Navigating the financing market.
Following on from the previous article in this series, exploring what small businesses should keep in mind when using a broker, we’ll now take a look at how brokers organise equipment financing and some of the processes involved.
As Finlease Founder and CEO Mark O’Donoghue noted in the previous article, businesses should pay particular attention to the scope of a broker’s experience and flexibility of service offerings, which will provide the platform for a favourable outcome.
Given the specialised nature of the industries brokers deal with, Mark additionally pointed to the importance of specific industry knowledge, which in turn will provide perspective on a business’ rationale for seeking finance and help guide the process.
In this respect, the broker’s role encompasses weighing up their client’s requirements and financial situation, along with what the market is offering, in securing suitable finance.
Weighing Up the Market Options
Mark advised that brokers have access to a network of financiers, from which they assess the options available and then determine the most cost-effective and appropriate path forward for their client, keeping in mind a number of factors.
“Obviously, part of it is around the interest rate – so, you want to always have the lowest rate you can get for your client, that’s the first thing,” he told AA. “The second thing it’s around is ease.”
Along these lines, Mark highlighted that the market has evolved, with many financiers having adopted a “behavioural” approach to credit assessment, rather than looking at client financials.
“They’re simply saying, if you’ve been in business for three years, and you’ve got a clean credit history, and you’re a property owner – you may not have much equity in it, but you’re actually a property owner – we’re going to automatically approve you up to $150,000,” he explained.
Brokers, in turn, need to navigate what the market is offering in seeking out the best deal for their client, with Mark describing it as “a bit of a minefield”.
“You may have 20 financiers out there, with 10 of them having these, if you like, low- docs, fast-track-style products, and some of them are a little bit better in certain areas,” he stated of the process. “This has become even more relevant in this COVID-19 environment, as the rules are continually changing and the broker needs to be well informed and up to date with these offerings.
“For instance, if you’re buying used, where the machine is going to be say 10 years old at the end of its debt term, then you might be restricted to only two or three of those lenders. If it’s new, you might have all 10 available to you.”
Matching Financing to Business Requirements
For businesses seeking out financing, making the right choices in a timely manner can make all the difference, and it is important to have a clear understanding of the role of equipment across the range of your business activities.
A good broker will take care of the legwork, determining the best path forward, and support their client in securing financing that closely matches their requirements.
With the right financing in place, businesses will in turn have every opportunity to both consolidate and expand their operations, tapping into the efficiencies that new and upgraded equipment can deliver.
As outlined in the previous article, it is worthwhile assessing what the market is saying in seeking out a broker, and keeping in mind the long-term benefits that a productive relationship will deliver.
“It’s important to have experience and knowledge,” Mark told AA. “If a client is going to deal with a broker, make sure they’ve been around for a while, so they’ve got the depth of knowledge and experience to be able to do it properly.”
In our next instalment in this series we will further look into what a broker can offer to a small business in the arb industry which is after sound financial advice.