that is a sale and leaseback. You sell an unencumbered asset to a financier and lease or finance it back, receiving the sale proceeds as working capital while keeping the asset in use. Lenders will want proof you own it outright, a valuation, and evidence the funds are for a legitimate business purpose. It is a useful option when capital is tied up in plant, but it converts an owned asset into a monthly commitment, so the cash flow effect needs checking first.

Terms usually run from 12 to 84 months. The ceiling is generally set by the expected working life of the asset: heavy earthmoving and trucks often stretch to five or seven years, while IT hardware and point-of-sale systems are commonly kept to two or three. Lenders also look at the age of the asset at the end of the term, so a ten-year-old machine will attract a shorter term than a new one. Longer terms lower repayments and raise total interest.

Yes. A master facility agreement lets a lender approve an overall limit, then draw down individual assets against it using a commitment schedule for each one. Each drawdown has its own term and repayment, but you avoid re-applying every time you buy. It suits businesses buying regularly through the year. Limits are usually reviewed annually and the lender can decline a particular asset even where the limit is available.

With a chattel mortgage your business owns the equipment from purchase and the lender holds security over it. With a finance lease the lender owns the equipment and you pay to use it for the term. The choice affects GST, tax deductions and what happens at the end of the term.

Yes. Many lenders on our panel finance used equipment and private sales, subject to the asset’s age and condition and an inspection or valuation where required. Older assets may attract shorter terms or higher rates.

A balloon or residual is a lump sum due at the end of an equipment loan or lease. It lowers regular repayments but must be paid, refinanced or covered by selling the asset when the term ends.