Equipment loans allow applicants to borrow money to acquire assets. In most cases borrower provides security for the equipment loan by way of mortgage to the bank over the asset financed.
Lenders often use term chattel mortgage or bill of sale as a synonym for the equipment loans. However, there are other types of equipment loans which are discussed later.
In general, any equipment which generates income can be financed by this type of loan. Often there is no limit to amount borrowed for the goods. In many cases deposit is not required. The repayments are also very flexible. Finally, there are four options to finance equipment, each with different tax deduction schemes:
Hire Purchase is essentially a rental agreement. The borrower uses the equipment during repayments but the lender owns it. Once the loan is repaid, the borrower owns the equipment. This way the purchased product is generating money during repayments and becomes an asset at the completion of the loan agreement. For tax purposes, the borrower can claim yearly equipment depreciation and the paid interest on the loan.
This is a more traditional concept for equipment loans. It is basically a charge incurred over equipment to be financed. This applies to companies which operate on the cash accounting basis. They obtain a loan on goods and then claim tax credit from GST expenses. This way the tax deduction on the purchased equipment is immediate.
This loan finances the rent of the equipment for an agreed term. The goods are owned by the lender during and after the loan is completed. However, at the end of the lease the borrower is often allowed to make an offer to purchase the equipment, return it or even extend the lease. The lease rentals are tax deductable. Therefore, the borrower can claim tax deduction on the repayments as long as the equipment is used to generate income.
This is a new type of equipment loan which is applicable to company cars. In this case there is 3-way leasing agreement between the lender, the borrowing company and its employee. The assets (the company cars) become the responsibility of the borrower - the employer. However, once the employee leaves the company the responsibility for goods are transferred to the him/her. This is a popular system where companies do not have to deal with not needed assets. It provides savings in leasing costs, administration cost and the storage.
Surprisingly, the main banking institutions do not offer flexibility in types of equipment loans. However, banks are still strong players as for the flexibility in repayments.
Aussie Equipment Loans are probably the strongest players in the field. They offer flexibility in type of the loan (all 4 types are provided), flexibility in repayments and provide further options for post loan period. For large developments loans, Aussie Equipment is probably the institution of choice. The customer service is good and their website is sufficiently informative.
Equipment Loans and Equipment Finance is another strong Australian equipment lender. The company offers major types of equipment loans like: hire purchase, chattel mortgage and the lease.
If you are a more traditional business person then Commonwealth Bank is a good choice. It offers loans to hire purchase, finance lease and the chattel mortgage. The bank requires minimum amount of $10K to be borrowed. However, under current economic conditions many businesses will require more money anyway. Commonwealth Bank offers fixed interest rate and fixed repayments during the term of the loan. This is actually very good as many other lenders lack this feature.