Equipment finance for new companies: what Irish lenders expect

Asset financeAn umbrella term for funding used to acquire vehicles, plant, machinery, equipment or technology, where the asset itself usually acts as security. is partly secured by the equipment. If the company stops paying, the lender can recover the asset and sell it. That is why lenders weigh two separate questions:

1. Can this company afford the repayments from its trading income, now and over the full term?
2. If things go wrong, what would the equipment be worth, and how easily could it be sold?

The less evidence there is for the first question, the more weight the lender puts on the second. Each lender sets its own criteria. There is no single Irish rule on minimum trading periods, and figures vary between banks, non-bank lenders and manufacturers’ finance arms.

There is no single legal minimum. Each lender sets its own asset finance trading historyHow long a company has been actively trading, and the record of that trading shown in its filed accounts, bank statements and tax returns. rules, and many want at least one set of filed accounts, although some will consider a younger company where the asset has a strong resale market.

By a younger company we mean one that has started trading and may have filed one or two sets of accounts with the CROThe State body that registers Irish companies and business names and keeps their public filings, including constitutions, director details, annual returns, financial statements and registered charges.. Lenders can see some evidence, but not a long track record. Common expectations include:

• A deposit. Putting your own money in shows commitment and reduces the lender’s exposure.
• Director experience. A director who has run a similar business before can partly make up for a short company history.
• Evidence of demand. Contracts, purchase orders or a customer pipeline that the equipment will serve.
• Bank statements showing regular income and how the account is managed.
• A personal guarantee from one or more directors, which is more likely when the company’s own record is thin.
• Shorter terms, so that the balance falls faster than the equipment loses value.

The asset type matters even more at this stage. Equipment that holds its value and has a ready resale market, such as mainstream construction plant, tractors or commercial vehiclesA vehicle, such as a van or truck, that Revenue does not treat as a passenger car for VAT purposes. (see our van finance page), is easier to finance than specialist or custom-built kit, IT hardware or software.

An established company usually has several years of filed accounts, up-to-date management accountsInternal financial reports, usually monthly or quarterly, showing a company's recent trading, balance sheet and cash position. and a known record with its bank. Lenders can then base their decision mainly on affordability. They will typically look at:

• Profit and EBITDAEarnings before interest, tax, depreciation and amortisation. trends over recent years, not just the latest year.
• How existing debt is being serviced. Lenders often work out a debt service coverage ratioA measure of whether a company earns enough to meet its loan repayments., and you can check yours with our DSCR calculator.
• The company’s Central Credit RegisterA database operated by the Central Bank of Ireland holding information on loans of €500 or more. record. Lenders that search it leave a record of the enquiry and must check it for applications of €2,000 or more.
• Tax compliance, often shown by a current tax clearance certificateConfirmation from Revenue that a company's tax affairs are in order..
• Annual returns filed on time with the CRO. Late filing can raise questions.

Established does not mean automatic. A company with falling profits, arrears or a recent loss may be treated much like a younger one. A strong company may be offered a lower deposit, a longer term or no personal guarantee, but these are lender decisions, not rights.

Yes, often as much as your company’s age. Lenders sometimes talk about hard and soft assets.

• Hard assets: equipment with a long working life and an active second-hand market, such as tractors, excavators, forklifts, commercial vehicles and many production machines. If the lender has to recover one, it can usually sell it. These are the easiest assets to finance, including for younger companies.
• Soft assets: items that lose value quickly or are hard to resell, such as IT hardware, software, fit-outs (see fit-out finance), signage, specialist medical or catering equipment, and anything custom-built. Lenders rely more on your company’s accounts, so they may want a longer track record, a bigger deposit or a guarantee.
• Used equipment: lenders look at age, hours, condition and the seller. Many will want the finance to end well before the asset reaches the end of its working life.

Some lenders also prefer to buy from an established dealer rather than a private seller, because the dealer can confirm the equipment’s history and condition and issue a proper VATA tax charged on most goods and services supplied in Ireland, collected by VAT-registered businesses and paid to Revenue. invoice. Ask the lender before you agree a private purchase.

If you are a younger company, starting with a hard asset can be a sensible way to build a repayment record that helps with later, harder-to-finance purchases.

Lenders do not always give detailed reasons, but common ones include:

• Not enough trading history for the size of the deal.
• Accounts overdue at the CRO, or management accounts that do not match the bank statements.
• Missed payments or arrears on the Central Credit Register.
• Tax arrears, or no current tax clearance.
• Repayments that would take too much of the company’s monthly cash flow.
• An asset the lender cannot value or resell easily.
• A finance term that runs beyond the asset’s working life.

If a bank refuses your company, ask for the reasons in writing. Our guide to what to do if the bank refused your loan explains your options, including the Credit Review Service.

Yes. Start-ups registered as limited companies in Ireland can apply. Most lenders look for some trading history, so options may be fewer for a new company. Sole traders and partnerships cannot apply through us. Our guide to start-up business loans sets out where new businesses can turn.

If your company is new, these are other places to look:

• Your Local Enterprise Office. Its Priming Grant is for micro enterprises with up to 10 employees in their first 18 months and can cover up to 50% of eligible costs, subject to limits and sector rules.
• Microfinance Ireland, which lends €2,000 to €50,000 to micro enterprises with fewer than 10 employees and turnover under €2 million, including start-ups, sole traders, partnerships and limited companies.
• Enterprise Ireland, if you plan to export or grow internationally.
• Your own bank, which may already know the directors.
• The equipment supplier, as some manufacturers and dealers offer their own finance.

The two main forms of equipment finance work differently. With hire purchase, your company pays a deposit and instalments and owns the asset after the final payment. With equipment leasing, the lender owns the asset and your company pays rentals to use it, with options at the end of the term. Our guide to hire purchase vs leasing covers the differences in detail, including VAT, and our guide to finance lease vs operating lease explains the two main types of lease.

The tax treatment differs too, so ask your accountant before you choose. Revenue’s general wear and tear allowance for plant and machinery is 12.5% a year over eight years. Revenue also gives a 100% accelerated capital allowance in the first year for qualifying energy-efficient equipment, including electric and alternative fuel vehicles. Who can claim allowances depends on how the finance is structured.

• The SBCI Growth and Sustainability Loan Scheme can fund machinery and equipment for eligible SMEs, with loans from €25,000 over seven to ten years. You get an eligibility code from the SBCI and then apply directly to a participating lender. See our GSLS guide.
• SEAI grants may help with energy-saving equipment. See our guide to funding energy upgrades.
• Already own equipment outright? Asset refinance can release cash from it, which suits established companies more than younger ones.

• Get a written quote or pro forma invoice for the equipment, including make, model, year and whether it is new or used.
• Check your annual returns and accounts are filed and up to date with the CRO.
• Prepare six to twelve months of business bank statements and recent management accounts.
• Have a current tax clearance certificate, or know how to get one on ROS.
• List existing finance agreements, with monthly repayments and end dates.
• Explain how the equipment will earn money: contracts, orders or cost savings.
• Decide how much deposit your company can put in without straining cash flow.
• Match the term to the asset’s working life, not just the lowest monthly payment. Our asset finance calculator helps you test different terms.
• If a personal guarantee is requested, take independent legal advice before signing.

Some established companies use an unsecured business loan or working capital loan for smaller equipment purchases, and those are products our panel can consider. Tell us what your company needs and we will tell you honestly whether our panel can help, or where to apply instead. Start-ups registered as limited companies in Ireland can apply, though options may be fewer for a new company. Welcome Finance is a commercial finance broker, not a lender, and is not regulated by the Central Bank of Ireland. We work only with companies registered in Ireland.