Rohan Ford, CEO of Linx Australia Group, has been involved in the transport and forestry industries for over 25 years. Here he shares his experience on the most common mistakes people make when financing equipment.
Not understanding what and where to find the most appropriate finance products. People can be unaware of exactly what is available to them, and what may, or may not be, the most appropriate for their respective capital purchase. The majority of the time, people will go straight to their banker, or mortgage broker, who set up their home loans. This is not necessarily the best course of action when trying to obtain the most appropriate capital finance for their transport/forestry equipment. Choosing a specialist finance broking firm instead, which can do all the shopping for you, might be a better option, as they have access to a variety of different finance companies and banks. They can ensure finance facilities at a number of institutions are maintained, and rates and securities are kept to a minimum.
Not accessing the most appropriate avenue for finance. Locating an independent professional who is familiar with your industry and your operation is very important. Those brokers/bankers will already be prevalent in the forestry industry and well known to industry suppliers and accountants.
Not being able to articulate what they want and why. Unfortunately, some operators think they can save some money by trying to do this themselves. Although this may be timely, it can lead to them agreeing to a poorly structured and expensive finance facility. Brokers well versed in the industry can easily articulate what an operator is trying to achieve and how they plan to achieve this.
Cheapest is not necessarily the best. Often a more appropriately structured finance facility will be more effective than a cheaper interest rate.
Not choosing the best equipment. People will often source a machine based on their perceived finance repayments. Whilst the finance is important, the machine will be the item assisting with completing the job. Accordingly, it is important to try and match the two as best as possible. Often new equipment can have the same monthly repayment as an older one….if structured correctly.
Structuring the finance contract incorrectly. It is very important to structure the finance contract in line with the proposed function it will be doing. If a machine is to be double shifted, then it is proposed the finance should be structured more aggressively to help ensure a positive equity position.
Assuming banks are looking after your best interests. People will often take the path of least resistance and push their exposure levels to a point that restricts the bank from increasing their working capital positions.
Not ensuring work arrangements are aligned with finance terms. It can be difficult to align the finance contract to the work arrangements, particularly when you need a new asset for a three year job. There are other ways to help ensure you can “get out” of an asset when the work ceases…..at the same time as keeping the repayments at a manageable level. By applying an appropriate balloon, you can provide further flexibility to continue with that asset in the event work arrangements are extended.
Utilising professionals to help manage your finance facilities. Assisting with rolling balloons, ensuring payouts are not loaded with early termination fees, and troublesome assets can be replaced at call. Working with a specialist finance broking firm can ensure the best on-going outcomes.