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HIRE AND RENTAL NEWS • NOVEMBER 2016
INDUSTRY in FOCUS
1) Interest rates can vary by as much
as 1%, so it pays to shop around
Unlike home loans, interest rates on
equipment finance are very much open
to the competition of a free market and
as such can often be negotiated down by
as much as 1% if sufficient competition is
created between financiers so it pays to
shop around. A saving of $100p/m over
60 months is $6,000 and if your company
runs at a 10% margin, that saving is equal
to an extra $60,000 in top line income.
2) The only hard security needed is
the asset itself, so don’t fall into the
bank trap
The only hard security for equipment
finance should be the equipment itself.
Where a client uses their own bank for
equipment finance, there is a very good
chance this loan will be secured (cross
collateralised) against other assets
including real estate, see recent article:
Getting Equipment Finance Right –
available at: www.finlease.com.au/
getting-equipment-finance-right.html
3) Spreading your equipment debt
across several financiers provides
many bonuses
Equipment finance allows a company
to spread a greater portion of the overall
debt to a broader base of financiers which
means less exposure to their existing
bank, greater competition between
financiers to drive lower interest rates,
often better approval conditions and a
broader base of competitive lenders to
assist in financing future growth.
4) The market has changed with
many financiers no longer needing
financials to provide approvals
Many financiers have switched to
‘behavioural’ credit assessment instead
of looking at historic financial information
to approve transactions. If a company has
been in existence for three years, has a
clean credit history and the principal is a
property owner, approvals are automatic
for up to $150,000 on additional vehicles
and selected plant and up to $500,000
9
quick facts you need to know about
equipment finance
By Miles Beamish, Senior Business Finance Broker at Finlease
After 25 years of financing equipment for capital intensive industries, Finlease shares a
few facts to assist business owners in getting this area right.
where it is a
replacement
requirement. The
interest rates are
just the same
as for normal
‘fully assessed’
transactions.
5) Thinking
about
equipment
finance the
same way as a
credit card limit
has its benefits
In the same manner as you are approved
for a ‘limit’ on your credit card, pre-
approved bulk facilities for equipment
finance can be set up in advance across
several financiers and at no cost, making
it easier for companies to acquire
additional machinery at short notice
without having to seek finance approvals
in each instance. Facility limits which can
be set up for amounts from $200,000 to
$3million and are simply reviewed every
year at the time the client has updated
financial information.
6) Used equipment is as easy to
finance as new equipment
Quality used equipment (which is often
substantially cheaper than new gear) can
have finance arranged just as easily as
new equipment and so presents as an
excellent alternative to new equipment.
7) Private sales can definitely be
financed and a lot of money saved
Competitive equipment finance is easily
available where the used equipment is
being purchased from a private vendor.
These private sale equipment finance
arrangements do need a couple of
additional steps performed, however the
savings can be significant compared to
new machines or used machines through
a dealer. The extra steps are simply an
inspection of the goods and a more
rigorous PPSR regime to ensure clear title
is passed onto the financier.
8) Financing GST is cheaper debt
than an overdraft
GST can in most instances be financed
as a part of the equipment finance facility
if required by the client and in doing
so provide what is in essence a very
low cost working capital debt which is
substantially cheaper than traditional
overdraft rates. In the event the customer
does not want to finance the GST long
term, however does not want to pay for it
out of cash flow at the time of purchase,
an extra payment can be made at month
four of the transaction to coincide with
the period where the client has the cash
from their subsequent BAS refund.
9) All equipment finance is not the
same for tax deductions
Although CHP and Chattel Mortgage
structures limit a company’s tax
deductions to the interest and
depreciation components of the asset
(which is often far less than the physical
annual payments of the debt), the prudent
and appropriate use of an equipment
finance lease can often provide a tax
deduction equal to the monthly or annual
payments being made under the lease
since the monthly payment itself is the
deduction. This is often an underutilised
product which is well worth investigating
with your accountant and may save
significant tax dollars.
Contact: 02 8404 2000 or visit website:
www.finlease.com.au