The Pros and Cons of Heavy Machinery Finance

Heavy machinery finance lets your business use a big piece of equipment now and pay for it over time, with the machine usually acting as the main security for the loan. That can protect your cash flow, but it also locks you into repayments whether work is busy or quiet.

If you run a business around Surfers Paradise, perhaps in construction, landscaping, hauling or events, you may be eyeing a machine that could win you more work. The real question is whether the repayments suit your income. Let's walk through it.

What Is Heavy Machinery Finance?

Heavy machinery finance is a loan or lease used to buy equipment such as excavators, loaders, tippers and trailers. The equipment itself is typically the security, so you often don't need to put up property.

That is the basic idea behind asset finance for business. Lenders look at the machine, how it will be used and how your business earns money. Many lenders offer different structures, so it pays to compare more than one. Our equipment finance page covers the range of options we work with.

The Pros: Why Business Owners Choose It

The main benefit is that you can start earning from the machine straight away without draining your working capital. Repayments are spread over a set term, which makes budgeting more predictable.

Other upsides include:

• You keep your cash free for wages, fuel, insurance and materials.
• The machine is the security, so your home may not need to be involved. Lender requirements vary, so check the terms.
• Fixed repayments can make forecasting simpler to plan around.
• Depending on your structure, some costs may be tax deductible. Please speak with your accountant about how this applies to your business.

The Cons: What You Need to Watch

The main downside is that you carry the repayments even when jobs dry up. Heavy machinery can also lose value, so you could owe more than the machine is worth if you sell early.

You will also pay interest and fees on top of the purchase price, so the total cost is higher than paying cash. Some loans have a balloon payment at the end, which lowers repayments now but leaves a lump sum to deal with later. Early exit fees can apply if you want to pay out the loan sooner. Insurance is usually required too, and that is an extra running cost.

Leasing vs Buying Heavy Machinery: Which Suits You?

Buying through a loan means you own the machine at the end, while leasing means you use it for a term and often hand it back or pay a final amount. Ownership suits long-lived machines you will keep, while leasing can suit gear you want to upgrade regularly.

The trade-off is that a loan usually means higher repayments but more control, while a lease may reduce repayments but can leave you without an asset. Tax treatment differs between the two, so talk to your accountant before you choose.

A Worked Example With a Balloon Payment

Consider a Gold Coast earthmoving operator who finances a machine for $120,000 over five years at an illustrative 6.75% p.a. with no balloon. Using that illustrative rate, the repayment works out to roughly $2,362 a month, so about $141,700 repaid in total.

The owner worries that figure is tight in slower months. The solution is to ask about a balloon of $30,000 at the end of the term. With the same illustrative rate, the monthly repayment drops to roughly $1,940, but there is a $30,000 payment due at the end, and total interest rises to about $26,400 (from about $21,700). The owner decides the lower monthly figure suits the business, and plans to cover the balloon by refinancing or setting money aside.

The outcome is a more comfortable monthly budget, along with a clear plan for the final payment. These numbers are illustrative only. Your actual rate depends on your lender, deposit, business history and the machine.

How Do Lenders Assess a Machinery Loan?

Lenders generally want to see that your business can afford the repayments and that the machine holds its value. The age and type of machine, your deposit, and your business income all play a part.

New machines are often easier to finance than older ones, though this varies by lender. A larger deposit can reduce repayments and may help your application. A broker can match your situation to a lender that is comfortable with your industry, which saves you applying everywhere and leaving multiple enquiries on your file.

Can You Refinance Existing Machinery Finance?

Yes, you can often refinance an existing equipment loan, and it may suit you if your repayments no longer fit your business. The trade-off is that exit fees and a longer term could cost you more overall.

If your business has grown or your circumstances have changed, a review is worthwhile. Our business loans team can look at whether consolidating or restructuring makes sense. If you also have broader borrowing needs, commercial loans may be worth a look.

Questions to Ask Before You Sign

Before signing, ask what the total cost will be over the full term, not just the monthly repayment. Also ask about fees, balloon payments, early payout costs and insurance requirements.

It also helps to work out how many weeks of work the machine needs to cover its repayments. If the answer is uncomfortable, consider a smaller or used machine, a bigger deposit, or a longer term, keeping in mind that a longer term means more interest overall.

Ready to chat about your next machine? Call one of our team or book an appointment at a time that works for you. We are based locally, so you can also see our Surfers Paradise page for more about how we help.

Frequently Asked Questions