With the end of the financial year approaching, many SMEs will be seeking to take advantage of their instant asset finance write-off and EOFY sales. In this feature, we look at some emerging trends in equipment financing and how brokers can help SMEs in this space.
The end of financial year is one of the busiest times of the year for asset finance — as consumers and businesses alike look to take advantage of the end of financial year sales and make the most of their tax write-offs.
While car finance is always popular in May and June, there’s another area of asset finance that brokers are finding themselves busy writing this time of year: equipment finance.
This content is available exclusively to
The Adviser premium members.
Farmers, in particular, have been coming out in their droves to access finance for new equipment. As one major lender revealed recently, equipment finance in the Australian agribusiness sphere has reached new heights in recent months.
According to NAB, financing for large grain and general haulage trailers rose 59 per cent over the last financial year, followed by headers that increased 18 per cent. Financial year 2022 figures were up 3 per cent on the previous year and up 47 per cent on pre-pandemic levels.
When looking across the states, Western Australia saw the most significant increase in equipment financing, which rose 28 per cent in FY22 when compared to the previous corresponding period, reinforced by a run of strong seasons and a 96 per cent increase in spending on agricultural implements.
In NSW, finance for headers and trailers increased by 24 per cent, while in Queensland, headers also increased by 24 per cent and finance for trailers surged 72 per cent. Victoria also saw an increase of 11 per cent for finance on both headers and trailers.
Finally, in the Northern Territory, there was a 302 per cent increase in finance for tractors and a 247 per cent increase for headers, although it should be noted this was coming off a low base.
The Adviser recently reached out to managing director of Yakka Finance, Scott Rumble, to find out why and how equipment finance has been so popular recently.
Mr Rumble said part of the growing demand is due to the strong shift towards digitalisation and lending automation in the finance industry, including equipment and asset finance.
“In 2023, this trend may continue to accelerate,” he said, “there’s more emphasis on online applications, automated approval processes by lenders, and digital loan documentation, making the financing process more efficient and convenient for borrowers.
“Asset Finance needs to be quick and finance brokerages and lending partners are trying their best to accommodate these needs.”
Another emerging trend is an increased demand for sustainable and green equipment as environmental sustainability becomes a growing concern for many borrowers. Mr Rumble stated as we go further into the year, there may be an increased demand for equipment and assets that are eco-friendly and support renewable energy sources.
“This includes financing options for solar panels, electric vehicles, and other environmentally friendly technologies,” Mr Rumble said.
“Financiers are offering rate deductions in this space to incentivise people to be environmentally sustainable.”
Indeed, the growing demand from businesses for green asset finance solutions is something that lenders have gradually been introducing into their product ranges.
For example, one major lender recently announced a range of green asset finance products in an effort to support businesses in their sustainability goals.
The product offers businesses discounts of up to 1 per cent off the standard rate for new and used electric or hydrogen-powered vehicles, such as electric cars, trucks, or buses, valued up to $250,000, with an additional discount of 0.5 per cent on other assets such as electric and hydrogen-powered machinery, solar, wind, and hydro-powered equipment and charging and storage equipment.
Mr Rumble further predicted that the price of used assets will start to decline and “return to some semblance of normality in the second-hand market” after used vehicle, truck, and machinery prices were inflated during supply issues spurred on by the pandemic.
“The decline of asset values could be accelerated if the economy performs worse than expected or if rising interest rates deter people from making expensive purchases,” Mr Rumble stated.
Why is equipment finance important right now?
Equipment finance plays a crucial role in driving economic growth by allowing businesses to obtain the necessary equipment and machinery to expand their operations, according to Mr Rumble.
In sectors such as construction, manufacturing, mining, agriculture, and transportation, there is and always has been high demand for new equipment. In addition, equipment finance allows businesses to access capital to invest in equipment, which as a result, can help boost productivity, revenue, job creation, and economic growth.
“Many businesses, especially SMEs, face challenges in accessing capital through traditional means, such as bank loans, due to strict lending criteria or lack of collateral,” Mr Rumble said.
“Equipment finance provides an alternative financing option for businesses to acquire equipment without tying up their working capital or collateral.”
In addition, equipment finance offers SMEs flexibility in regard to repayment options such as leasing, hire purchase, or equipment loans, which can allow businesses to find the financing structure that best suits their cash flow and budgeting needs.
“This flexibility enables businesses to preserve their working capital, manage their cash flow effectively, and allocate resources to other critical business operations,” Mr Rumble added.
Tax benefits
Businesses in Australia may be able to claim depreciation and interest expenses such as tax deductions, reducing taxable income and lowering overall tax liability allowing businesses to cut costs and save.
This makes equipment finance an attractive option from a tax planning perspective, and with this being the last year of the instant asset write-off scheme introduced by the government, many SMEs will want to take advantage of the depreciation tax benefits in FY23.
Because of this, Mr Rumble noted the importance of leaning on tax advisers so that businesses can optimise tax benefits by identifying all possible deductions and allowances to equipment finance.
“It is very important for SMEs to lean on their tax adviser leading up to the end of financial year to take advantage of the instant asset write-off scheme,” he said.
Under the instant asset write-off scheme, businesses can claim an immediate deduction for the full cost of an asset up to $150,000.
For SMEs with an aggregated annual turnover of less than $500 million, the scheme includes both new and second-hand assets and as long as each purchase is under the threshold, there’s no limit to the number of assets that can be claimed.
