Do I need deposit as a startup borrower?

20% deposit: not always a fixed rule

Similar to buying your first home, around 20% is a deposit figure banks and lenders may look for on your first equipment loan as a startup. But equipment finance involves a whole range of variables, including your experience, work source, equipment and cash reserves.

At MFG, our position is clear: a 20% contribution helps the bank, but it does not always help the borrower. You might have that cash available, yet still need it to cover fuel, wages, insurance and operating costs in the first few months.

We prepare every startup applicant for the possibility of a 20% deposit requirement. Then we actively explore whether we can bring that down to 15% or 10%, or negotiate another structure that softens the upfront contribution.

Before approaching a lender, we want to understand the work you will do, who will provide it and when you expect to be paid. You may work for 30 to 60 days before invoicing, then wait another 30 to 60 days on customer terms. In some cases, the first payment arrives 60 to 90 days after collecting the equipment; longer cycles can stretch further.

We put that cash-flow picture in front of the bank. We do not simply offer your 20% upfront. We push for a structure that uses the lender’s funding while leaving you with cash to get the business through to its first customer payments.

Alternatives to a 20% deposit

Accelerated repayments

Instead of paying the whole contribution on day one, we can propose a smaller upfront deposit followed by higher instalments for the first six months. The structure could target a combined upfront contribution and principal reduction equivalent to around 20% of the equipment price within that period.

This spreads the contribution over time. We work through the early repayments against the work and payment cycle, so the business can carry them.

GST recoupment

Another approach is what lenders call a GST recoupment. If your new business is registered for GST, you can claim the GST on an eligible equipment purchase.

On a $330,000 equipment purchase including GST, the GST component is $30,000 - one-eleventh of the total price. We can often propose paying that $30,000 into the loan with the fourth or fifth instalment, once the GST credit is received.

By offering that lump sum a few months into the loan, we can negotiate a lower upfront deposit, rather than starting at 20% by default. That leaves more cash in your business from day one.

How to position for the best possible outcome

Being organised gives us more to work with when we put your application to a lender. Start with these four things:

• Tax returns and financial information. Try to have your last couple of years’ tax returns completed and ready, along with as much financial information as you can provide to the bank upfront. The more information available, the more organised you look. It helps you present as someone ready, organised and willing to start their first business and do things properly.
• Work sources. Line up customers or contractors who can provide work letters. Ask them to set out available work, minimum hours per week or month where they can commit to them, rates, start dates and payment terms.
• Equipment options. Find one or two pieces of equipment you would seriously consider buying with an approval. Give us a clear idea of the type, age, price and whether it is new or used. You do not have to settle on the exact asset, but meet us halfway with realistic options. The lender needs to assess both you and what it is financing.
• Cash reserves. Have recent bank statements ready to show your available cash, what you could contribute and what would remain afterwards. Include a simple budget covering the period before your first invoice is paid.

The clearer the work, equipment and cash position, the stronger the case we can make for a smaller upfront contribution. See how LEH Equipment planned its first dozer.