If you are thinking about investing in new equipment, there are five critical Equipment Finance Traps to avoid!
Increasingly, business owners need to invest in new equipment to improve productivity, create efficiencies or meet higher customer expectations.
Having the latest equipment can help businesses sustain their competitive advantage, but if finance is required, it is important to avoid common traps and pitfalls.
Equipment Finance Trap No. 1 – Poor Planning
Investing in new equipment is like any other investment, it requires research and planning. That is:
- Researching the equipment & suppliers to ensure it meets your needs. That support and parts will be available if required!
- Researching the finance and understanding the options and importantly, their implications!
Equipment Finance Trap No.2 - Insufficient Time for Installation and Commissioning!
Another Equipment Finance Trap is not allowing sufficient time for installation and commissioning of the equipment before repayments start.
To avoid a costly restructure and potential cashflow issues, it is critical to consider how long it will realistically take to install and commission the equipment.
This is as much in the Lenders interest as your own!
Equipment Finance Trap No. 3 - Repayments Not Aligned to Cashflow!
Not aligning the repayment program to cashflow is another critical Equipment Finance Trap to avoid.
Many businesses experience seasonal cash-flow fluctuations which can, and should, be built into your repayment structure.
Not aligning repayments to cashflow can create unnecessary cash-flow pressures.
Lenders do not want loans in default, it is as much in their interest as yours to ensure the repayments are aligned to cashflow!
Equipment Finance Trap No. 4 - Choosing the Wrong Product!
If you choose the wrong product, it can have implications from an ownership, depreciation and tax perspective.
To avoid this expensive mistake, always use an Equipment Finance Specialist rather than a generalist Financier.
Someone who understands this specialist finance and not someone selling a product to make a sale or meet a target!
You can learn about the different Equipment Financing options by downloading our free Equipment Finance Handbook
Equipment Finance Trap No. 5 - Headline Interest Rates
The Equipment Finance sector is highly competitive and great rates are available.
That said, focusing on the interest rate in isolation, rather than the total cost of the finance over the term, is another Equipment Finance mistake to avoid!
A low headline interest rate may be offset by:
- Higher Balloon or Residual payments which means you pay more interest over the term of the facility
- Additional fees and charges
- Equipment soon to be replaced by updated models
In short – if the rate seems too good to be true, investigate further!
Summary
Like most things in business, research and planning are critical to a successful outcome.
If you are thinking about investing in new equipment, call me and I can explain the options available and likely terms and rates etc.
I can also provide guidance to avoid unnecessary frustrations and delays.
By working with your Accountant, I can also help ensure repayments are structured to your cashflow and that the Equipment Finance Traps I have outlined, are avoided!
