Getting finance for your equipment seems fairly straight forward, right? I need money, I go to the bank, I fill in an application, get approved and then buy whatever I need. But there are so many different pieces to the puzzle and it can take years and a lot of experience to master. The consequences of getting it wrong can be minimal, or they can be dire, hopefully these tips will help.
- Get the term right. The length of an equipment finance loan should not exceed the life of the asset you are buying. For example, there is no point getting a 5 year loan for computers that will most likely be replaced in 2 years. This will mean you owe money on the old goods when you want new ones! At that point you will have to pay out the existing loan and pay a portion of the remaining interest for finishing the loan early. If you can’t afford to do that then you will need to keep the computers for another 3 years which may impact the productivity of your business.
- Choose the right funder. Each funder has a slightly different view on your industry, the type of equipment you are buying, your financial position etc. If you go to the wrong funder then you may pay too much, or even worse, not get approved for the money you want to buy the equipment you need. If you then go to other funders, repeated enquiries on your credit file may impact on your ability to get finance in the future.
- Spread yourself to multiple funders. If you have all of your lending with one bank, then they can exercise a lot of control over your business. This could be in the form of the security they need to offer you finance, their willingness to approve particular purchases or cash flow solutions, and the price at which they are willing to offer you the money. If you have a history with a panel of lenders you can pick and choose which one suits you for the current requirement. This gives you some control over your destiny.
- Don’t offer too much security. Many funders will request property security and a GSA (General Security Agreement) to lend money to businesses. If you are funding equipment, in most cases, you shouldn’t need to offer this additional security. You should be able to fund these purchases with the equipment as security and personal guarantees.
- Types of finance. Make sure you talk to your accountant, or get your broker to do so, and ensure that the product being offered is going to suit your needs. Different products have different tax implications, different ownership options etc. The wrong one can be costly and hard to change once it’s in place.
Please feel free to contact any of our brokers on 1300 731 131 if you need a hand with the finance process.