What to consider when financing your equipment
More from Phil Horton
When considering vehicle, plant or equipment purchases one thing is certain – as a Tradie and Business owner you have already approved the purchase in your own mind, you know why you want to buy it, what it will earn or save you and the risks involved.
Whether the kit is being purchased to upgrade your vehicle fleet, to improve your daily processes or required to service additional contracts, there is justification behind buying the gear. The next point is working out how to pay for it. Equipment Finance is, in the majority of cases the most common method, simplest method and as the terminology states is best suited to “Equipment” (finance).
One size does not fit all
However, Equipment Finance isn’t one size fits all. Loan structures vary from one borrower to another, many factors come into play, the asset type and use, the business and its operation and length of loan. You may be looking to simply have the lowest payment to keep cash flow manageable, seek the minimum overall cost (whole of life cost) or be about maximising the tax deductibility of your debt structure.
Whatever the diversity and the requirements, Equipment Finance matches these requirements. So once you’ve made the decision to purchase, then finance the purchase the next step and it is vital, is to approach the right lender with the right finance structures. A lender who understands the type of kit you wish to purchase and more importantly, understand you and your business.
Choosing an Equipment Finance provider
As a Tradie, your time is very limited, the simple one-off vehicle or equipment purchase via in-house dealer finance offers may be convenient, simple and allow on the spot drive-away bargains.
Granted, there are some excellent dealer based finance packages (not only vehicles, all sorts of equipment offers) in the market which are certainly worth having a good look at.
Having said that, there are a number of things to watch out for.
What you need to consider
Firstly check if the sale price of the vehicle machine could be substantially less if the finance package was not taken up (as a potentially discounted purchased price when funded through traditional competitive finance could be a better outcome). This is where Whole of Life Costs (WOLC) come into play – Goods costs + Finance cost = WOLC, it's simple.
Secondly be aware that many of these finance arrangements may be less than ideal in structure as many require significant deposits, shorter terms than ideal for the situation as well as often not allowing balloon values at end of term.
Finally, it is essential to recognise that a number of suppliers have the discounted rate for only a small selection of machines and their normal non-discounted interest rates are often 2 or 3% above prevailing market rates.
Other important points to consider around your equipment finance needs is what your future needs will be, what growth are you anticipating and how will I fund this?
Equipment finance should and is (away from your bank) secured by the equipment only, personal guarantees of the business owner and no cross over charges, hidden clauses or mortgages over other assets. No matter what the goods, what the term and what the use.
Pre-approved limits are ideal to help with future growth, allows you to expand without fear of “where’s the money coming from and ensuring your business meets the demands of today’s world.
So how do you maximise the best opportunity for your Equipment Finance needs? Dealer or OEM (original equipment manufacturer) Finance is a reasonable method, however apart from above points, is limited to that Dealer make & certain models. Or there are experienced Equipment Finance Brokers, who understand business, who make their point to understand your business and importantly understands equipment and what it does for your business.
So why not engage with an Equipment Finance Specialist Broker, you won’t get charged to sit down and talk (they might even shout you a coffee or a beer).