Dealing with banks can sometimes make you feel like an ageing sports star. They can see your potential okay – it’s just that they often think your best is behind you.
That’s no good, of course, for a business you know is fundamentally sound but needs a helping hand for some essential equipment.
So look around, and look beyond the banks. It’s not like there’s a shortage of finance options available – but be smart about things. Why? Because you’ll find there are online lenders, credit unions, government grants and there are brokers, who may or may not be expensive.
The pros and cons of brokers
A business finance broker can make it easy to get the finance you need and they can find you the best loan terms. They’ll do the legwork and try to keep the application process as stress-free as possible.
Brokers can really come through for people or businesses without a strong credit history. And because they have good relationships with lenders, they know where to find loans if your credit is ordinary.
On the flipside, choosing the wrong broker will cost you time and possibly money. So be smart, check their reputation within the industry and their track record.
Each type of finance has its own merits, and its own demands. And some will suit you better than others, especially if you’re looking to finance commercial equipment. In brief, your chief options are a business loan, hire purchase, a chattel mortgage or a financier.
1. A business loan
A business loan from your local bank is subject to the usual credit checks and requirements.
These can mean low, fixed interest and predictable monthly payments, and they will also help you build your business credit. But they can also mean lots of paperwork and a longer wait for your cash, while requiring collateral and a strong credit rating.
2. Hire purchase
Hire purchase lets you get and use equipment while paying for it in instalments. The negatives are that monthly payments tend to be higher than on a lease or personal contract purchase, because you’re paying for the vehicle, not just the depreciation. Until the final payment is made, the finance house still owns the vehicle.
On the plus side, it’s a fixed rate loan – and usually a low rate – and you get to own the vehicle outright. You can reduce monthly costs with the addition of a balloon payment, a larger sum at the end of the contract.
With hire purchase you aren’t restricted by mileage or conditions, and the contract can be ended early if you have the cash to pay the finance off.
3. A chattel mortgage
A chattel mortgage is where a finance company lends money and your business makes regular repayments. The mortgage is removed when the loan is completed.
A chattel mortgage offers several benefits for both the debtor and the lender, including low fixed interest rates and the ability to claim tax benefits. There is also the potential to arrange the repayment using one or more balloon payments rather than simply following a series of monthly instalments.
4. A financier
A financier will buy the equipment on your behalf and then charge you weekly rental while using it; after 12 months you can keep renting, return or buy the equipment.
The thing is, your best financier will be familiar with your industry. it can be a company or an individual who knows what you’re up against but, most importantly, someone who can see opportunity the same way you can.
Make a few calls and find out who’s who in the zoo. Don’t let the sharks start circling.
Authored by Noel Murphy
Noel Murphy is a freelance editor, journalist and writer whose work has appeared in numerous News Limited and Fairfax mastheads including the Australian Financial Review, Herald Sun, Geelong Advertiser, The Weekly Review and Domain. He has interviewed industry captains, CEOs, lawyers, tradespeople, professors, scientists, doctors, politicians, vice chancellors, authors, judges, astronauts, rock stars, great train robbers – even ageing sports stars.