We’ve posted the latest update on the RBA’s April rate decision and the predictions that many economists, lenders and analysts expect the central bank to move to increase the cash rate as soon as June. For those that have had to delay their machinery acquisitions due to supply issues and availability of their preferred model, that news must come with an increased sense of annoyance. The prospect of missing out on cheap machinery finance because of the supply problem can be extremely frustrating.
A looming rise in interest rates does not have to mean reduced opportunities to access cheap machinery finance for equipment for many business operators. As equipment and machinery finance specialists that focus on achieving cheaper loans, we have compiled a number of ways that businesses can approach machinery finance in order to ensure that they achieve the most cost-effective and the cheapest interest rate offer available. The cheapest finance despite the prospect of rises in general lending interest rates across the market.
Yes, we do realise that availability has been a major obstacle to purchasing new machinery and equipment for many business owners. When the RBA timeframe for a rate rise was 2023 or even 2024, waiting was an option. Now that interest rates are tipped to start creeping up from as soon as June 2022 and possibly several times this year, it may be time to reassess priorities.
That may include seeking other brands or alternative models which are currently available so you can secure finance at the current historically low interest rates.
Review Equipment Finance Selection
Regardless of the official interest rates, the rates which apply to different finance products vary at all times. The interest rates for Equipment Lease, Chattel Mortgage or Equipment Loan, Hire Purchase and Rent to Own are different.
Hire Purchase and Chattel Mortgage attract the lowest while Rent to Own the highest. If you usually opt for say Lease or Rent to Own, considering the cheaper interest rate products may be an option. This choice will of course be dependent on the suitability of the features of each finance facility to the individual business objectives and should involve a discussion with an accountant.
See how equipment finance repayments vary when different finance products are selected by viewing our Interest Rate Calculator.
Take Advantage of Tax Measures
If monthly equipment finance repayments may be more than anticipated post-increase, then realising tax deductions may counter the impact of that increase. Instant Asset Write-Off and temporary full expensing are available through the 2022/23 financial year for eligible asset acquisitions. This may include the machinery you require.
The full machinery cost can be a tax deduction in the year the asset was acquired but the appropriate form of finance, Chattel Mortgage, needs to be selected.
The reduction in tax payable realised may be a significant offset for any increases caused by higher interest rate finance.
Hone in on Finance Structure
Cheap machinery finance is clearly a very relative concept. It needs to be considered within the context of the individual operation. What is ‘cheap’ to one business may be extremely ‘costly’ to another.
While the focus of finance is primarily on interest rates, to achieve cost-effective finance, businesses can focus on the finance repayments. This is the amount payable each month and can have the most significant impact on cash flow. This can be the cost-effective factor.
Most business owners regardless of the size of the operation, will have a target loan repayment figure they want when applying for machinery finance. Achieving that target is not always possible if dealing with lenders that are not flexible and open to negotiating on loan terms. This is a key area where Jade Equipment Finance can greatly assist.
Repayments can be varied by changing the loan term and/or the balloon or residual. Having access to lenders that are flexible when it comes to negotiating on loan structure can be critical. We offer a vast selection of lenders including specialist non-bank equipment lenders that are willing to discuss terms. Your Jade consultant handles these negotiations on your behalf.
By using our Equipment Finance Calculator and changing the finance term and balloon, you’ll realise how the structure of the loan can be tweaked to achieve the target repayment amount. The amount which may be the issue that determines whether or not the finance offer is a cost-effective or cheap option.
Credit Rating Matters
Interest rates advertised by machinery finance lenders will in most cases relate to businesses with a good credit profile. By keeping your credit profile in a good score range will increase the prospects of being offered the cheapest interest rate.
Use the Support Services Available
The machinery and equipment finance market is quite extensive with both banks and non-bank lenders active in the sector. Utilising the services available in order to access providers of the most competitively-rated finance can be a smart move.
Broker-style lenders such as Jade Equipment Finance provide industry-level access to a vast selection of specialist lenders and offer a range of additional benefits to operators seeking cheaper machinery finance.
With the lending rate scene set for a change in coming months with the imminent rise in the cash rate, it may also be time for businesses to review how they source their finance.
Speak with a Jade Equipment Finance consultant on 1300 000 003 to discuss cost-effective and cheap machinery finance options
DISCLAIMER: IF MISINTERPRETATIONS, MISREPRESENTATION OR ERRORS EXIST IN THIS ARTICLE, NO LIABILITY IS ACCEPTED. THE INFORMATION IS PROVIDED ONLY FOR GENERAL PURPOSES AND NOT IN ANY MANNER INTENDED AS THE ONLY SOURCE FOR MAKING FINANCIAL DECISIONS. THOSE THAT CONSIDER THEY REQUIRE ADDITIONAL GUIDANCE OR ADVICE SHOULD REFER TO AN INDEPENDENT FINANCIAL ADVISOR.