How Equipment Finance Can Impact your Borrowing Capacity

In his 2021 budget speech, Treasurer Josh Frydenberg announced the extension of the instant asset write-off and a lift from $30,000 to $150,000 for new business equipment finance.

The extension is good news if you want to purchase a new piece of farm equipment because of the tax incentive it gives your business, but there can be unintended consequences if equipment finance hinders your ability to take on a loan to grow the farm.

So the answer becomes a balance between lifting productivity with new farm equipment that can cut labour costs and sow or harvest more precisely with more land to farm.

When considering farm equipment, you can rule out smaller purchases like a new ute because these do not significantly impact your borrowing capacity. Instead, consider the impact of equipment that costs $500K or more.

A simple case study to consider; a farmer wants to expand production and is weighing up buying on-farm grain silos $500K to store their grain and cut costs, or they could purchase the farm next door for $2 million and produce more grain overall.

In this scenario, the loan term on the grain storage assets is five years, versus 20 years, to pay the loan for the additional land. As unlikely as it seems, the monthly finance payments are lower for the $2 million loan because they have longer to pay, and in this instance, the better decision is to buy the neighbouring land.

Ultimately, it comes down to goals and making investment decisions that align with them. If you are at all uncertain about how to strike the right balance, speak with your Sprout Agribusiness advisor.

 

Map

OFFICE LOCATIONS

Yass NSW (Head Office)
77 Comur Street
Yass NSW 2582

Orange NSW
Suite 1, Level 1, 204-206 Lords Place
Orange NSW 2800

Dubbo NSW
Unit 5, 113 Darling Street
Dubbo NSW 2830

Wagga Wagga NSW
Suite 2, 53 Tompson Street
Wagga Wagga NSW 2650

Toowoomba QLD
3020 Oakey Pittsworth Road
Springside QLD 4356

Albury NSW
602 Olive Street
Albury NSW 2640

Tamworth NSW
307 Peel Street
Tamworth NSW 2340

Hay NSW
88 Lachlan Street
Hay NSW 2711

Longreach QLD
105 Eagle Street
Longreach QLD 4730

“Cannot recommend Sprout Ag enough for sorting out future plans, succession plans and identifying what roles there are and who is most suited!”

- Ross and Sophie Walters

“Cannot recommend Sprout Ag enough for sorting out future plans, succession plans and identifying what roles there are and who is most suited!”

- Ross and Sophie Walters

“Cannot recommend Sprout Ag enough for sorting out future plans, succession plans and identifying what roles there are and who is most suited!”

- Ross and Sophie Walters

GET IN TOUCH

icon-email Let's talk