Many people come to us at CVG Finance just as their business is entering a growth phase – or they are anticipating one in the near future – and they just don’t have the finances to facilitate that growth.
So the first thing we do is start looking at the most cost-effective ways to finance that growth.
We often find that one of the best ways to do this is through equipment finance. You’d be surprised by what can actually be financed. Office fit-outs, cars, plant and equipment, tractors, trucks, trailers … you can even finance fees if you are a professional fee business.
So why would you consider equipment finance? What are the pros and cons?
What’s great about equipment finance is you generally don’t need to put any equity into the purchase. So let’s say you are in the excavation business and you need to buy two trucks and a digger. These can be financed 100%, without putting any of your own money in, and you’re up and running from day one.
That means you don’t have to come up with a big amount of money up front and that’s standard practice for all types of business equipment – for example, office fit-outs, computer equipment and cars.
But remember, you will have a monthly payment to factor in to your cash flow projections; but obviously the lender will have scrutinised your serviceability to ensure you will be in a comfortable position to repay the loan.
What’s really important to keep in mind about equipment finance is that it has a much shorter loan term than a home loan or a commercial loan (which could have a 15-30 year term). With equipment finance, the maximum term will generally sit at around five to seven years.
This means your repayments will be higher, but you’ll be paying it out for a much shorter time. And that’s generally because the term is about the same as the life of the goods, which is why lenders have those guidelines.
So depending on your growth and what type of business you have, you really don’t have to have the cash in the bank to grow; you can usually finance the plant or equipment you need to start taking on that extra business.
I was speaking to someone the other day who was heading into a massive growth phase and needed to purchase more equipment to keep up with that growth. This client actually had the cash in the bank to buy the equipment outright. But we chatted for a while about what was best for him and, in the end he decided to finance the purchase of the equipment because he thought it was better to have that cash in the bank as a safety net to help with wages and financing the business in other areas.
So as you can see, financing your equipment is a great way to keep some money on tap – you’re not financing your purchases because you have to, you’re financing them to be on the safe side and to keep cash in your business in case you need it.
It makes sense when you think about it.
Paul
