Is There Such a Thing as a Pain-Free Business Loan? Many business owners and operators might think of the pain-free business loan like a unicorn – a mythical creature that is the stuff of legend. While “pain-free” might very well depend on your definition of the term, there are certainly ways to circumvent the seemingly endless cycle of repetitive admin and paperwork that normally tends to be the source of most headaches. For many publicans, investing in new or upgraded equipment and technology can be a key driver of growth that will allow you to take your operations to the next level. So, when considering any kind of business loan, such as equipment finance, exploring all the options available at the best available rate can be a daunting task. Here are some tips to help smooth the lending experience and position you to get the most out of your providers. GET CLEAR ON WHAT FINANCING OPTIONS ARE AVAILABLE The most common product for financing assets such as motor vehicles, fit-outs or gaming machines is an equipment finance facility. Under this arrangement, usually with a bank, your business owns the asset, while the lender holds it as security in the event of default. An alternative to this is entering into a hire arrangement or operating lease with a lender. This kind of arrangement may potentially provide you with additional flexibility to own or upgrade the asset at the end of a lease or hire term. Effectively, you rent the item of equipment from the lender at an agreed rate for an agreed period, after which you can either choose to return it, purchase it outright by paying the remaining balance, or refinance the remaining balance over a further term. As Bruce Debenham, Perks Director of Banking and Finance explains, there are some key differences between hire and lease arrangements that will determine which is suitable for your business.
“Certain assets may not be eligible for finance. For this reason, it is always best to discuss the assets and the funding you need to acquire those assets with a commercial finance broker who will have access to a wide variety of lenders and be able to assess the most suitable option for your business,” he says. “Funding the cost to purchase plant and equipment is no different to any other key business decision – you really need to do your research and take the time to investigate the best option.” Another important factor to consider is the impact on the profit and the Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA), as different facility structures can lead to different outcomes. For example, for those businesses that have facilities that exceed $3 million, the lender may consider implementing financial covenants based on the EBITDA. In such cases, an equipment finance lease may be more preferable to an operating lease. This is because the interest cost of the equipment finance lease does not impact EBITDA, whereas the operating lease payment will impact EBITDA. NEGOTIATING THE BEST DEAL Dealing with lenders can be a time-consuming process and the back and forth can take hours and days of your time – time that many would argue, is better spent focusing on your business operations. This is where it can be potentially beneficial to engage the services of a finance broker. With access to many lenders, a broker can manage the entire process on your behalf, making sure that the process of negotiating finance is as painless and efficient as possible. This includes sourcing and assessing rates, terms and facilities from a wide network of lenders. A seasoned commercial finance broker is well positioned to give advice on which equipment finance options are best suited to your business , taking into account all aspects of your current situation. OUTSOURCE DOTTING THE I ’S & CROSSING THE T’S
“It really depends on your individual circumstances and the type of asset you’re after as to which will be the right option. It may be that for something like a vehicle, you want to enter into an operating lease arrangement, which will provide you with greater flexibility to upgrade in the future, while certain plant and equipment might have a longer useful life and could better fit the profile of an equipment loan or an equipment finance facility.”
When it comes to securing a loan for your business, there are a lot of steps you need to take to apply for, and successfully acquire, finance without delay. Having an expert to assist you with the process to ensure you have submitted all the necessary supporting documents can be key to a seamless lending process.
However, as Bruce notes, the eligibility of certain assets will depend on the individual lender and type of finance arrangement you seek.
Importantly, an experienced finance broker is also across the detail, so you don’t have to be. They help ensure that you don’t get caught out by any unexpected
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