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3 good reasons NOT to have all of your debt with the same bank

words by Finlease

Why not just have all of your debt with your bank? Here are 3 reasons worth considering!

1)    If your bank has more than just your equipment finance debt such as property loans and overdrafts, all debt typically gets wrapped up as a master security via “cross collateralisation” clauses, so property assets can end up securing equipment and most companies need to keep equity in those bricks and mortar assets clear to secure potential increases “working capital” facilities.

2)    The more debt you have with one bank, the more conditions they will typically apply to your overall debt. Conditions that may not be there if you had your Equipment debt spread across several other lenders. Machinery finance should stand on its own feet and should not be linked to your property securities.

3)    If you ever wanted to change banks, they would usually insist you pay out any equipment finance you had with them and that would incur “early termination” penalties which would not be there if the debt was elsewhere. It is often better to have several great relationships instead of one potentially bad marriage.

Is it difficult to spread your Equipment finance across many lenders?

Not at all, once your company is well represented in a finance submission, it is simply a matter of seeking expressions of interest from 2 or 3 or the dozen or so competitive, capable lenders in the Equipment Finance market. As each year rolls on, it is easy to update that submission to fund any future growth. The use of pre-approved Lines of Credit which can be put in place well ahead of future requirements further simplifies the process and it costs them nothing to have these ready.

Can a company do this themselves?

Yes, if they have the time, research which lenders are best for their requirements and the expertise to negotiate the right outcome. The reality is that many companies don’t have the time or finance industry knowledge to do this, however can use their accountants or an independent finance broker to outsource this function.

If a company wanted to go direct to the market, are there any tips?

Yes, remember that lenders are human beings just like the rest of us. They will read a submission and form an initial view, it’s called the law of primacy. To put it another way, you never get a second chance to make a first impression so a company must ensure their submission is well presented, place their business in its best but accurate light. Business owners have already “approved” the equipment in their own minds as they will be the ones paying for it for 5 years, so it’s just a case of getting the “why” down on paper and in a way that lenders understand and think. What we call “financier speak”. Doing this well makes your company attractive and lenders will compete for this business resulting in better outcomes.

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