1. Apples for Apples
As you can imagine, in our role at Ecolease one of the most common questions we are asked is “what is the interest rate?”.
To be honest, it is not something we want to advertise or answer without fully understanding your specific situation and requirements a little more as there are so many variables that will impact the rate you eventually pay. So, in keeping with our mantra of SIMPLICITY, our focus in this article is to demonstrate what you should expect from an equipment finance quote, and what information you need to make a true “Apples for Apples” comparison.
My Team and I are often surprised at the rates some of our clients have been quoted elsewhere. It is one thing to merely quote “a rate” – it’s a whole other thing to deliver timely approvals with reasonable conditions and documentation to match. Unfortunately, sometimes, it is not until you have travelled the road to get an approval in place to find out that the rate or payment you were quoted is no longer available. This scenario can happen in the most genuine of cases and in the current banking environment I expect we may see this more often. Put simply, the lender (who’s interest rate you were quoted) doesn’t want to approve your application.
This happened recently with a client of ours, who had been quoted a better rate by another broking firm. I knew I could not offer the rate that the other party was promising and I was baffled as to how the other party would deliver on it. All I could do was wish my client well and was of course sad to see them go.
About a week later, I received a call from this client saying “I couldn’t believe it Marian, when I received the finance contract to sign, the repayments were higher than you quoted me!”. Case in point. Needless to say, we were thrilled to have the opportunity to arrange their finance and within a couple of days had their supplier paid and equipment installed! Happy Days.
A second potential pitfall in the Interest rate conundrum is the difference between being quoted the Base or Simple Interest rate and the Effective rate. The effective rate represents the all up cost of the finance, and will equate to the actual dollars you will be paying each month. This in my opinion is what should be quoted as standard but unfortunately it is not so in the commercial lending space.
The way to get around this, is by asking for the Effective Interest rate to be quoted, but more importantly ensure you are given in writing a quote that includes the following five essential components:
- Amount financed (inc or ex gst)
- Balloon/Residual expressed in dollars (inc or ex gst)
- Term – how many repayments there are, such as 36 or 60 months
- Repayments expressed in dollars (stated as monthly or weekly and inc or ex gst)
- Additional fees and charges (and if they are financed or not)
When you are armed with all this information, you can confidently compare different finance quotes and ensure you are comparing Apples with Apples.
2. Tax Minimisation Strategies
As a business owner one is effectively self employed and lenders for property financing have greater focus on income verification. So whilst it makes absolute sense to engage in tax minimisation strategies for your business in general, when it comes to financing a property it’s important to question this strategy and to plan ahead.
Naturally you will want to give yourself time to research the market for the right property, equally important you need to give yourself and your accountants time to prepare your financials so that they reflect the true performance of the business. Tax minimisation is fine most years, but not in the year or two prior to seeking investment in property. Tax Minimisation and Finance don’t go hand in hand, particularly in the current environment.
This means ensuring that you have at least a good twelve months of trading where less tax minimisation strategies are apparent – it’s a bit of short term pain for longer term gain.
We talk with many business owners about what they need to be able to show in terms of income to service new debt and can advise on what to think about and ensure, like moving to an online accounting system, making sure BAS, Superannuation and PAYG is in on time etc, things that can be easily overlooked as part of the planning process.
So if you are considering financing a property, don’t leave thinking about the financing to last, make it first and let us to help you plan.
3. Greener is Leaner
A qualifying energy efficient vehicle can enjoy an additional 0.70% reduction on interest rate and what’s more energy efficiency doesn’t just apply to electric or hybrid cars only. It refers to vehicles that are classified as fuel efficient for both passenger and light commercial, including models from:
BMW, AUDI, FIAT, FORD, MAZDA, SUZUKI, NISSAN, LEXUS, CITRON, SKODA, MERCEDES, ALFA ROMEO, JAGUAR, TOYOTA, MITSUBISHI, HOLDEN, TESLA, LAND ROVER, SUBARU, FIAT, RENAULT, MINI, VW, PEGOT, JEEP, VOLVO, PORSCHE, TATA, ISUZI, HYUNDAI, SsANGYONG.
Brand new or pre loved, there are literally over 600 options of make, model and year of manufacture that can qualify. So if you are looking for energy efficiency and have a vehicle in mind call us to check. We can usually get you approved in twenty-four hours.