5 Mistakes to Avoid When Financing Business Equipment
Accessing finance to purchase or upgrade business equipment is often essential for growth. Whether you’re a tradesman looking for new tools, a café owner eyeing a commercial coffee machine, or a logistics company expanding its fleet, equipment finance can unlock new opportunities.
But it’s not without its pitfalls. Many business owners dive in without fully understanding the fine print or structuring their loans to suit their goals. Here’s what to watch out for:
Focusing only on the interest rate
It’s natural to compare finance options based on the headline interest rate. After all, it directly affects your monthly repayments. But focusing solely on the rate can lead to costlier mistakes. Some loans come with additional charges like origination fees, early exit fees, or balloon payments at the end of the term. Others may limit your flexibility if your business grows or your equipment needs change.
Always compare the total cost of the loan, not just the rate. Ask your lender or us for a breakdown of all fees and consider how the structure of the repayments will affect your cash flow over time.
Mismatching loan terms with equipment life
Choosing a loan term that doesn’t match the expected lifespan of your equipment is a common trap. If the loan is too short, the repayments may be uncomfortably high, putting pressure on cash flow. If it’s too long, you may still be paying for equipment after it’s outdated or no longer in use.
A good rule of thumb is to match the finance term to the useful life of the asset. This ensures your repayments align with the equipment’s value to your business and avoids paying for a depreciating asset longer than necessary.
Buying more than you need
It’s easy to be tempted by the latest technology or top-tier equipment with all the bells and whistles. But overcapitalising on equipment can tie up cash flow and reduce your return on investment. Buying a larger or more expensive asset than you need might not generate enough additional income to justify the higher repayments.
Make sure your purchase supports a clear business outcome, whether it’s improving efficiency, increasing capacity, or cutting costs. Consider whether a new, second-hand, or leased option might better fit your business model.
Skipping pre-approval
Some business owners start shopping for equipment without first securing finance. This can lead to delays, missed opportunities, or even paying more than necessary. Without a clear budget or terms in place, it’s harder to negotiate or move quickly when the right asset becomes available.
Getting pre-approved gives you a clear idea of how much you can borrow, what the repayments will be, and what lenders are offering. It also puts you in a stronger position when dealing with suppliers or auctioneers.
Not reviewing the structure with a specialist
One of the biggest mistakes is going it alone. Choosing the wrong finance product, like opting for a chattel mortgage when a lease would be more tax-efficient, can cost your business in the long run. Many lenders offer products designed for specific industries or cash flow patterns, but you might not find them unless you ask the right questions.
As your finance broker, we can help you compare your options-reach out to us today.
*This information is general in nature and does not take into consideration your individual circumstances. Please contact us for further information.
