Before Borrowing

Before Borrowing

Equipment financing is an important tool for many businesses, and in this new series we will look at the choices a business in the tree industry has and what they should be aware of.

There are any number of options available for arb businesses seeking to gain equipment financing, however before seeking out finance it is important to clearly establish your short and long-term business needs.

As part of this process, assessing the financial health of your business and thoroughly researching equipment offerings will help to frame your requirements and the value financing can potentially provide. Equipment financing will likely represent a significant commitment, particularly for smaller businesses, and as such it is beneficial to carefully consider your requirements before putting pen to paper.

In determining the best course of action, there are a number of tools that can be utilised, and it is worthwhile consulting a financial professional.

Assessing the financial health of your business.

Getting a gauge on the financial health of your business will help determine the appropriateness of equipment financing, with there being a number of ways that businesses can go about assessing their position.

As advised via the business.gov.au website, before seeking finance you will need to determine that both you and your business are in the best position to do so, with it important that businesses know their limitations.

In working out limits for finance and ability to repay any money borrowed, business.gov.au recommends asking the following questions about your financial position:

  • Do you need the money upfront or on a needs basis?
  • What is the maximum repayment you can afford?
  • What is your loan-to-value ratio?
  • If you need collateral, what assets do you have to offer?
  • If you need a guarantor, who will be willing to guarantee your loan?
  • How much equity do you have?
  • What is the maximum percentage share of your business you are willing to offer investors?

Of course, these questions and others will be determined by the type of financing you are seeking, and there are a number of tools available online via which businesses can assess their financial health.

The business.gov.au website provides information on the financial ratios and calculations that businesses can employ to track financial health, including the loan-to-value ratio.

The Australian Tax Office’s (ATO) business viability assessment tool (available via its website) is another resource that businesses can utilise, with the ATO advising the assessment considers a range of information linked to the financial performance and position of a business.

Research the equipment:

What are your requirements?

It is important to clearly establish what sort of value new equipment will bring to your business in both the short and long term, including identifying your current needs and how new equipment will cater to those needs.

For instance, you may be looking to upgrade old equipment, with new models potentially providing productivity and efficiency benefits over older models, while new equipment may be harnessed to expand your suite of services.

Once you have established your requirements, it is important to assess the range of options on offer, considering:

  • Is new equipment necessary/will used equipment be as effective?
  • How do different brands and models compare?
  • From training to equipment servicing and support, what range of services do different equipment suppliers provide?
  • What type of regular servicing and maintenance will be required, and what sort of long-term running costs can be expected?

As with all investments of this nature, it is worthwhile thoroughly researching and comparing equipment, and asking suppliers about their range of options.

In our next instalment in this series we will look at the different types of equipment finance options available and their suitability across different scenarios.

November 5, 2019 / by / in , ,
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