Applying for a Machinery Loan – 7 Mistakes to Avoid
Invest in your business’ future and grow your business today with a machinery loan.
Whether it’s for farming, freight or couriering, machinery makes business success and growth possible. However, purchasing and maintaining business machinery can be costly. That’s why it can be a good idea to take out machinery finance to help speed up growth in a way that is both profitable and manageable. Before taking out finance its crucial to assess your business’ situation, to find out if a loan is right for you. Our car broker and asset finance specialists take a look at 7 mistakes you should avoid when taking out a machinery loan.
1) Never invest if you can’t afford it
Is my business in a strong financial position to take out a machinery loan?
You might be surprised to know that the majority of businesses are run on risk and future profits. Many businesses run up to six months behind, paying their creditors or accounts well after the work was completed.
Machinery is expensive. It can make or break your business’ budget and be the deciding factor between profitability and bankruptcy. Therefore, it makes sense to consider what machinery your business needs, how much of an investment the machinery will be to your business, and finally, what tangible and intangible costs the piece of machinery will have on your business.
2) Avoid inefficiency
Will this machinery make my business more efficient?
Before buying a new piece of machinery it’s always good to ask yourself these questions:
- How is this machinery going to assist my business?
- Is it going to increase my efficiency?
- Will this save my business time and money?
- How can my business utilise the time saved to increase profitability?
If your answer to any of these questions is negative, then it may be prudent to assess if it’s the right time to buy a new piece of machinery with a machinery loan. With such an important and large expense, you need to be able to justify the machinery on your business’s bottom line. Is it going to sit there idle and new or is it actually going to increase your profit? If the investment will provide profitability and cashflow for your business, then it is a
Does my business have the staff and skills to operate the new machinery?
Machinery is great when it’s in the hands of someone who can operate it. If you are about to invest in a fleet of heavy trucks but your staff currently only drive minivans or light trucks. Then qualifications, experience, and knowledge are important.
- Will you need to retrain or re-skill your staff?
- Will they need to get new licenses?
This outlay needs to be assessed against future profitability because with any new training you will have to accept a potential loss for at least 3 months. Therefore, inefficiency is a massive mistake you want to avoid when purchasing new machinery and a very important factor to weigh up before deciding to invest.
3) Don’t buy without thinking about storage
Have you thought about storage?
Storage can be a huge expense, requirement, and necessity for any kind of machinery. Failure to take this into account can result in additional expenses and problems you weren’t aware of later down the line.
It’s always best to have a storage solution ready before investing in machinery. Storage is something businesses tend to overlook and then find themselves in trouble later because they hadn’t factored in the extra expense associated with storage.
4) Don’t overspend
How much money can you comfortably afford to spend?
Most businesses don’t have endless liquidity. Weigh up the difference between new and old equipment and consider whether second hand might be a more cost-effective option that brings the same increased business efficiency. Not taking your budget into account when applying for machinery finance can put your business into financial distress and lead to liquidity problems. Discovering what machinery and equipment finance options are available to you is also an important step to ensuring you get the best deal possible on your next purchase.
5) Can you afford your line of credit?
Is your business eligible for a line of credit with your broker or bank?
Once you’ve assessed all these factors, ask your broker or bank what line of credit is available to you, what will the short- and long-term benefits be to the business, and can you comfortably afford it? More importantly, will your broker or bank agree to finance you?
6) Don’t invest without insurance
Have you looked at your insurance options?
Insurance is one of those things, you only need it when you need it. But your business can’t afford the risk of not having it. Insurance is necessary with any loans to insure against possible write-offs, breakdowns or failures. Ask yourself these questions;
- What are the insurance-related costs of owning this new piece of machinery?
- What are the benefits of insuring new equipment machinery vs. old?
- What are the loan requirements regarding insurance?
7) Do you know your tax breaks?
Have you looked at possible tax breaks for the purchase of machinery?
Machinery is a capital expense, and as such can be ‘written-off’ reducing your business’ tax liabilities. Currently due to the 2020 stimulus package from the Federal Government, machinery of up to $150,000 can be instantly written off if purchased and ready for use by June 30, 2020. A further extension until June 30, 2021, allows machinery of any value to be instantly depreciated by 50% upon purchase.
Keeping abreast of available tax breaks can be a time-consuming process but it is one that could save your business money. If you’re unsure, its best to speak with your business accountant as they are in the best position to discuss your business financial health, advise you when is the best time to buy, what you can claim, and whether you should consider a lease or purchase. You don’t want to accidentally buy equipment you could have claimed in the last tax year in the new one.
Ready to fuel your business’ growth with a new piece of machinery? Get in touch with a dedicated finance specialist at eCarz; We offer commercial equipment finance that’ll secure your equipment sooner rather than later. With a network of over 30 lenders, we offer very competitive rates and deals and can cater to any business circumstance. Simply get in touch with us online or call us today for a FREE finance quote on your next purchase.