It's an accepted part of living and running a business that it is expected that we all live and work to a certain laws, regulations and terms in order to achieve a smooth-running and cooperative society. But when it comes to arranging finance to support and grow your business, to invest in equipment to facilitate improved productivity, to install new systems and processes to increase your bottom line, most business owners want to have input on the terms. You're looking for a workable financial solution which is negotiated to suit your business, not a cookie-cutter, one size fits all, basic loan.
While much of the focus and fixation with finance is around interest rates, many can overlook the significance and importance of the loan term and loan conditions in the overall cost-effectiveness of the finance. As your equipment lender, we certainly do not. While we have our own obsession with achieving the cheapest interest rates equipment finance, we are not pre-occupied with rates at the expense of the other loan determinants. Our focus is on achieving an overall financial solution which best meets the preferences and requirements of individual customers.
We expand and explain on the significance of getting a loan on your own terms!
Equipment Loan Term Considerations
The number of years you have to repay a loan is the finance or loan term. It can be represented in months or in years. When taking on equipment finance, business owners have different points of view when it comes to the loan term they want. Some want as long as possible and some want a shorter term so they own the equipment faster. Both can work equally well, it really depends on the financial objectives of the business and in some cases the equipment itself.
We cover off on some key considerations in regard to loan terms FYI:-
- The longer your loan term the lower the monthly repayments.
- The shorter the loan term the higher the monthly repayments.
- If you have a target repayment amount you want for your loan, the loan term works in conjunction with the interest rate and the balloon/residual to arrive at the repayment. You can vary the loan term to vary the repayments but you can also vary the balloon/residual while leaving the term the same to vary the repayments for the same total loan amount.
- The shorter the loan term the sooner you will own the equipment outright and it will be an asset on your balance sheet. If you are considering other loans down the track this may be important, ensuring you have security against future loans.
- Some lenders will have guidelines around how many years they will offer on finance. These decision may be based on the age/condition of the equipment or specifics around the applicant.
- Banks can have set guidelines around equipment finance terms. Many of our non-bank lenders are more negotiable on terms. If an individual lender does not offer the loan terms you want, your Jade consultant can source quotes from other lenders that may be more open to negotiating on loan terms.
- The forecast value of the equipment should be a consideration when deciding on a loan term. That is the possible resale value down the track.
- If you decide to upgrade and trade-in or sell that equipment before the end of the loan term, most would want to ensure the sale/trade-in they receive will cover the amount outstanding on the equipment. That is that the amount owed is in line with the market value.
- The working life of the equipment should be a key consideration when deciding on the loan term you would prefer.
- Most equipment finance deals, including those arranged through Jade, have a fixed loan term. So once the contract is finalised and settled, that loan period will not change. If you do payout the loan before the end of the loan term, early payout fees may apply from the lender. So getting it right up front when the finance is arranged can have an impact, positive or negative, on your business over the many years of the loan.
Getting Your Terms
After all those ‘considerations’ the big question is how DO you get the loan terms that suit your business? If the bank or lender does not offer the loan term you want with their initial loan quote then it will require some negotiation. As we have significant bargaining power in the equipment finance sector, we can use that power to negotiate better finance terms for our customers.
Jade Equipment Finance is accredited with industry-only non-bank lenders as well as the major banks. Where a bank may not budge on terms, many of our non-bank lenders are more flexible and will negotiate.
Using our equipment loan calculator is a great way to prepare for your finance. You can easily see how varying the different elements of the loan change the repayments. Play around with entering different loan terms and balloon values to see what terms and values will best work for you.
When briefing your Jade consultant, advise us of your preferences so we can work towards achieving that finance solution for your acquisition.
Discuss equipment finance products with Jade Equipment Finance on 1300 000 003
DISCLAIMER:THE DATA, POLICIES, INFORMATION, CONTENT AND REFERENCES AS PRESENTED IN THIS ARTICLE IS FOR GENERAL PURPOSES ONLY, IS SOURCED FROM RELIABLE SOURCES BUT NO LIABILITY IS ACCEPTED SHOULD THERE BE ERRORS OR MISREPRESENTATIONS OF DETAILS IN THE CONTENT. THIS INFORMATION IS NOT INTENDED AS THE SOLE PURPOSE OF MAKING FINANCIAL DECISIONS. READERS SHOULD REFER TO A FINANCIAL ADVISOR OR ACCOUNTANT IN THE EVENT THAT THEY REQUIRE PROFESSIONAL GUIDANCE AND CONSULTATION ON THEIR INDIVIDUAL FINANCIAL POSITION.