
Financing equipment can be a great way to get the equipment you need to stay productive and maintain your competitive edge.
Increasingly, modern equipment is needed so that you can compete in what is now a global marketplace!
It can also help to:
- Conserve precious working capital
- Improve your cash flow management
- Keep up with changing technology
Financing Equipment - Getting It Wrong Can Be Costly!
However, if you get it wrong, or select the wrong product or structure, it can be costly!
The benefits you hoped to derive can be obliterated!
The situation becomes even more complicated when:
- Several pieces of equipment from different suppliers are involved
- All or part of the equipment comes from offshore suppliers
- Installation and commissioning are involved, resulting in a time lag before the benefits can be realised.
When considering financing equipment, important factors to consider include:
Supplier Reputation & Ability to Deliver!
- Reputation
- Experience
- Ability to deliver
While price is an important factor, you also need to consider:
- What level of support do they offer?
- Do they have local representation?
- What help do they offer when it comes to installation and commissioning
- Are parts readily available?
- Do they offer servicing and repairs?
- Training if needed
- Plus more
This is especially true for larger or more complex pieces of equipment.
Financing Equipment – Matching Payments to Cashflow!
Too often, this is where the wheels fall off and significant problems occur!
When financing equipment, it is critical that it is aligned to your cashflow.
That is; the finance is structured to allow for things such as:
- Seasonality – Whilst regular monthly repayments work for a lot of businesses, for others they have peak seasons and times when they are cash poor. Allowing for this seasonality at the outset, is essential to avoid a lot of stress and/or a costly restructure of the facility
- Installation and Commissioning – allowing insufficient time for installation and commissioning before repayments commence is another area we see being overlooked. This is particularly important for larger pieces of equipment where the time to install and test can be lengthy
- Your Other Financial Commitments – too often we see businesses struggling from a cashflow perspective because finance has been provided without taking all the business financial commitments and timing of repayments into account.
Dealing with these issues, and structuring facilities to client’s cashflow, is something I really enjoy.
Finance should work for the client, rather than the other way around!
Purchasing Equipment from a Private Vendor
Most Lenders prefer to finance new equipment from established reputable suppliers.
That said, opportunities often arise to purchase quality equipment by way of private sale and there are Lenders who will cater for this market:
- An inspection of the goods will be required before payment can be made
- A valuation may be required
- If there are multiple pieces of equipment, invoices for each piece will need to be provided
- The interest rates will almost certainly be higher than for new equipment
Importing Equipment
Importing equipment from overseas, direct from suppliers is increasingly common.
However, it is not without its pitfalls:
- Potential savings can be quickly eroded by exchange rates movements
- Incorrect documentation can lead to issues, delays or even loss
- Problems that arise are less easily rectified than may be the case with a local supplier
- After sales support and servicing may be lacking
The foregoing said, there can be advantages and savings to be derived by importing the equipment you need.
If you intend to pursue this option, it is important to use a specialist who understands both equipment and import finance. Not a generalist financier.
We suggest to our clients that a Letter of Credit be established that converts to a Leasing Facility, after the goods have arrived in Australia and have been inspected.
This approach can provide suppliers peace of mind and help avoid many common pitfalls.
Seek Accounting and Tax Advice
Finally, it is important to seek input from your Accountant to ensure from an ownership, structure, and tax perspective, the purchase will provide the maximum benefit for the business.
It may only take a quick phone call, but it is something that can help you avoid costly mistakes and later regret!
Financing Equipment Summary
Assisting clients with finance for the equipment they require is something I love!
Every business and its circumstances are unique! Tailoring the finance to suit their situation is something I find truly rewarding.
As I have outlined there are many elements that need to be considered to ensure maximum benefits are derived and mistakes avoided
If you are thinking about Equipment Financing and would like to learn more, don’t hesitate to get in touch.