Machinery Finance Solutions To Save Your Cash Flow

Ever heard the old saying 'it takes money to make money? That's definitely the case when it comes to running a business. As a business owner, you have to spend money to make money. But what do you do when you don't have the cash on hand to finance that machinery purchase? That's where machinery finance comes in useful.

Machinery finance allows you to purchase large items such as a business vehicle, you need to run your business efficiently - without putting a strain on your cash flow. Manageable repayment terms make it a cost-effective way to budget for your new equipment, leaving you with cash to cover inventory and other operating expenses including marketing.

Which industries can benefit from machinery finance?

• farming industry
• manufacturing
• construction
• mining
• transport business
• small and large business

What types of machinery finance are available?

There are many different ways to finance your machinery purchases. Here's a quick rundown of the three main commercial finance options:

1. A secured loan (commonly known as a chattel mortgage):

Your business may consider a chattel mortgage to finance the purchase of new or used machinery. The lender uses the equipment as security for the amount you borrow. You will pay an agreed monthly repayment for a fixed term ranging from one year up to seven years.

Secured Loans have some flexibility when it comes to repayments. You can keep them lower by opting to pay an agreed residual or balloon payment at the end of the loan term. This can be a great way to reduce your monthly spending. However, you should consider the implications to your cash flow when the term of the equipment finance ends.

Even if you opt to make a balloon payment, you still have options:

• Sell the machinery to cover the balloon payment.
• Trade the equipment in, pay out the balance owing and enter into a new arrangement on an upgraded item
• Refinance the equipment loan to extend the repayment term and spread out the balloon payment.
• Cover the balloon payment from the business's capital.

2. Commercial Hire purchase:

This finance option allows you to spread the cost of equipment over an agreed period, with fixed monthly repayments. You can generally negotiate a term from 12 to 60 months. Commercial hire purchases differ from a secured loan as you don't own the machinery until the loan is paid in full. You should consider this carefully as there may be limitations on how you can use the equipment.

3. Leasing:

If your business is new or you need to upgrade your equipment regularly, leasing may be a great option to keep your cash flow healthy. Your business effectively 'rents' equipment from the lender for an agreed term and make regular repayments. At the end of the lease, your business may have the option to buy the equipment outright, return it, or renew the lease. However, it's important to remember that ownership of the equipment doesn't transfer to your business with a lease. So you will need to factor in any implications this has on its use.

What are the benefits of machinery finance?

There are many advantages to purchasing used equipment loans rather than buying outright. Some of the key advantages include:

1. Save your cash flow: As we mentioned earlier, one of the finance solutions of machinery financing is that it helps you preserve your cash flow. This is especially important for small businesses that may not have the luxury of spare cash on hand to make big purchases. 

2. Get the equipment you need: Machinery Finance allows you to get the equipment you need to run your business efficiently. It means you can have the most up-to-date and fit-for-purpose equipment rather than making do with second-hand items.

3. Manageable repayment terms: Most finance options come with fixed monthly repayments which makes budgeting easy. You can also choose a repayment term that suits your cash flow.

4. Tax benefits: Depending on the option you choose, there may be some tax benefits available. For example, you may be able to claim a deduction for the interest portion of your repayments.

5. Flexibility: Depending on the option you choose; you may have some flexibility when it comes to repayment terms and even ownership of the equipment. This can be a great way to manage your cash flow and keep your business running smoothly.

What should I consider when it comes to my cash flow and machinery finance?

If you're thinking about borrowing to finance your machinery, there are a few things to keep in mind:

1. Consider the terms of the agreement carefully. Some will have shorter terms with a lower interest rate but you'll have to make higher monthly payments. However, if you can afford the payments, a shorter term can save you money in the long run by reducing the amount of interest you pay.
   
2. If you default on any of the above finance options, the lender will have the right to repossess the goods. This could seriously disrupt your business and its operations. So make sure that repayments can be comfortably managed before signing any agreements.
   
3. Make sure you have a good understanding of all the fees and charges before applying for finance. Some lenders will charge origination fees or other closing costs, so it's important to be aware of these before you agree to the equipment finance. 
   
4. If you are considering equipment finance with a residual or balloon payment, make sure you have a plan in place to pay off the balance at the end of the term. This can be done by refinancing the balance owing, selling the machinery, or using your business's cash flow.

Which machinery finance option is right for my cash flow?

The best financing option for your business's cash flow will depend on your individual needs. This includes the type of equipment you need, the amount you need to finance, and your own financial circumstances. You will also need to consider the lending criteria applicable to the equipment finance you apply for.

Machinery finance products can be complex and each business's circumstances are different. It's important to speak to specialists who understand your industry. Firstly, speak with your accountant, who can guide you on the best tax solution for your needs. Secondly, speak with a finance broker who specialises in business finance.

Speak with the expert team at Finance Brokers Victoria!

At Finance Brokers Victoria, we understand that every business is different. We are industry leaders and will take the time to get to know your financial situation. We will guide you through the approval process and will find you the right solution for your business. Call today and find out how we can help you with machinery and vehicle finance without blowing your cash flow budget!