Gearing up with new equipment is an exciting time for a business. New fleets, construction equipment, and tech infrastructure can all significantly expand your setup. But stepping into this space for the first time also comes with the potential to fall into some fairly common traps.
Equipment financing mistakes are part of the risk when it comes to accessing this kind of expansion, but if you stay informed, you can avoid them. This will enable you to access helpful financing that can help you grow your business without depleting your working capital.
The key? Go in with a clear plan. Today, we’re going to help you do just that. We’ve pulled together a list of the pitfalls to avoid, so you don’t end up paying more than you bargained for or get stuck with a setup that doesn’t work for your business.
1. Underestimating the Total Cost of Ownership
While the purchase price of a particular piece of equipment makes up a large part of the total cost, that’s not the whole story. You’ll also need to incorporate insurance, maintenance, fuel, software upgrades, and staff training, and that’s just the start. Getting a full picture of the costs associated with a particular piece of equipment will ensure you’re equipped to continue paying down your loan month-to-month without getting caught unawares.
We always recommend calculating these costs as realistically as possible before signing on the dotted line. This helps you check if the financing structure aligns with your business’s payment cycle. After all, there’s no point in financing a piece of gear over seven years if you’ll need to replace it in four.
2. Not Matching Your Terms to Your Cash Flow
Projected cash flow must be a leading factor in your decision-making process, and signing up for a loan with terms that don’t align with your projections will likely lead to you being caught short. This is one of the most common equipment financing mistakes we see, largely because the jargon surrounding loan terms can be difficult to navigate.
Our advice? Consider structured repayment plans that align with your income cycle, rather than generic payment terms. If you work with the right lender, you can draft a policy that accommodates the ups and downs of your business cash flow.
3. Ignoring the Benefits of Pre-Approval
Leaving your financing to the last minute can lead to problems, including undermining your negotiating power. If you’re trying to secure a loan for a piece of equipment that you urgently need, then that can lead to rushed decisions that have a serious long-term impact on the financial health of your business. Thinking ahead is crucial, and taking preemptive action is a smart move.
Do what you can to forecast your equipment requirements well in advance and get pre-approved for finance before you go shopping. Not only does this speed up the process when you find the right equipment, but it also provides a clear budget so you know when to negotiate and when to walk away.
4. Choosing the Wrong Style of Loan
There are several different loan styles available, and one of the most common mistakes in equipment financing is selecting the wrong type for your needs. Ownership usually sounds good in theory, but it’s not always the smartest move for every business.
If your gear will be outdated in three years, or your business is still in the process of growing and changing quickly, consider leasing or opting for a hire purchase agreement as a way to minimise financial liabilities in the future.
5. Forgetting to Future-Proof the Financing
It’s easy to get caught up in the right now, but do what you can to think long-term when entering into an equipment finance deal. Will your team need training on your new equipment? Is there technology involved that might need regular upgrades? Could your business outgrow the tech in a year?
Thinking this way allows you to build flexibility into your financing, so you avoid long-term lock-ins that could keep you paying for a piece of equipment you no longer need a year from now. Look for a lender that is happy to upgrade your agreement down the track.
Navigating this can be daunting, especially if you’re doing it for the first time. The key is to be as proactive and open to learning as possible.
Securing equipment finance with the right assistance will help you avoid these pitfalls. If you are informed and supported, you’ll be better placed to secure a flexible, applicable loan. This will help you aim for long-term financial stability for your business.
We’re in the business of helping you succeed.
At GVK Finance, we make it simple for businesses like yours to access what they need while dodging equipment finance mistakes. Get in touch with one of our financial experts to discuss what you need out of your equipment finance policy today.