The lending sector is vast and highly competitive in some areas, with multiple lenders vying for a share of the business on offer. In addition to the traditional sources of banks, finance companies and finance brokers, there are other types of businesses offering loans for all sorts of consumer and business acquisitions. Dealers, manufacturers and other sellers are now in the game through, usually, arrangements with finance companies. Having the opportunity to sign up for a loan at the same point of purchase can be seen as a convenience for many buyers. Convenience but not necessarily cheaper. At Jade Equipment Finance we make it very convenient and smooth to source finance – but more on that later.
This expansion of the lending sector and competition for business, naturally results in an advertising overload. One of the popularly seen slogans is ‘no deposit finance’. You’ve probably seen it over and over again. Sounds great, especially if you’re planning the purchase of a piece of equipment with a pretty hefty price tag. Finding the ready cash to fork out for a deposit can put pressure on cash flow. Not everyone has that sort of money sitting around doing nothing. Most businesses run on pretty tight margins.
So not having to find a deposit sound very appealing. But is this really a special offer or is it standard operating practice by most lenders? Yes and No. But we explain.
Definitions and Differences
By simple definition, no deposit finance essentially means borrowing 100% of the purchase price of the equipment. But it is who is making this offer that determines any differences or variations in what is actually on offer.
A deposit may be requested by any seller in order to hold the equipment out of the market while the buyer gets their payment sorted. A deposit is made to confirm the purchase. In the case of custom equipment or machinery that requires commissioning or other pre-purchase processes, a deposit may be requested so the seller can cover their costs involved and as confirmation that the buyer won’t change their mind.
When the buyer then sources finance for that equipment, they can include any deposit they have paid to the seller in the total loan amount being requested. When the lender pays the seller at settlement, the seller can refund the deposit back to the buyer. It is a holding deposit. That would need to be agreed to between buyer and seller.
So the lender in this example is not requesting a deposit, they are extending the full purchase price in the loan deal. Special or standard? Read on.
Standard Jade Equipment Finance Deals
At Jade, we approach every customer’s finance application on an individual basis with each one personally sourced and negotiated to achieve a tailored finance solution. Not as a standard cookie-cutter equipment loan. However, there are standard or consistent features across most equipment loans and that includes no deposit.
Essentially, for businesses with good credit that meet lender requirements, the lender will not request the borrower pay a deposit on the finance. On commercial finance deals, the first’s monthly repayment is often due at the time of signing the contract. But that is standard practice in many cases.
For most equipment finance deals, Jade will be seeking 100% of the purchase price in the finance deal for the customer. That is, no deposit finance and that is standard not special. It is applicable for Leasing, Chattel Mortgage, Rent to Own and Commercial Hire Purchase.
Exceptions to the Standard
As loan applications are addressed and assessed individually and individual lenders will have their own requirements, exceptions will occur. In some cases, the lender will request the borrower reduce the total loan amount being requested. This can be achieved by paying a non-refundable deposit to the seller to reduce what is owed on the purchase price. So the lender is not actually asking for a deposit be paid they are saying they are not prepared to offer that business that total amount in a loan for that particular piece of equipment.
This may occur in a few scenarios:-
- Used equipment purchases. The lender will include the value and life of equipment when assessing the overall risk associated with a loan deal. If they consider the total loan amount exceeds the value or perceived value over time, they may request a lesser loan amount be requested. Effectively meaning no deposit finance is not available.
- Low Docs No Docs Equipment Loans. In many of these cases, the borrower can expect to be asked to pay some form of deposit on the equipment to reduce the ratio of loan to value of the equipment. This condition would be made on an individual basis. This may apply to the purchase of both new and used equipment.
If offered ‘no deposit finance’ in either of the above scenarios when possibly your Jade consultant has sourced you a deal where a deposit is requested, look at the detail! Any big claim finance deals can conceal higher interest rates or charges.
Jade Equipment Finance is a licensed finance broker and credit provider and abides by the Code of Conduct of the industry association and ASIC regulations. We always source the cheapest offers that meet our customer requirements. Every deal is special and in most cases, no deposit is standard.
To discuss equipment finance options contact Jade Equipment Finance on 1300 000 003
DISCLAIMER: ALL INFORMATION PROVIDED IN THIS ARTICLE IS INTENDED AS GENERAL INFORMATION PURPOSES AND NOT AS AN EXCLUSIVE OR SOLE SOURCE FOR MAKING FINANCIAL DECISIONS. INDIVIDUALS SHOULD SOURCE INDEPENDENT ADVICE FROM A FINANCIAL ADVISOR IF THEY REQUIRE SPECIFIC DIRECTION IN RELATION TO THEIR CIRCUMSTANCES. CONTENT MATERIAL, DATA, SPECIFICS, PRODUCT FEATURES AND OTHER INFORMATION IS SOURCED FROM A RANGE OF SOURCES AND NO LIABILITY IS ACCEPTED FOR ERRORS OR MISINTERPRETATIONS OF SUCH DATA.