Key Takeaways
- Equipment financing helps businesses acquire essential tools without depleting cash reserves, offering options like chattel mortgages, leases, and rent-to-own agreements.
- Full doc equipment finance requires comprehensive documentation, including financials, ATO ICA and ITA portals and an understanding of the director’s asset and liability position.
- No doc equipment finance is designed for SMEs and sole traders, offering up to $150,000 with no income assessment if the ABN is over 24 months old.
- Low doc equipment finance requires minimal documentation, with loans up to $500,000 assessed via bank statements and credit scores.
- Choosing the right financing option depends on your business’s needs, including cash flow, speed of approval required, ownership goals, and financial documentation availability.
- Improve your chances of approval by maintaining a strong credit score, understanding your cash flow, and preparing the necessary documentation.
- Consulting lending experts like Dark Horse Financial can help you navigate equipment financing and find the best solution for your business.
When it comes to growing your business, having the right equipment is necessary. Equipment financing allows businesses to acquire the tools and machinery they need without depleting their cash reserves. But how do you qualify for equipment finance? Let’s explore the equipment financing requirements for full doc, low doc, and no doc options, helping you understand which option is best suited for your business.
Understanding Equipment Financing
Business equipment financing in Australia is a type of business loan specifically designed to help businesses purchase or lease equipment. This could include anything from machinery and vehicles to computers and POS systems. The equipment itself often serves as security for the loan, which can make it easier to qualify compared to unsecured types of business loans.
Types of Equipment Financing
There are several types of business equipment finance in Australia, including:
Chattel Mortgage
A Chattel Mortgage is one of the most popular forms of equipment financing in Australia, particularly for businesses looking to own the equipment outright. Under this arrangement, the equipment itself serves as security for the loan.
Operating Lease
An Operating Lease is a rental agreement where you use the equipment for a fixed period without taking ownership. At the end of the lease, you can return the equipment, upgrade to newer models, or continue leasing. This option is ideal for businesses that need equipment for a specific project or want to avoid the risks associated with ownership, such as obsolescence.
Finance Lease
A Finance Lease is similar to an operating lease but is more suited to businesses that want to use the equipment for most of its useful life. While you don’t own the equipment during the lease term, you assume many of the risks and benefits of ownership. At the end of the lease, you may have the option to purchase the equipment at its residual value.
Hire Purchase
A Hire Purchase agreement allows you to “hire” the equipment for a fixed period while making regular payments. At the end of the term, you have the option to purchase the equipment outright for a nominal fee.
Rent to Own
Rent to Own is a flexible financing option that combines the benefits of leasing with the eventual ownership of the equipment. Under this arrangement, you rent the equipment for a set period, with a portion of each payment going toward the eventual purchase of the equipment. At the end of the rental term, you have the option to purchase the equipment for a predetermined price or continue renting.
Full Doc Equipment Finance
Full doc (full documentation) equipment finance requires the borrower to provide comprehensive financial documentation to demonstrate their ability to repay the loan. Typically full doc equipment finance applications are required for loans over $500,000 or when applying for pre-approved equipment finance limits of this amount or more.
Full doc equipment finance is ideal for businesses with a strong financial history and those that can provide the necessary documentation. It’s particularly well-suited for established businesses or those seeking significant loan amounts.
Equipment Financing Requirements for Full Doc Loans
To qualify for full doc equipment finance, you’ll generally need to provide the following:
- Financial Statements: This includes profit and loss statements, balance sheets, and cash flow statements. These documents give lenders a clear picture of your business’s financial health.
- ABN and GST Registration: Your business must have an active Australian Business Number (ABN) and be registered for Goods and Services Tax.
- Tax Portals & ATO Payment Plans: A detailed summary of your ICA (GST) and ITA (Income Tax) portals covering at least a 12 month period up to today’s date.
- Bank Statements: Some lenders will ask for at least six months’ worth of business bank statements to assess your cash flow and liquidity. More commonly this analysis will be done via a bank link rather than manual statements.
- Financials: Lenders may ask for 6 months up to 2 years’ worth of business financials, which will include profit and loss statements and balance sheets.
- Asset Register: A register of all assets including a description that lists the assets’ year, make and model, kms / hours, condition and if there’s any finance against the asset.
- Commitment Schedule: Is a register of any loans and commitments the business has. Typically this will list the lender, the time the loan was taken out and how much at that time, the current balance, finish date and repayments
- Asset & Liability Statement: Most lenders will seek to understand a director’s personal position; directors who own property will typically be offered higher levels of credit.
Low Doc Equipment Finance
Low doc (low documentation) equipment finance is the most flexible form of equipment financing. As the name suggests, it requires minimal documentation, making it an attractive option for businesses that may not have the financial records required for full or low-doc loans or are seeking a fast solution. For low doc finance, businesses can secure up to $500,000 in lending, with the assessment primarily based on bank statements and credit scores.
Equipment Financing Requirements for Low Doc Loans
The equipment financing requirements for low-doc loans are:
- ABN and GST Registration: Your business must have an active Australian Business Number and a Goods and Services Tax registration.
- Read-only View of Bank Statements: Lenders will assess your business’s cash flow based on a read-only view of your bank statements.
- Credit Score: Your credit score will play a significant role in the approval process. A credit score above 550 is usually required.
No Doc Equipment Finance
No doc (no documentation) equipment finance is designed for businesses that may not have the extensive financial documentation required for full doc loans. This option is particularly popular among SMEs, sole traders, and businesses seeking assets valued at less than $150,000.
Equipment Financing Requirements for No Doc Loans
The equipment financing requirements for no-doc loans are less strict than those for full-doc loans. Here’s what you’ll typically need:
- ABN and GST Registration: Your business must have an active Australian Business Number (ABN) that has been registered for at least 24 months. You must also be registered for Goods and Services Tax
- Credit Score: A reasonable credit score of above 550 is still important.
- No Income Assessment: One of the key advantages of low doc equipment finance is that there’s no income assessment required for loans up to $150,000, provided your ABN is over 24 months old.
Choosing the Right Option for Your Business
When it comes to business equipment finance in Australia, the right option for your business will depend on your specific circumstances. Here’s a quick guide to help you decide:
- Full Doc Equipment Finance: Best for businesses seeking finance with a value over $500,000, who have demonstrated profitability and can provide the required documentation.
- Low Doc Equipment Finance: Offers up to $500,000 in lending based on bank statements and credit score.
- No Doc Equipment Finance: Ideal for SMEs, sole traders, and businesses with irregular income. Offers up to $150,000 in lending with no income assessment if your ABN is over 24 months old.
Tips for Qualifying for Equipment Financing
Regardless of which option you choose, there are several steps you can take to improve your chances of qualifying for equipment financing:
- Check Your Credit Score: Your credit score plays a significant role in the approval process. Make sure your credit score is in good shape before applying. Check your credit report for any discrepancies that can be lowering your score.
- Prepare Requirements: Having requirements ready can speed up the process and improve your chances of approval. For full-doc loans, prepare 6 months up to 2 years of financials, tax returns, and other documentation. For low-doc loans, ensure that the lender can get a read-only view of your business bank accounts. For no-doc loans have your invoice ready for your desired asset.
- Consult a Professional: If you’re unsure which option is best for your business, consider consulting experts like Dark Horse Financial. We can help you narrow down your choices depending on your situation so you can choose the best option. We can also help you secure the best rates and terms to ensure you get the best deal.
Final Thoughts
Qualifying for equipment financing doesn’t have to be a challenging process. By understanding the equipment financing requirements for full doc, low doc, and no doc options, you can choose the best financing solution for your business. Whether you’re a well-established company with comprehensive financial records or a new business with limited documentation, there’s an equipment financing option out there for you.
Get The Equipment You Need
At Dark Horse Financial, we specialise in helping Australian businesses secure the equipment financing they need to grow and thrive. Contact us today to learn more about our business equipment finance in Australia options and find the perfect solution for your business.
