Equipment Finance
Financing mining equipment acquisition
The mining industry depends heavily on equipment to get anything done, and like all businesses, you need the best equipment to stay ahead. However, the equipment cost has always been a problem as it is a capital intensive exercise to get the equipment you need. It is no wonder that leasing equipment is quite common in this sector. If you need mining equipment and do not have the capital to acquire the equipment, you can easily use equipment finance. This is an aspect of business finance that focuses on getting equipment that a business needs to operate effectively.
Equipment finance can come in many forms, all of which have their benefits and otherwise. Thus, if you plan to get equipment, but it looks like you cannot afford it, you should consider going for equipment finance. Equipment finance is not only beneficial when it comes to getting the equipment you need even when you don’t have the money for it at that time, but it can also be beneficial to you if you get your equipment with equipment finance and instead use any money set aside for buying the equipment to better use. This is best for businesses. Equipment finance is not only restricted to owning equipment; it could also be to enjoy possession and use of the equipment without any actual ownership. It can come in several forms such as;
Loan
This is a regular loan that is taken to get equipment. It is the ideal thing to do if you don’t have enough money at hand for the equipment but can comfortably repay a loan. A loan can be 100% when it covers the full cost of buying the equipment, and it could also be a partial loan, covering only a part of the purchase cost while you pay the rest from your pocket. With this kind of equipment finance, you have to repay the loan plus interest within a specific period, and payment is usually periodic, with monthly instalments being the most popular. A loan can be secured or unsecured. A loan is secured when it has security attached as a condition to getting the loan but unsecured when you simply have to apply and meet basic requirements from the lender for getting the loan. With a secured loan, your property is always at stake and should you default on the loan terms; the lender can take the property used as collateral for the loan and sell it to recoup their losses. In a way, this is tricky, but it also promises lower interest, which makes it even as long as you meet all the terms of the loan. You have nothing to worry about.
Lease
Another form of equipment finance that you can consider giving a try is an equipment lease. It is simply renting the equipment to use for the time you need it. Leases are generally short-term equipment finance in nature, and this is when they are most effective. You don’t have any stake in leased equipment beyond the possession and use for the period. If you need equipment for short term use, this is definitely something you should consider. But if you will be using the equipment on a more permanent basis, a lease will cost you more in the long run, so it is not advisable in that condition.
Hire Purchase
You can also use hire purchase to get the equipment you want. When you get this kind of option from a finance company, what happens is that you will identify the equipment you want to buy, and the finance company will buy the equipment. Then, they will offer the same equipment to you on a lease with an obligation that you have to buy the equipment at the end of the agreement. In most cases, the hire purchase agreement will include the cost of the lease and the residual cost that you will pay for the equipment into the same deal to ensure that you are buying the equipment with every repayment. Once you pay your final repayment, the equipment becomes yours fully.
In some cases, you will only be paying for the lease, and when the deal comes to an end, you will have to pay a balloon payment which will transfer ownership of the equipment to you. The most important thing to note is that you are holding the equipment on a lease during the duration of the hire purchase agreement, and you don’t have ownership. It is only after the deal ends and you fulfil your obligation that the equipment ownership transfers to you.
What to consider when getting equipment finance
Interest Rate
In every loan, including equipment loans, the interest is arguably the most important thing. It is what the finance company charges you for giving you the loan. Thus, it is the first thing to check when getting an equipment loan. The interest will generally be calculated per annum on the loan balance, and you must consider several loans and compare the interest rate before you make a final decision. The interest rate could be fixed or variable. It is crucial to examine the interest rate you are getting before entering into any finance deal, as this will directly affect how you will pay the loan at the end of the day. While the interest rate is important, it is not the only thing you need to consider.
Duration
The duration varies between two to three years on a short term loan and five to seven years on a long term loan. Whichever you go for has its benefits, but a long term loan means you will be paying fewer repayments while you will end up paying more interest too. No matter the kind of finance you get, you should always opt for a duration that is quite comfortable for you to repay as quickly as possible. This is because of the interest rate, which will repay fixed and payable no matter how much you pay as repayments.
Repayments
Equipment finance usually has monthly repayments, but there are times it could be weekly or fortnightly. It all depends on your financial position. It is always better to fix a repayment that will allow you to pay as fast as possible without being uncomfortable. When getting equipment finance, you should pay attention to the flexibility of the lender. The lender must be flexible enough to allow you to set a repayment schedule that will work for you.
Fees and Charges
Loans also come with other charges, increasing how much you will end up paying. Such charges include ongoing fees, break fee, late payment fee, discharge fee, upfront or establishment fee, etc. The best equipment finance is the one with the least charges on it. You should avoid a finance agreement with many charges that may greatly increase the cost of the loan. You should avoid finance agreements with high punitive charges such as those requiring that you pay a high percentage for discharge fee if you want to pay off the equipment finance.
Balloon Payment
You can also opt to use balloon payment for the loan. This is a payment agreed upon in which you will pay a lump sum to the lender when the loan ends. Because of this, your periodic repayments will be much lower, but the total cost of interest will be higher. A balloon payment is unnecessary unless there is a serious need for you to want to reduce the cost of what you will pay so you can use the money for another purpose.
Finance Calculator
When considering finance terms and determining which is good for you or not, one of the tools that you can use is a finance calculator. A finance calculator is an online tool that you can input the terms of any finance agreement into to determine if it is a good deal for you or not. The finance calculator will use the terms inputted to determine the cost of the loan, and you can easily see if it is a good deal for you or not. The best way to use a finance calculator is when you have several options to consider and compare, making it possible for you to identify which deal is best in that situation. You can also use it before even going ahead to seek the finance so you can determine the kind of finance to look for.
Disclaimer: This information is only available as a general guide on the government policies. It is derived from the official Australian government sources. We do not bear any responsibility for the commentary and analysis of this public domain information nor any liability for how the facts are interpreted. It is recommended that you speak with an accountant or financial advisor to get precise information and advice on your situation.