What is Machinery Finance?
Machinery finance is the act of borrowing money from a lender, in order to purchase an otherwise unaffordable piece of equipment. This equipment could be a vehicle (for example a tractor or a forklift), or it could be a set of accessories for an office. Unlike leasing, which is the technical term used in Australia for renting machinery until it’s either paid off or no longer required, a machinery loan will allow the borrower to receive money from their lender and then pay back what is owed over time while having ownership of the machinery. A number of banks and other financial institutions offer this lending possibility, though there is a range of equipment finance options borrowers can choose from. Choosing the right approach for your business will depend on a range of factors including your financial situation, taxation needs and budget. We would recommend discussing this with your accountant or financial adviser before deciding on which approach you take.
How Does Machinery Financing Work?
Machinery finance gives you access to whatever important equipment you need without having to pay for it upfront. Instead, you can receive the funds you need from a bank or lender and then work to pay off your purchase over a set repayment period. In other words, you get all the benefits of ownership before you actually own the equipment. However, there are several different financing options you can choose to go with, including chattel mortgage, a hire purchase, finance lease or operating lease.
How Does Machinery Leasing Differ?
For those that would prefer not to take out a loan, there will always be the option to sign up to a leasing agreement instead. Machinery leasing companies work in much the same way as those offering machinery financing options – but instead of requiring the need for a vehicle or piece of equipment to be paid off over time, a lease will allow the borrower to use their asset for as long as they need; acting as a rental agreement in many respects.
Which Method Is Better?
For those hoping to own their purchased asset when they have finished repaying what they owe, then a financing arrangement might be the better option to pursue. In a case where a lease may be sufficient – or even long term usage of an asset like a car for example, then an applicant might be better off applying for leasing instead. Ultimately, the decision to purchase or finance equipment will depend on discussions you have with your accountant.
As machinery financing works by allowing an individual to take out a loan and pay off what they owe over time; they can be a great way to purchase assets for a business, without any need to cater to an early expense using their own cash.