Equipment loan finance

Equipment loan is a commercial finance product that enables a financier to lend money to a business to purchase energy efficiency equipment. It is also known as a chattel mortgage.

A business repays the loan via regular installments and own the equipment at the time of purchase, while the financier takes a mortgage over the equipment. Once the final installment has been paid to the financier, the equipment’s asset title is transferred to the business. 

Equipment loan lease finance may be a good fit if your business:

  • requires longer term financing with low monthly payments
    requires less upfront cost
  • wants a faster loan as up front capital or security isn’t required
  • wants to claim the depreciate of the asset
  • needs to upgrade to energy efficiency equipment.

How it works

  1. The customer enters an equipment loan agreement with the financier
  2. The customer receives money to purchase equipment
  3. The customer is the owner of the equipment
  4. They must make regular loan repayments
  5. The financier holds a mortgage over the equipment until the last payment is made and the title is then transferred to the customer.
  6. As the business owns the asset, the business may be able to claim depreciation of the asset. As the business pays interest on the debt, the interest may be deductible at the company tax rate. Seek specific tax and accounting advice for your situation.

A good place is to contact your bank directly and ask about their energy efficiency equipment loan options. 

Loans amounts are between $7500 and $5 million. Contact your bank to understand their amounts. Terms range between one and seven years depending on the type of loan, bank and amount.

The interest on the finance and depreciation of the asset may be tax deductible. There can also be monthly fees. Please seek advice from an accountant for more information.

Advantages

  • Most major banks and financiers offer equipment loan finance. Currently some financiers provide concessional finance for energy efficiency equipment upgrades. For more information visit the Clean Energy Finance Corp website
  • No upfront capital or security. Equipment loan loans may enable a business to undertake energy efficiency upgrades without having to find up-front capital or security
  • Realising savings immediately. Businesses that use finance for their energy efficiency projects can realise immediate cash flow benefits. Energy efficiency projects can result in higher savings than loan costs.

Disadvantages

  • Project risk. As the business is considered the owner of the asset, the business bears the risk associated with owning the asset. To secure the loan, the financier may seek security of existing business assets
  • Size and length limitations. Leases have a minimum project cost as well as a maximum length of around seven years
  • No specialised benefits. Unlike other options, they don’t guarantee things like performance or maintenance of equipment
  • Creditworthiness. Your businesses creditworthiness may have an impact on finance availability and rates which are offered. 

More information

Businesses can also receive a discount on energy efficient products that are installed by accredited Victorian Energy Upgrade providers. For more information visit the Victorian Energy Saver's energy advice for business webpage

Want to know more? Get in touch with:

Vivek Kotak

Sustainable Finance Lead

+61 3 8626 8781

vivek.kotak@sustainability.vic.gov.au

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Correct as at January 2018.

Sustainability Victoria
Level 28, Urban Workshop,
50 Lonsdale Street, Melbourne VIC 3000
Phone (03) 8626 8700
sustainability.vic.gov.au
Published by Sustainability Victoria.
Sustainable Finance – Chattel Mortgage
© Sustainability Victoria January 2018

Disclaimer: The information provided in this document is general advice only. It does not take into account your particular needs or objectives and does not constitute legal or accounting advice. Accordingly, any comments or statements made are not a recommendation that a particular course of action is suitable for you and you need to seek your own legal, tax and accounting advice in relation to your specific circumstances.

This information is true and correct as of January 2018