Equipment Financing Series

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Using A Broker

What should small businesses look for?

Equipment financing is a critical component of small business decision-making, having the potential to facilitate uninterrupted operations and provide an avenue to growth, and for businesses considering using a broker there are a number of factors to keep in mind.

Making the right decision for your business can provide both immediate and ongoing benefits, and it can be beneficial to keep an eye on long-term goals and expectations.

As noted by Finlease Founder and CEO Mark O’Donoghue, businesses seeking out a broker should consider whether the broker has experience in their particular industry, along with the broker’s capacity to provide a specialised and flexible service.

“It’s the expertise of the broker that’s going to deliver the right outcome, and it’s probably no different to the arborist figuring out what machinery he needs to take to what site to perform what function,” Mark told AA.

“If you’re dealing with a decent broker, that’s what they do all day – it’s all about understanding the appropriate structures, and what levers are going to do what.”

What to look for: a specialised and flexible service offering Highlighting the importance of industry knowledge, Mark observed that a broker should have a thorough understanding of the type of equipment commonly used in a particular industry, providing insight into why a business needs to buy equipment and the financial justification for the purchase.

This type of knowledge should be underpinned by a preparedness to accommodate business owners, who may need assistance outside of typical business hours.

“A good broker should be available on his mobile after hours, often on the weekends,” he commented. “Similarly, if you need a set of finance documents signed, the broker should be seeing the client, either at their office or the site that they’re working at.

“If you think of brokers as being very similar to their clients, in other words they’re small businesses themselves, they need to have good service offerings to make sure they maintain their clients a long time.”

In addition to this, for businesses considering using the services of a broker, it is important to take into account what the market is saying.

“I think anyone looking at a broker should look to see what’s the independent feedback about that broker,” Mark told AA. “Do a little bit of research to see that they’ve got happy clients – if they’ve got happy clients, there’s a good chance that you’re going to be happy.”

The wider perspective: providing additional benefits for businesses

Mark noted that brokers should have a broader understanding of their client’s business operations and requirements beyond finance, observing that “a good broker should be doing more than just organising money”.

By way of example, he pointed to the federal government’s instant asset write-off, which was expanded last year to eligible businesses with a turnover of less than $50 million, applying to assets that cost less than the threshold of $30,000.

“Brokers need to make sure that their clients know that if they buy a piece of machinery for $25,000, that they can immediately claim that as a deduction on their profit/loss account, despite the fact that they might put it on finance over five years,” Mark explained.

“However, it would be important to use a chattel mortgage, where you are shown to be the owner from a tax point of view, as opposed to a lease, where you’re not the owner, because you’ll miss out on the depreciation.”

Mark additionally stressed the importance of maintaining a productive client-broker relationship over time, pointing to the long-term benefits that can be delivered.

“A broker should do everything possible to ensure they’ve got a really happy client, and they’re going to keep them for 20 years,” he commented.

“Once the broker knows your information, they can continue to help you every year, year in, year out, with very little work done by you, because they already know your story and the financial situation of your business.”

In our next instalment in this series we will further look into how brokers organise equipment financing for small businesses in the tree work industry.

May 25, 2020 / by / in ,
The Pros And Cons Of Leasing Or Buying

Businesses weighing up whether to lease or buy equipment will likely be able to draw up a long list of pros and cons for each respective approach, and it is well worth assessing the range of options available before deciding one way or another.

Arborists routinely require a range of equipment to safely, efficiently and effectively carry out their work, from wood chippers to stump grinders, to elevated work platforms, trucks and loaders, and whether to lease or buy will be determined by a variety of factors.

Of course, in making a decision, it is important to carefully consider individual business requirements – including how equipment will slot into day-to-day operations, and what sort of short and long-term value it will provide – in the context of financial circumstances.

Leasing And Buying: Pros And Cons

A pricey equipment purchase has the potential to make a big dent in the budget of a small business, and it simply may not be feasible to buy outright, with leasing providing access to equipment that might not otherwise be attainable.

However, rather than paying outright, there is also potential to secure a loan via different types of finance products, providing for gradual payment over a period of time, delivering businesses an alternative avenue towards ownership.

There are a range of factors to keep in mind, with the business.gov.au website pointing to the following plant and equipment leasing and buying pros and cons.

Leasing Pros and Cons:

Pro – easier and quicker to update equipment

Pro – smaller, regular payments, allowing for budgeting for equipment over a longer time

Pro – the leasing company is usually in charge of fixing equipment that has issues due to normal wear and tear

Con – total costs over time may be more than the upfront cost

Con – no potential to sell equipment and make money back once the lease is finished

Con – difficulty fixing equipment if disagreement arises over repair terms and conditions

Buying Pros and Cons:

complete control over equipment required, not limited by the leasing company’s stock

Pro – complete control over repairs and maintenance

Pro – equipment can be sold when no longer required, allowing for partial cost recovery

Con – expensive equipment may be unattainable, with a business having to settle for a lower-cost option

Con – equipment repairs and maintenance costs, unless covered by a warranty or insurance

Con – quickly outdated technology may be difficult to recover value back on, even if sold

As noted via business.gov.au, businesses should also keep in mind the potential tax benefits of each approach, such as claiming leasing costs as a tax deduction if equipment is used solely for a business or claiming depreciation costs as a tax deduction on purchased equipment.

Business Requirements And Finances

In assessing business requirements, it is worthwhile considering what sort of value new, regularly updated equipment will provide, the potential impacts of equipment downtime and the capacity to replace machines or equipment.

In assessing finances, it is important to adopt both a short and long-term perspective, and to keep in mind how costs can accrue over time.

Finding the right balance will likely be an ongoing challenge as a business evolves – and, of course, as part of the process, it is worthwhile seeking external advice, such as from an accountant or business adviser, as to the best approach.

In our next instalment in this series we will talk to a finance company about the options small businesses have.

March 16, 2020 / by / in ,
Different Types Of Equipment Finance

Businesses seeking out equipment finance have a number of options at their disposal, and it is important to thoroughly research and consider all options in determining what is the best type of finance for your business.

A one-size-fits-all approach does not apply when it comes to equipment finance, with individual businesses having a range of specific needs – and for this reason there are a number of different methods of financing available.

Selecting the right type of equipment financing could result in significant benefits for your business over the longer term, providing access to new equipment, and helping to manage cash flow and balance your business operations.

Equipment Finance Options

It is important for businesses considering using equipment financing to develop an understanding of the range of financial products available as part of the process of determining what their best option will be.

As advised via the business.gov.au website, the following are some of the types of business financial products available:

Loans – which can vary in the amount and term of the repayment, interest rate and type, fees and security, with it recommended to carefully check the product disclosure information carefully before applying, regardless of choice of product

  • Line of credit – providing funds access by allowing the borrower to draw on an account balance up to an approved limit, with the borrower able to draw funds at any time, as long as the balance does not exceed the limit
  • Commercial hire-purchase – purchasing the good via an initial deposit, and then leasing it while paying instalments and interest charges, while the instalments may be reduced by opting for a larger final
  • payment, often referred to as a “balloon”payment
  • Chattel mortgage – while similar to a hirepurchase agreement, the purchaser owns the asset from the start, requiring regular ongoing payments that can be reduced by opting for a larger final payment

When it comes to leasing equipment, financial products may be structured to provide a business the option to purchase equipment at the end of a lease, such as via a commercial hire-purchase, while other products see the lender retain ownership.

What is best for your business will depend upon both short-term and long considerations, and it is important to look to the long term and keep in mind potential future requirements.

Research The Options And Seek Out Expert Advise

For businesses weighing up their options, it is certainly worthwhile conducting independent research, including reviewing and offers, and consulting with a range of financial institutions.

It is well worth utilising the range of online resources available, including calculators provided by some institutions, delivering businesses insight into the size of payments that will be required and how often they will need to be made, along with cumulative interest paid and the total amount paid.

Of course, this sort of commitment is nothing to rush into and it is important to take the time to assess your financial situation in determining what will be best for your business, and to also consult with experts, such as an accountant, when further information is required.

In our next instalment in this series we will look at the respective pros and cons of leasing and buying equipment.

January 21, 2020 / by / in , ,
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 , ,