How Much Can I Borrow for Equipment?

Lenders do not set a headline number and let you shop to it. They size a facility from serviceability, the asset, the deposit and your existing commitments — which means the answer is a repayment, not a limit.

There is no single figure, and any answer given before the file is looked at is a guess. What there is instead is a process, and once you understand what feeds into it you can work out your own range fairly closely before you speak to anyone.

The framing worth adopting early: the useful answer is a repayment you can comfortably service, not a maximum limit. A business that borrows to its ceiling has no room when a rebuild lands or work slows, and the ceiling is the least interesting number in the assessment.

Finance on this site is arranged by Overdrive Commercial Funding, an authorised credit representative of Connective Credit Services Pty Ltd, Australian Credit Licence 389328, with access to a panel of more than eighty banks and non-bank lenders. Every facility is subject to eligibility criteria, individual lender criteria and credit assessment.

How a lender sizes a facility

Five things do most of the work, and they interact rather than stacking up independently.

1. Serviceability — whether the cash flow supports the payment alongside everything else the business is already paying.
2. The asset — what it is, how old it is, and what it would realistically sell for partway through the term.
3. The deposit or trade-in — how much of the purchase you are funding yourself.
4. Existing commitments — other facilities, cards, overdrafts and any arrangement with the ATO.
5. The profile of the business — trading history, industry, structure, whether directors own property, and credit conduct.

A strong asset can carry a thinner file, and a strong business can carry an unusual asset. Weakness in both at once is what shrinks the number.

Serviceability comes out of the BAS and the financials

For a low doc application, turnover is read from business bank statements and recent BAS lodgements. The lender is looking for deposits that are consistent with the turnover you have stated, and it notices the opposite quickly.

For a full doc application, it comes from two years of tax returns and financial statements. Profit matters, and so do the add-backs an accountant would identify — depreciation, interest, one-off items. It is one reason an application prepared with your accountant lands better than one assembled from memory.

What a lender is assessing is capacity, not just profit. Payment history on existing facilities, whether BAS lodgements are up to date, and how the trading account behaves through a quiet month all feed into it.

The asset sets its own limits

Two businesses with identical financials will be offered different amounts on different assets, because the security is part of the sizing.

• Type. Mainstream trucks, trailers and earthmoving equipment have observable resale markets. Specialised or one-off assets do not, and lenders are more conservative against them.
• Age. The cap is on age at the end of the term, so an older asset means a shorter term, and a shorter term on the same amount is a larger payment.
• Usable life. A lender will not write a term that outlasts the working life of the asset, because the security would be worth little while money was still owed.
• Value. Lending is generally against assessed value rather than the agreed price. Where the price is higher, the difference becomes your deposit.

Deposit and trade-in, and where they actually matter

A deposit reduces the amount financed, which reduces the payment and improves serviceability. It also reduces the lender’s exposure, which matters most when something else in the file is thin — a short trading history, an older asset, a private sale, or a price above valuation.

Trade-ins work the same way where the equity is real. If the machine being traded still has finance against it, the payout figure comes out first and only the remainder counts, which is a common source of disappointment. Get the payout figure before you count on the equity.

One cash-flow point: commercial facilities generally finance the ex-GST price on machinery advertised excluding GST, and you fund the GST until the input tax credit comes back through your BAS. On a large purchase that is a real timing event, and worth planning for with your accountant.

Existing commitments count, including the ones you forget

Every current facility consumes some capacity. So do business credit cards, overdrafts, equipment rentals and insurance premium funding, whether or not you think of them as debt.

ATO arrangements are worth being straightforward about. An unpaid liability with no arrangement is a problem for most lenders; a documented arrangement being met is a different conversation. Either way, better disclosed at the start than discovered halfway through.

What a given budget actually buys

The abstract question is easier to answer once you can see the market. This is current stock in our index rather than an example from when this was written.

Work backwards from that. Pick the assets that would actually do your work, take the price range they sit in, and put those figures through our finance calculator with a realistic term and deposit. That gives you a repayment to test against your month, which is more useful than a limit.

What produces a firm number

• ABN, entity name, structure and GST registration details.
• Photo identification for each director, partner or sole trader.
• The last two BAS lodgements, or two years of returns and financials for a full doc file.
• Three to six months of business bank statements.
• A schedule of existing commitments with balances, payments and payout figures.
• The asset: year, make, model, VIN or serial number, hours or kilometres, and the seller’s details.
• Deposit or trade-in details, including any payout owing on the trade.
• Anything supporting the revenue the asset will earn — a contract, a purchase order, a rate agreement.

With that in front of a lender you get an assessed position rather than an estimate. Without it, every figure discussed is indicative and subject to change once the documents arrive.

Why the payment matters more than the limit

A limit tells you what a lender might do at the outer edge of its criteria. A payment tells you what your business will live with, every month, through good quarters and slow ones.

The businesses that come back for a second and third asset are generally the ones that left room in the first facility. That is not advice about how much to borrow — that depends on your circumstances and is worth talking through with your accountant — but it is a pattern worth knowing.