While costs of living pressures are in the spotlight as inflation has been soaring, for business operators the rising prices of machinery and equipment are also of major concern. In addition to the price rises buyers may also be finding a lack of discounts and special offers being available through dealers and manufacturers due to stock shortages. These issues are highlighting the need for business owners to source cheaper equipment finance when acquiring new plant, machinery and equipment.
Global supply issues including shortage of components, inflationary pressures in many overseas markets, supply and demand inequalities and other issues are causing, in some cases, huge hikes in the prices of manufactured goods.
Cheaper equipment finance can offset the additional cost factors from rising prices and less availability of discounts and make machinery purchases affordable. The process of acquiring that essential cheaper, more workable finance involves addressing a number of aspects of the loan. We explain each of these aspects and how we assist operators to achieve the optimum finance solution.
Interest Rate
Interest rates are definitely key to the overall cost of finance, the monthly repayment and the general affordability of the loan. Interest rates in general have risen over the past few months as the RBA has commenced a process of normalising the cash rate to address the rising rate of inflation.
After an extended period of record low lending rates, many operators may have become somewhat complacent. Now is not the time for complacency. Rates will vary across the lender market, for different loan types, in different industry sectors and possibly on specific types of machinery and equipment.
To source the cheapest rate, business owners can either do a lot of work themselves in researching the lender market and requesting multiple quotes or they can save that time and hassle and engage Jade Equipment Finance to handle all that for them. As a broker-style lender we have direct and immediate access to many bank and non-bank lenders. This enables us to quickly and accurately identify which lender is offering the cheapest rates for that specific industry and specific equipment category.
Finance Term
The finance term can have an important bearing on the affordability of finance as it determines the repayment in conjunction with the interest rate. If the goal is to achieve the lowest monthly repayment to ease pressure on cash flow, then a longer finance term would be sought. But be aware that this would incur a greater total interest payable and as such increase the overall cost of the equipment.
If the goal is to reduce the overall acquisition cost, then opting for a shorter finance term may be sought. The monthly payment would be higher than for a longer term, but less interest would be payable. Thus reducing the combined total cost of the machinery. This could be the reduction to offset any higher prices or lack of receiving the usual dealer discount.
Terms must be approved by lenders and form part of the finance application assessment process. Some lenders will have strict guidelines to operate to. Your Jade consultant steps in at this point and negotiates for the preferred finance term to achieve the preferred outcome.
Balloon and Residual
The amount of the balloon or residual can also impact affordability by varying the monthly payment. Higher balloon lower monthly payment. Lower balloon higher monthly payment. But similar considerations as discussed in regard to the finance term also apply.
Total interest payable should be considered as well as lender guidelines. To form a view as to how you may like your finance structured in this regard, utilise our Finance Calculator.
Finance Amount
This may sound like stating the obvious, but the amount requested for the loan effects the total cost as well as the repayments. While rates were at their lowest, when machinery prices lower and when dealer discounts were readily available, requesting no deposit finance was very much the go-to preference for business owners.
But with the current scenario it may be time to rethink that option. Making a down payment on the purchase price can reduce the amount required for the loan. That will in turn reduce the total interest payable and the monthly payment. Worth giving a bit more thought. By using this strategy, the higher cost of the new equipment may be offset.
Tax Deductions
Tax deductions effectively reduce the cost of finance and in turn the cost of equipment and machinery by reducing taxable income and hence tax payable. So any lower cost of the machinery and ‘discount’ can be realised in the end of year accounts.
Tax deductions vary across the selection of finance products and the choice of which loan type best fits with the individual business structure should be considered in depth with the accountant.
Special tax measures such as IAWO and temporary full expensing should also be considered. To take advantage of this measure, Chattel Mortgage
Lender
Bringing all these aspects together may come down to the choice of lender. Having a lender that is flexible when it comes to negotiating on term, conditions, structure and can offer cheaper rates can be the game-changer. Jade Equipment Finance is that game-changer. Our contacts, accreditations, accessibility and proven track record in sourcing better interest rates provide our customers with a service to deliver better, cheaper finance outcomes.
Contact Jade Equipment Finance on 1300 000 003 to discuss how we can assist with reducing the overall cost of machinery acquisitions with cheaper 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.
