Operators may improve their prospects for cheap equipment finance by considering the rate, term, amount, financial position, credit profile, and the lender. What is cheap equipment finance? Essentially it is financing for machinery and other assets that is the least expensive. That may mean with the lowest possible interest rates, lowest monthly repayments, and/or the lowest possible total cost when interest and lender fees are included.
There are multiple factors that affect the cost of finance and what a business operator will be offered for asset loans. Offers can vary from different lenders, with different credit facilities and with different loan structures.
Understanding what factors contribute to the cost of financing may assist business owners to work towards achieving their most inexpensive loan.
Factors Contributing to Cheap Equipment Finance
The asset acquisition credit market is extensive and there are variations in loan pricing and criteria with different lenders. Where a business does not meet the lender criteria, they may expect to be offered a higher rate or not be approved for the loan elements that may deliver a more affordable outcome. By using a broker with access to a large lender base including specialist asset finance non-bank lenders, may assist in achieving a more inexpensive loan.
The credit profile and financials of the business are key when it comes to achieving the cheapest interest rates. Businesses with a less than good credit rating are considered higher risk and higher rates typically apply.
The relationship between rate, term, loan amount and optional balloon is integral to the cost of financing. Varying one or all of these elements may lead to a more inexpensive loan.
The size of the loan relative to the value of the asset is an important factor when lenders price finance. For example, no deposit finance may be considered higher risk than if the operator makes a downpayment and reduces the loan to say 80% of the purchase price. This may also be achieved with using a trade-in to reduce the loan-to-value ratio.
Where ‘cheap’ is considered as the lowest overall cost of the finance, the interest element should be considered. Lowering the overall cost of finance can involve lowering the total interest accrued. This may be achieved with a better rate, lower loan amount and with a shorter term.
Opting for a longer-term loan can result in lower repayments, but more interest accrues than with a shorter-term loan. This brings into consideration the issue of whether the operator considers the lowest monthly payment as the definition of a cheap loan or the total interest and resultant overall cost.
If the focus for achieving the most inexpensive repayments, the balloon may be addressed. Chattel Mortgage and CHP allow for a balloon. A larger balloon can result in smaller monthly repayments and a smaller balloon in larger monthly payments.
Securing Best Rates for Cheap Equipment Finance
For most operators, the cheapest loan will mean the cheapest possible interest rates. Asset loan rates are set by individual lenders with many using the cash rate as set by the Reserve Bank as the basis from which to set their own rates. Rates vary across the market and with different asset financing facilities.
Chattel Mortgage and Commercial Hire Purchase attract the lowest asset finance rates, Asset Lease is slightly higher and Rent-to-Own the highest rates across the market. Businesses must select the credit product that suits their accounting method – cash or accruals, and their balance sheet and tax deduction preferences.
While that may limit the opportunity for some operators to use the credit facility with the lowest rate to achieve a cheaper loan, there may be possibilities worth considering. CHP can work with both accruals and cash accounting. If operators using the accruals method are happy to take ownership of the machinery from settlement and post the asset to their balance sheet, changing from Lease or Rent-to-Own to CHP may be an option. The lower rates offered with CHP compared with Lease and Rent-to-Own may be worth compromising on the appearance of their balance sheet.
Improving Financials for Cheap Equipment Finance
The strength of the business financial position and credit history are important factors in being offered the lowest rates and most affordable financing. These are areas where operators with a less than good position may be able to take action to improve their prospects.
The financial position may be improved by reducing debt levels before applying for new loans. This may provide more capacity to invest in new assets and attract better rates. Maintaining a good payment history and credit rating are important at all times. To improve from a less than good to a good rating may take time as entries on credit reports are in place for several years.
For operators with a less than good credit rating, finding lenders that will approve loans with affordable rates to such applicants may be the way to achieving the cheapest possible financing solution. Speak with a Jade broker about your objectives and we will advise the cheapest possible asset loans we can secure for you.
For cheap equipment finance, request a quote with the cheapest possible interest rates from Jade Equipment Finance 1300 000 003.
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.
