MANY manufacturing corporations, as well as small- and medium-sized firms, are turning to specialist equipment finance brokers to negotiate the terms and conditions of trade finance facilities required for the acquisition of machinery and other capital equipment necessary to increase productivity.

Trade finance facilities offer Letters of Credit for the importation of machinery or equipment, along with hire purchase agreements, lease purchases with varying balloon or residual options, unsecured loans and working capital lines of credit. 

For business-owners, it can be an overwhelming and time-consuming prospect to investigate the many commercial equipment finance options available in the market today. In many instances, business-owners approach their bank to organise their commercial finance and, in doing so, find that the bank grants the facility – but at what cost to the company? 

Finding a staff member within a bank with expertise in the importation of capital equipment can be difficult and, invariably, every bank or financier has different requirements and limitations which can lead to delays and issues with machinery manufacturers or agents.

Added to this, most purchases require a deposit to be paid, followed by a letter of credit issued for anything up to one year for manufacture, and usually require a substantial payment for shipping in a currency other than Australian dollars.  

Next, GST will be required at the time the equipment enters Australia, often in addition to freight and other customs charges. There are often other costs too, such as tooling and associated equipment and, finally, payment of any retention following the successful commissioning.

The equipment usually won’t be producing income throughout this time either, and may take further time to be fully-integrated into the business – which can also lead to a drain on cash flow.

Expand your options

Few businesses realise that this entire process, along with the associated foreign currency hedging, can be managed by a suitable equipment finance specialist. Payments can also be structured to suit projected cash flows, all without collateral security.

Not only will most banks overly-complicate this process, but in today’s economic climate, most have restricted their commercial finance lending. Though in the past they would have provided trade finance facilities, these are now considered ‘additional’ security by way of real estate, or through a fixed and floating charge over the company’s assets. 

Though this may be a reasonable position to take in a company’s start-up phase, once a business is well-established there should be no need to tie-up additional collateral security to support equipment acquisitions. It is much more prudent to minimise the security offered, and hold this for any future working capital requirements. 

Business owners understand the situation in which real estate is taken as security, however few realise the impact of providing their bank with a fixed and floating charge over the assets of a company to secure trade finance facilities or commercial finance. Such charges give the bank significant control over a business and can severely limit future borrowing capacity. 

Reap the rewards

Choosing an independent and professional specialist equipment finance broker to negotiate terms and conditions of your commercial equipment finance will help deliver positive results for your business. Not only is it more likely that the interest rate, terms and conditions will be more favourable than those you might negotiate directly with your bank, it is also more likely that the trade finance facilities will be approved with minimal, if any, collateral security required. 

Often, an equipment purchase is just one of many outlays a company might make to remain competitive in the fast-moving manufacturing industry, or simply during an expansion phase. It is important that a business has finance options from a range of financiers where multiple equipment acquisitions are planned. This ensures that the business can obtain the trade finance facilities it wants, rather than being limited to one type of commercial finance. 

With the increasingly global nature of manufacturing in Australia, it is wise to position your manufacturing firm for future growth by looking to independent experts to organise your trade finance facilities.

[Ken Richards is the director of Interlease.]

Image from Ngshire.vic.gov.au

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