What’s hard to avoid, sometimes confusing to understand but is can be crucial to your business profitability? Interest rates! Specifically the equipment finance interest rates. COVID-19 issues and political reporting aside, the topic of interest rates makes a regular appearance in the media. The way in which interest rates are discussed in say mainstream news media can be confusing for those that are not experts in the finance area. Is it worth learning more? As experts in lending, we consider that it is important for business owners to at least get their head around interest rates and their potential to impact their business profitability.
Getting your head around the significance of equipment finance interest rates to an individual business can be crucial to making profitable and productive financial decisions. Acquiring plant, machinery and equipment with finance is an important process for most business operators. Making decisions around acquisitions to upgrade and replace or invest in new technology to realise improved performance, efficiency and productivity is an essential part of running a business.
Sourcing the cheapest finance for those acquisitions is essential to ensuring that equipment will also deliver on the bottom line. And that requires at least a basic understanding of interest rates. Knowing how rates are set and when they may change can be critical to achieving the cheapest finance deal.
To assist business owners to build on their knowledge bank, we’re provide a basic overview on interest rates and how Jade Equipment Finance assists business owners to secure the cheapest rates on equipment finance.
General Perspective
The general reference to ‘interest rates’ in the media tends to focus predominantly on the housing market as so many Australians have home mortgages. The ‘rate’ that is generally talked about is the official cash rate which is set by the Reserve Bank of Australia (RBA). This base rate so to speak then flows through to the lending markets where banks and other lenders set their rates.
Banks, finance companies and other non-bank lenders set the interest rates they will offer on their loan products with the cash rate as a base and then add in their own costs and factor in other aspects.
The interest rate for loans and finance for different goods vary according to the category of goods, the lender and the loan applicant. Most interest rates advertised will be for new goods and for applicants with a good credit rating.
Home mortgages are particularly susceptible to changes in the cash rate as the interest rate on home loans can be variable or fixed over only a small portion of the total loan term. So when the RBA cuts or raises the cash rates, the banks usually follow with their own changes. This then means many mortgage holders then have a reduction or increase in their monthly mortgage payments.
Equipment finance contracts are not quite as susceptible to variations in the official cash rate because (at least those secured through Jade are) they are secured at a fixed interest rate. By that we mean the rate is fixed for the entirety of the finance term.
So when acquiring equipment with fixed interest rate finance, that rate remains in place over the full, up to 7 years of the finance agreement.
Lender Positions
We’ll focus primarily now on the equipment finance sector. This encompasses all plant, machinery and equipment which is used in business. It can include heavy equipment used in mining and construction right through to delicate medical devices and IT and the basics for an office set-up.
Lenders will have different interests and positions in regard to the interest rates they will offer. Variations will be seen across industry sectors which reflect the lender’s risk assessment of a certain sector. When lenders are keen to be active in a particular sector they tend to be more competitive on rates.
A major point to note is that business finance is not regulated in the same way as consumer finance. Lenders have more flexibility in negotiating loans but some large-scale lenders such as banks will have guidelines that they must adhere to.
Non-bank lenders that specialise in certain areas of equipment finance can tend to be more negotiable on rates and more amenable to offering finance for no docs, low docs and bad credit applicants.
Jade Equipment Finance specialises in equipment finance and has accreditation with multiple lenders including the major banks. When sourcing finance for our customers we have a vast choice so we can get that all important cheapest interest rate.
A good credit profile tends to relate to a better interest rate being offered as it relates to the risk factor. Maintaining a good credit profile is critical to securing the best rate offer.
How Variations Can Add Up
Talk around interest rates is always in percentage points or bases points. These may sound miniscule, especially for businesses operating in large-scale environments, working with large quantities of materials and other spaces. But they can add up over the term of the finance and they can mean significant differences in the monthly outgoings with the loan repayments.
To see exactly how much, play around with our Finance Calculators. Dismissing a small difference in the rate on an equipment finance deal can be at an individual’s peril over the long term.
Current Outlook
The current official cash rate is 0.1% and the RBA has repeatedly stated its targets to trigger a rate rise – sustained 2-3% inflation and nearing full employment. The recent surge in inflation has created a lot of discussion around an imminent rate rise. The RBA was saying around 2024 but it is looking more likely to be in 2022.
That was the scenario at the time of the RBA Board last meeting at the start of February. But more recently the RBA Governor, Philip Lowe has commented that moving too early on rates could compromise the opportunity to near full employment.
For those considering acquiring new equipment with finance in the near future, moving quickly or at least staying across developments in interest rates could be beneficial in order to achieve the current historic low rates.
Interest rates is a complex topic but by engaging Jade to source your equipment finance, we streamline and simplify the entire process. Ensuring better rates and the entire finance sourcing and negotiating handled for you. Hopefully we’ve clarified much of the confusion around interest rates so you have a much clear idea of what’s going on.
Contact Jade Equipment Finance on 1300 000 003 for a quote on cheap interest rate equipment finance.
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.
