The Australian economy is largely dependent on the country’s mining sector, generating massive yearly revenue and providing millions of jobs for Australians. It is often said that Australia is a lucky country as it sits on the largest sites for raw minerals in the world. It is thus, no surprise that many people are moving into mining sector in order to also enjoy the benefits of the land.
One major deterrent most mining businesses face however is the issue of funding. The equipment and tools needed to start and maintain a mining business are very expensive and difficult to obtain by most people. This is where equipment finance comes in.
What is Equipment Finance?
Equipment financing is used to provide companies with the capital necessary to procure equipment. It is a loan or lease that is used to obtain equipment for a business. It gives you the opportunity to own and operate the equipment you need without breaking the bank in order to purchase the equipment. Business equipment includes heavy machinery, computers, vehicles and even furniture used in the company. Equipment financing can be achieved in two ways–by acquiring a loan to purchase equipment or by leasing the equipment.
How Can Equipment Finance Help Your Business?
In the mining business, it is important to have the best cutting-edge equipment and tools in order to achieve the best results. Sometimes, having the best equipment and tools may be the difference between the success and failure of your business.
Purchasing this costly equipment to meet your business’ needs will take a hunk away from the working capital which could be used to do other things in the company. Thus, it may be more expedient to consider equipment financing.
Loan or Lease?
The two options available in equipment finance are to either obtain a loan to purchase the equipment or to lease the equipment for a period of time.
Deciding on which option to pick depends on the time period for which you need the equipment, the type of equipment and the amount of money available.
Obtaining a Loan to Purchase Equipment
When a business obtains a loan to purchase business equipment, the equipment will serve as collateral for the loan. This means that till the loan is fully paid for, the lender can take possession of the equipment if the borrower defaults on making the agreed loan payments. It is important therefore, that business owners study the terms thoroughly and be sure that they will be capable of making the agreed loan payments during the loan term.
Although some lenders or banks may give the borrower up to a 100% of the equipment’s value but most of the time, they give only about 80%, this means that the borrower will need to pay 20% which is usually still a large sum of money. This means that if a borrower is unable to pay the money, they may have to settle for leasing instead of purchasing.
Interest rates on business equipment financing differ. It is usually determined by a number of factors including the credit rating of the business or business owner, the period of the loan term, the depreciation rate of the equipment and how long the business has been in operation. Some interest rates can be as small as 4-6% while others may be as large as 30%.
An advantage of purchasing business equipment with a loan is that the equipment is owned by the business after the loan has been fully paid off. Thus, it can be used as collateral to acquire another loan in the future.
A business may decide to lease equipment instead of purchasing it on loan for a number of reasons.
When a borrower cannot afford the compulsory down payment for a loan, the next attractive option will be to lease the equipment. Leasing requires no down-payment and does not come the burden of a large amount of interest. Thus, the amount of money needed to lease an equipment is often less expensive than buying it and may be the only option available for some business owners.
Also, when a business needs the equipment for only a short period, the smart option may be to lease it instead of purchasing it. This way the business will save a lot of money and space as the equipment will be returned as soon as the lease period is over.
A key reason why leasing is more beneficial is that a business can lease equipment that becomes out-dated after a period of time such as computers. This way the business can keep leasing the newest models after every lease term.
Equipment Finance Brokers
Due to the complexity of equipment financing, many business owners find it difficult to understand which scenarios and products are best suited for them. In addition, many find it hard to obtain loans from traditional banks and the burden and huge interest rates associated with sourcing for funds from private loan sharks can be demotivating. Furthermore, the work load associated with developing different proposals for various manufactures, lenders and banks in order to obtain a loan or lease makes the whole process extremely nerve-racking. Thus, many business owners seek the help of equipment finance brokers.
The job 0f an equipment finance broker is to assist business owners in securing funds needed to procure equipment by acting as intermediary between their clients and banks, private lenders and manufacturers. Equipment finance brokers use their skills to source, compare and process the top deals tailored to your unique situation.
They help with the equipment finance application process and provide the best options through their extensive network of providers and products. Recent research found that over two-thirds all new commercial equipment finance was acquired through a broker and here are some of the reasons why this number keeps growing.
Act as Middle Men
Equipment finance brokers act as middle men between clients and manufacturers, private lenders and banks. They recognize how hard it is for small businesses to qualify for loans on their own and thus, source for these loans in their place.
Generally, they promote the growth of their clients’ businesses and they usually consist of a team of skilled experts who assist in finding the most suitable financing options for clients. They do this by leveraging on the existing relationships with manufactures, private lenders and banks to provide clients with multiple loan offers.
Specialist equipment brokers will often have established a distinctive relationship with lenders, banks and manufacturers over the period of their carriers which makes the application process stress-free and straightforward. Leveraging on this relationship, brokers will often be able to find the means of providing their clients with “low-doc” financing options which provides the clients with equipment financing in a short period, as minimal documentation will be required.
In addition, brokers are often small businesses with a devoted and close-knit team. This gives the business owner the opportunity of dealing with the same expert for a long time and sometimes even, through-out the life of the business. Thus, the broker will have a full understanding of the business and can easily present your needs to lenders effectively. In contrast, account managers found in banks constantly change and it will take time to a new manager to familiarize themselves with your business’ needs.
Provide Representation and Advice
One of the benefits of hiring equipment finance brokers is their ability to provide advice to clients whenever there is a tough financial decision to be made. The team of experts have the knowledge, experience and skill needed to assist in making swift, smart financial decisions when needed.
In addition, brokers will always work in favour of their clients, not the banks, lenders or manufacturers. This means that when needed, brokers will represent your business favourably and negotiate the best deals on your behalf.
Equipment Finance brokers often provide their clients with various lending options. Unlike at banks where managers are inclined to promote specific products, brokers are more obliging. Rather than force you down a predetermined path, they give options on which products are available to your business, which ones they recommend and why they recommend those products.
In addition, they will guide you on the type of products you should be looking for and the type of questions you should be asking. They leave the major decisions to you after providing you with options.
Brokers are often available when you need them, unlike banks and private lenders. Business owners often engage with employees and customers during normal business hours and this is also the period of time banks and private lenders set aside for borrowers to visit.
Having access to a broker affords a wider period to effectively work together. Decent equipment finance brokers will be available for their clients even after working hours.
In Australia, the equipment lending market continually changes; this is because of the new products and players being introduced into the market daily. Equipment finance brokers tend to stay updated and well informed on the newest and best opportunities. This helps them to provide their clients with the top deals regardless of their business situation.
Disclaimer: Please note that at Heavy Metal Holdings, we connect our clients with expert brokers who will assist them in purchasing or leasing equipment. We do not provide loans or leases but can assist you in acquiring one. In the same way, Heavy Metal Holdings is not an insurance company and will only assist in picking the right insurance policies for our clients.
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