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Factors To Consider When Taking Equipment Finance

Richard wants to buy IT equipment worth $50,000 AUD. So, he decided that taking equipment finance with a balloon percentage of 40% and an annual interest of 6.50% would be his best option. The loan is payable within 36 months. Considering that it is an asset finance, wherein the lender merely finances the equipment and Richard totally owns the equipment, he may have to pay $1,022 AUD a month, and the total balloon amount is $20,000. All in all, Richard will have to pay $56,802 for $50,000 AUD equipment finance. This is just an example of common equipment finance calculation, and ALC Commercial has better rates than that!

If you want to obtain capital for the purpose of buying new equipment, finance can help.  It is a key acquisition strategy to secure the assets you need to achieve the operational and financial objectives of your business. With equipment financing you don’t have to wait until you are making enough sales to purchase equipment. Now, the question is, “How much money can I borrow to finance my equipment?” A standard rule for lenders is that the total cost of the loan includes the following factors:

  • Asset Type: There are various types of equipment such as non-mechanical, mechanical, and powered by electricity, gas or steam. If the equipment saves time and manual labor, like computer and IT tools, printing press, cash register and specialty commercial equipment, they can be financed. Lenders also consider equipment used to generate income such as medical equipment and necessary office and production equipment.
  • Asset Cost: How much is the original cost of the asset? It includes all costs associated with its purchase and costs of putting it to use, such as the purchase price, warranties, installation and commissions
  • Term: A loan term refers to how long it will last considering required minimum payments you have to pay each month and the terms and conditions of the loan you agreed to.

The term, of the loan affects the computation of your monthly payment and the total cost of interest. Thus, the longer term you have, the lesser you have to pay each month. That’s why many borrowers are tempted to take loans with longer terms.  However, a longer term also means higher interest charges; so you’ll end up paying more for whatever you are buying.

  • Balloon Interest: Some equipment finance companies do not charge balloon interest charges. But in case you get equipment finance with balloon charges, remember that it refers to increased coupon rate on long-term loans with a serial bond that matures at different intervals.
  • Interest rate per annum: The total interest rate within 12 months is the interest rate per annum. For loan rates charged on a monthly basis, you can multiply that rate by 12 months to get the annual interest rate. At this point, it is important to check if you are paying for a simple interest or a compound interest rate.

In simple interest, if you take out a loan for $10,000 and are charged 0.5 percent interest every month, and that loan is payable within a year, your annual interest rate is 6 percent. Simply multiply 0.5% by 12 months to get the 6%. On the other hand, when computing a compound interest per annum if you took a loan worth $10,000 at 0.5 percent per month, compute it as if you are re-investing that amount monthly, resulting to 6.2 percent APR.

Do you need help in getting the tools and equipment for your business? ALC Commercial offers equipment finance to keep your equipment working and up-to-date.  Purchase more equipment, upgrade your existing ones or have them repaired by applying for finance today, at very affordable rates!

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For more information on business loans, commercial finance, debt consolidation, bad credit business loans and low-doc business loans talk to our experienced and understanding loan specialists to see how our business loans can support your business goals.

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