Is an Asset Finance Facility Right for You?25 February 2022
A Business Plan Requires Structure – Here Are 5 Things You Should Be Including In It28 February 2022
As a business owner, your ability to secure finance and successfully manage your cash flow is a critical component of your survivability and growth prospects.
If you’re considering purchasing new business equipment or upgrading your company vehicles, asset finance is a popular option for small to medium businesses that can help the business grow and provide a little more comfort for you, as the owner, with the fact that you won’t be hurting your bank account.
To take advantage of the finance options available to you, you’ll need to put your best foot forward, avoiding many of the common mistakes small business owners often make, some of which may be terminal to your company’s future. So it’s always best to speak with your broker to avoid making any potentially harmful mistakes and to investigate if you meet the specific criteria.
We’ve rounded up 6 common mistakes in asset finance so you can avoid them and learn the ways to maximise your asset finance loan.
Applying for an asset finance loan should not be a spur-of-the-moment decision. It should always be planned to give ample time for approval. Pre-approval is always advantageous, even when you’re still unsure of exactly which asset to buy. This will allow sufficient time to investigate your borrowing capacity, as well as review the products available across various lenders.
So when you’ve already received pre-approval and you see that exact machine, truck, or any other asset that you need for your business, you can easily talk to your broker and pull the trigger on the deal right away.
Not disclosing an adverse credit history
Ok, this one should be a no-brainer. Obviously, this is the biggest deal-breaker. It is very important that you are honest and open with your broker about your credit history.
Often, if you disclose this early with your broker, they’ll be able to discuss the issue prior to application and this would allow them to offer you specific products that may be more suited to your situation. For example, if you have a credit default, your loan application may likely be approved by a second or third-tier lender*.
Discussing your credit history will also give your broker an opportunity to provide you with advice on how you can improve your credit report moving forward.
*Second-tier lenders are non-bank entities regulated by the Australian Securities and Investments Commission (ASIC). Third-tier lenders are private, peer-to-peer lenders.
Not keeping your financials and statutory commitments up-to-date
An ATO debt is a big deal-breaker too. Finance companies generally require copies of both income tax accounts and business activity statements and run balance accounts from the ATO portal prior to assessing an application. In order to put your best foot forward, ensure that you engage with a reputable accountant who prepares full financial statements, and your tax returns are prepared and lodged on time.
Having your financial statements and tax returns ready is a good practice and will strengthen your negotiating power.
Not understanding or exhausting other options
Often, clients get too excited and take the first quote they are provided, which is commonly from their preferred lender. Well, this might not be a good practice. Getting a second opinion or quote from your broker could not only lead to securing a lower rate but also lead to a more suitable product.
Various lenders also provide a range of products. So speaking with your broker prior to purchasing your desired equipment or vehicle will allow you to shop smarter. Brokers will be able to provide you with advice on which lenders fund what asset (asset age, type, or use) and if these options are available to you.
Not allowing for enough funds in the application
If you’re applying for a loan, the first instinct is to keep the loan amount as low as possible so it is easier to approve. That’s understandable. But, if you’re planning on adding accessories or any other modifications to your vehicle—or whatever it is that you’re applying asset finance for—it is best to ensure that they are included in the initial quote, even if you’re not 100% sure you need or want that accessory or modification.
The reason behind this is that it is a lot easier to settle an asset finance loan where the amount is less than what it was initially applied for. It’s a simple matter of decreasing the amount prior to drawing up documents and settlement.
Not understanding the rules
Of course, if you’re considering asset finance, you should have a good understanding of the credit decision framework around it so you can make good asset choices and prevent purchasing from the wrong vendor. By understanding the rules and planning ahead, you are better able to select an asset that is easy to finance.
Finance companies generally break assets into categories: primary, secondary, and tertiary assets. Primary assets include most cars, trucks, trailers, and yellow goods. Tertiary assets include specialised equipment, computers, and fit-out.
Generally, the options narrow and the price increases as we move towards tertiary assets. When funding older equipment (four years old or more) or tertiary assets, a ‘full financial assessment is required,’ which means the application will take more time. Tertiary assets are also funded at a premium. Engaging early with a broker will help you understand where your proposed asset purchase fits.
Asset finance is a fantastic option for upgrading and expanding your business. So to make sure you’re getting the most suitable asset and securing the lowest possible rate, it’s best to plan ahead and talk to an experienced finance broker about your specific situation and financing options.
Get a quote within the hour!
Condon Noller can help find the best lending solution available for your personal and business circumstances. Whether you are starting or growing a business or looking to take out a mortgage loan, Condon Noller is happy to assist you. We help compare and contrast finance and loan products to ensure you select the right financing option to best meet your goals. Talk to our Finance Team today and receive a quote within the hour.
Rory Condon: 0427 224 442 | 4937 5608
Matt Noller: 0438 766 165 | 4620 4401
Nijo Antony: 0499 032 585 | 4937 5623
Connie Blunden: 4937 5616