Finance and lending Q & A for The Fox Group
We recently sat down with Central Coast-based Chartered Accountants The Fox Group to discuss some common questions within our industry.
What are the main reasons finance is knocked back?
Occasionally we see clients who have defaulted on a telco and other accounts on a regular basis. If you have had a dispute with another business, it is vital to have it resolved. Because they usually then list an unresolved account on your credit file for all lenders to see.
What are the things lenders are looking at when considering finance approvals? Where do they look & what information is visible in your credit file? What to do if you have something to your credit file?
They are looking for the customer that has been in business at least two years and registered for GST. For a large purchase, they would most likely want up to date financials as well as a commitment, asset and liability statement.
For cars, up to 100K, we mostly don’t require any financials just proof of good past credit. Your credit file, unfortunately, tells any lender your true credit history. All loan inquiry, any defaults, court orders and judgements. It will also disclose any companies you are a director of. Tax dept debt is the latest to be listed on your credit file. Credit repair agencies may be of some assistance if you are trying to clean up your file however they are very expensive.
Do multiple applications hurt? Are you better off getting the application right from the start?
Yes, they do indeed, the more credit file applications, the more your credit score is eroded. Shop around first before pressing the button.
What should a borrower have to make the lending process a smooth one?
Up to date financials, forecasts, management accounts, Clean portal history with ATO, etc.
These days an honest declaration of all assets and liabilities as the financier can see your debt as the banks now share the information under new lending guidelines. ATO debt is a big negative for all banks now. On large deals, they want it cleared before approval, and in most cases, this is very difficult.
How to secure the cheapest overall costs of finance? I.e., How to get the best rates. Any suggestions
Use a finance broker who is tapped into all the banks and is offered their best rates on a weekly basis. Stay clear of car yard finance.
What are the main types of finance offered in the industry for Plant & Equipment? Does it matter these days?
Mostly Chattel Mortgages for the self-employed. Novated leasing for salary packaging and Rental for Schools and Hospitals.
Balloon or No Balloon? Does it matter?
I tend to like no balloon as you will get equity in your purchase much faster. Still, most people do take a balloon to keep the payments at a manageable level. You have to be very careful having a long-term finance contract and a high balloon on a vehicle that does not hold its value. If the car is worth less than the outstanding balloon at trade-in time, you’ll have pay the shortfall.
What are some of the myths with finance? i.e. : You need to have had a credit card to have a credit history?
No, you don’t many people only have a debit card. If you do not have any credit history, then you don’t have a credit file, so funding is harder to get. Paying cash all the time may work against you.
How can some dealerships offer 1% finance on new vehicles & equipment?
The product they sell is called a subvention contract. You pay full retail for the car then the car yard has to give the finance company up to 8k to cover interest. The trouble with this is that you have to have a balloon on the end that is a percentage of the full sale price on t the discounted price, so you are always paying more overall. Negotiate the best deal and fund the car with a separate financier.
Any tips for negotiating the best price on new equipment? Eg End of the quarter, etc.
End of the calendar year, end of month end of June are always the best times. I always see the best deals if the sale is negotiated in the last four days trading as long as it can be delivered by the end of that month.
What are the key advantages you believe in using an equipment broker vs a Bank? Eg, Speed, multiple pricing options, etc.
All good brokers will shop around and negotiate the best deal as far as rate, penalties, and fees. On large loans some banks may be slightly cheaper than others, however, will have a considerably long and arduous application process. We always inform the client if another lender may be cheaper and ask them for say $450 per month do they want to spend days collating pages of questions. Cheapest is not always best.