Access to good finance is crucial to the expansion plans of most businesses and all the more so when the business is capital intensive. Companies which rely on expensive machinery, equipment and vehicles to be able to execute their work face particularly heavy outlays when it comes to upgrading or expanding that asset base. As such, specialist finance products such as truck and heavy vehicle finance is crucial to owners or managers of companies that rely on owning their own vehicles. Profit margins on providing the use of or employing expensive heavy vehicles can be attractive but raising the capital to acquire them used to be an insurmountable hurdle for many companies.
There are now however specialist finance companies that offer finance specifically for trucks and other heavy vehicles. What are the advantages of financing the acquisition of this kind of asset and how do companies go about arranging finance?
Why Take Advantage of Truck Finance?
When buying an asset on finance the final cost is of course higher as the financing company must also make a profit in the form of interest for putting up the cash. However, using the leverage that finance offers still often makes sense even if a company does have the cash available to buy an asset outright. Large trucks usually cost a few hundred thousand Australian dollars for a new vehicle and even second hand vehicles can be very expensive.
As such, cash flow is one significant advantage to using truck finance. Even if the money is there, avoiding expensive one-off lump sum purchases allows a company to invest in other areas of the business, such as marketing, staff or additional equipment. A truck should pay for itself and provide a good profit margin if not under-employed so interest due when using finance would be more than covered, the company’s balance sheet look healthier and cash reserves remain in place to be either employed elsewhere or as a buffer.
A cash deficit meaning a company cannot acquire heavy vehicles required to take on certain contracts is also a strong incentive to take advantage of truck finance. Before the emergence of suitable specialist finance products, a company with healthy cashflow and a pipeline of work but lacking a significant cash pile would often struggle to win contracts that required equipment they didn’t already own. Now companies can bid for contracts and, should they win them, can rely on truck finance and other heavy machinery finance products to help them acquire the machinery needed to then fulfil the contract.
Applying for Truck Finance
While applying for truck finance is a simple procedure the requirements will vary from business to business. However, in the majority of circumstances truck finance can be approved within a few days.
1) Financial history assessment: as with any business loan application, the company’s financial history and credit score will be assessed. If the company has been in business for at least two years and has been punctual in making payments on any other financial obligations they should pass a financial history assessment without any problem. Finance companies will also generally want to see that the company is up-to-date on its tax payments and doesn’t have any significant tax commitments due in the future that will significantly impact cash flow.
2) Cash flow assessment: being able to demonstrate regular historical cash flow is also important. If there is any question mark over historical cash flow then evidence of future pipeline, such as signed contracts, should suffice.
3) New companies: if a company is just starting out or doesn’t yet have two years of operating history then it is still possible to secure truck finance. In this case, however, the company itself, or its principle director, will likely have to put up property or other machinery assets as collateral.
4) Poor credit score: if a company’s financial history isn’t great and/or documentation on future income pipeline doesn’t match a financing company’s requirements, truck finance can also be secured by companies that have a history of operations if collateral is put up against the finance.
In most cases, truck finance will cost a company between 4.75% and 7% per annum, with the loan repayable over up to 5 years. The size of the deposit put down, collateral and financial history and cash flow history will all impact costs. The closer each factor is to optimal the lower the interest rate available can be expected to be.