7 Quick Facts you need to know about Equipment Finance in 2022

After 30 years of financing equipment across many industries we thought we would share a few facts to assist business owners in getting the best outcomes on their equipment purchases and finance in 2022. (Finlease have been Associate members of the CMPA since 2015)

1) Interest rates can vary by as much as 2% so it pays to shop around.

Unlike home loans, interest rates on equipment finance are open to competition between Banks and Finance Companies, so it pays to shop around or use a finance broker who will save you the time and do it for you. Your bank may not always be the cheapest !
For example, a 2% interest rate saving on a $300,000 loan over five years will save you over $270 per month in repayments (@ $16,000 over the life of the loan).

2) Spreading your equipment debt over a number of financiers instead of just your bank can pay big dividends.

Often your bank will have a mortgage over your business assets (known as a General Security Agreement or “GSA”) and will most likely take into account any existing equipment finance they have provided to your business already (including any undrawn Limits) when considering any additional working capital facilities or business loans you may require to fund your business growth.

We often see banks refusing to provide these increased facilities simply due to the level of exposure they already have on the equipment finance. Furthermore, if you want to change banks, the bank you are leaving will typically want to see you pay out ALL of their facilities (i.e.. including their equipment finance loans) before they will release their securities (i.e.. mortgages and GSA) which will be required by the incoming bank. Paying
out these equipment loans early incurs additional interest charges (which you would not have to do if your equipment finance were with other providers).

Spreading your equipment finance across a broad base of lenders not only creates competition between those lenders to ensure you get the right rates and the right terms, but you are also building a broad base of lenders who will typically continue to support your business with additional finance going forward as needed.

3) Finance under $1million can be completed without financials.

A large portion of finance under $1 million can be arranged these days without the need for you to provide financials and without any increase in the interest rate to do so. These are often referred to as Low Doc, Matrix or Replacement finance products.

For businesses that have not yet completed their final 2021 Financials this can be a tricky time of year to source finance on a full assessment basis as their bank and most of the major lenders will require these after January 1st each year making these low doc alternatives (at similar rates) more appealing.

4) Used equipment is as easy to finance as new equipment.

Used equipment (purchased at auction, through a dealer or private sale) is often a viable alternative to new equipment, especially in this current environment where supply of new equipment has significant delays in delivery. Equipment aged up to 30 years old at the end of the finance term may be considered.

5) Roll over your balloon/residual payments early no need to wait until they fall due.

Many clients mistakenly believe they have to wait until their balloons/residuals are due before they can pay them out or rollover the finance for a further term. In reality most funders will consider (using a low doc assessment) rolling over balloons within the last 6 months of the end of the term and some will consider as far out as 12 months. Given we are now quickly entering into a rising interest rate environment for equipment finance now may a good time to look at any finance balloon/residual payments you have falling due over the next 12 months and look at rolling over earlier.

6) You can take advantage of a 100% tax write off on new or used equipment purchases.

The next year and a bit are a rare window of opportunity for you to continue to obtain a 100% tax write off on any new or used equipment purchased for the business with a turnover less than $50 million. Pending this year’s Federal Budget the current requirement is that the equipment must be installed and ready for use prior to June 30, 2023.

Chattel Mortgage and CHP financing is ok to claim this deduction however it is NOT available if the equipment if financed via a Lease or Rent to Buy as ownership of the equipment is not with the business.

7) You have the ability to claim a 100% tax write off on
your existing assets as well.

Any company with a turnover of less than $10 million also has an ability to claim a full 100% tax write off for the remaining written down value on their existing equipment assets (provided they are using the simplified tax system).
Any resulting tax loss created for the business can be carried back to prior years as well (up to 2019) to obtain a possible tax refund on any tax paid during those periods. In the event you still have accumulated tax losses these can be carried forward to offset future years trading profits.

As always please speak to your accountant or tax professional
for formal advice on any of these points.

Miles Beamish – Finlease Mobile – 0410 774 506

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