If you ever thought small things don’t make a difference, try going to sleep with just one mosquito in the room. Small business is Australia’s largest employer and the backbone of the economy.
Tell us about what you do.
At Finlease we have spent 25 years we have financed equipment for business owners all around the country and from many walks of life.
How did you get started?
Mark O’Donoghue, Managing Director of Finlease started as a one-man band in the ’80s. He’d would walk around the industrial areas of Sydney, offering companies better machinery finance arrangements than they could get from their banks. Now, 25 years later, we have a team of 50 spread out around Australia, funding $400 million per year for clients in most of the major industries that have an ongoing need for equipment.
Why would a client use you instead of their bank?
There are lots of reasons. We have many clients who have been with us for 20 years because we make it easy, we look after them, we make sure they get the right finance on time and we spread their equipment finance across a number of lenders so they don’t get tied up to just one bank who has them by the proverbial.
Why not have all of your debt with your bank? There are three significant issues here:
- Your bank usually has more than just your equipment debt as they also provide property finance and overdrafts etc and all of this debt typically gets wrapped up as a master security via ‘cross collateralisation’ clauses, so you have houses cross securing equipment and most clients need to keep those bricks and mortar assets clear to secure ‘non equipment’ debt.
- The more debt you have with one bank, the more conditions they will typically apply to your overall debt. Conditions that wouldn’t 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.
- If you ever wanted to change banks your outgoing bank 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 finance equipment 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 two, three, of the dozen or so competitive, capable lenders who finance equipment. As each year rolls on, it is a simple matter of updating that submission to fund any future growth. That is why Finlease focuses on long-term relationships with our clients as repeat business is the best for everyone. We encourage our clients to allow us to put pre-approved lines of credit in place so they have the finance well in advance and it costs them nothing to have these ready for them.
Do they need someone like Finlease to do that?
No, they can do it themselves, if they have the time, know 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 and finance industry knowledge to do this. The reason small business owners keep using finance brokers such as ours is they are busy running their businesses and are happy to outsource this function.
What do you mean by negotiating the right outcome?
Finance is an agreement between two parties. The lenders offer terms and the client decides whether or not they will accept those terms. The trick is to know when the terms are fair – relative to what the market is offering – or need to be slightly adjusted. This may be as simple as the client wanting a longer term or higher residual, it may be that a lender is insisting on a deposit when others would approve 100 per cent finance. Often we find that a client accepts terms from their bank which are not as good as the market is offering, because they simply are not aware of the broader market offerings and take the banks terms as gospel.
Is Finlease cheaper than the banks?
We are typically the same on average as the banks, but it’s not about saving $10 here or there, it’s about getting the job done and looking after the client’s needs for the long haul.
Who’s your typical client?
It really varies, from sole traders who may spend $200,000 to $300,000 every few years, to larger private companies who spend over $5 million each year just on new gear most of our work is looking after companies that need traditional equipment finance, we also fund many other circumstances, from individuals buying charter boats in the Whitsundays to those purchasing helicopters for mustering.
If a client wanted to go direct to market, are there any tips?
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 and places 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 five years, so it’s just a case of getting the ‘why’ down on paper
and in a way that lenders understand. It’s what we call ‘financier speak’. Doing this well makes your company attractive and lenders will compete for this business, which will result in better outcomes.
What is one important piece of advice you would give to business owners?
Change the way you think about finance. Business owners need to see finance for what it is, just another raw material and service needed to run a business. It should be accessed
in the most flexible, useful form with the least amount of constraints and conditions and it should be competitively priced and backed with good customer service. Unlike many other raw materials or assets, the brand of the money provider is somewhat irrelevant; money or debt all looks the same in a bank account or on a loan document.
Finlease – the easiest way to finance equipment: www.finlease.com.au