An Equipment Line of Credit, Approved Before You Buy

How an equipment line of credit works

An equipment line of credit, sometimes called an equipment finance facility or an asset finance limit, is an approved amount set aside for buying business equipment. The lender assesses the business once and agrees a limit. When you find the machine you want, the purchase is written as its own contract under that limit, usually a chattel mortgage or a lease, with its own term and repayments.

The difference from a general business line of credit is that the money is tied to equipment, and each purchase is secured against the asset being bought. That security is why the rates tend to sit well below an unsecured line of credit. As the contracts are repaid, many facilities restore the limit, so the business can keep buying without going back through a full application.

Who it suits

What lenders look at

Trading history and financials

Facilities are usually offered to established businesses, often with two years of trading and full financials. The lender wants to see the business can carry several contracts at once.

Your track record with equipment

A history of paying equipment finance on time, especially with the same lender, carries real weight and can lift the limit.

The kinds of assets

Lenders are most comfortable with mainstream machinery and vehicles that hold their value and resell easily. Specialised or older gear may sit outside the facility or need its own approval.

Existing commitments

Every current loan and lease counts against what the business can carry, including ones with other lenders.

The directors

Credit files are checked, and personal guarantees are standard for most private companies.

Typical terms

Common ranges, not promises. Every lender sets its own policy.

• Limit: set around what you plan to buy, from a modest amount for a small fleet to several million dollars for larger operators.
• Each purchase: its own contract, commonly one to seven years, with a balloon or residual available on many.
• Structures: chattel mortgage, finance lease, operating lease or rental, chosen purchase by purchase. See chattel mortgage, lease or rental.
• Rate: set for each contract when it is written, based on the asset, the term and market rates at the time.
• Review: facilities are usually reviewed every year or so, using updated financials.
• Fees: expect establishment costs on each contract, and on some facilities a fee for the facility itself. Ask what is charged per drawdown.

An example

A facility, or one loan at a time?

What to have ready

• Two years of financials and tax returns, if you have them
• Recent BAS and business bank statements
• A list of current equipment loans and leases
• An outline of what you plan to buy over the next 12 to 24 months
• Company and director details, including any property owned
• Quotes or invoices for anything you are buying straight away

Equipment line of credit questions

Looking at something else? See equipment finance for a single purchase, truck loans and yellow goods finance for specific gear, or the business line of credit for stock and wages.