With many sectors experiencing boom times for work, we are seeing an increasing number of new businesses commencing.
Sydney, especially in the civil & trade related areas is a great example. Sydney currently represents a once-in-a-lifetime opportunity for new companies to commence as there is such a significant amount of work available.
We are seeing these new companies start in many forms. Whether it’s a valued employee being given an opportunity to buy a piece of machinery and dry hire that back to their employer while they are still working for that employer and drawing a wage, or a long-term employee who is very well connected in the industry and has clients who would like to use them if they started their own business.
Many of these new companies will initially struggle to get finance through the traditional bank channels as they simply do not have any runs on the board, however they need to know that there are other ways up the mountain to obtain that initial finance.
There are lots of providers in the equipment finance place and quite a number of the second-tier lenders who will provide finance on machinery including used machines and private sales (as often new companies are initially unable to buy the more expensive new machines).
Although the interest rates are slightly higher, these alternatives are still very viable, not only are they much cheaper than simply dry hiring a machine, they also allow the client to pay down some debt on those machines so they have equity in them (i.e. they owe less than what the machine is worth).
The usual process for these new companies is to finance these machines with second-tier Lenders for 12 months with a 60 or 70% residual, so the client can refinance that machine at the end of the 12 months with a lower rate lender (as they now have some runs on the board).
A number of financiers will provide good low-cost debt where the new client is able to provide a small deposit for the machine. Often this deposit can be raised through a slight increase in the clients home loan. With the increasing values around Australia, anyone considering commencing a business in years to come should organise the additional facility against their home now in preparation for their potential new venture later on.
It is also worth noting that finance becomes easier for new companies who have had an ABN (Australian business number) registered for over one year, so anyone considering starting a business in the near future would be well advised to register an ABN sooner than later.
Even in the mainstream lender market, there are many products available which do not require financial information provided the borrower has had a business for some years, a clean credit history and is a property owner.
It would be a worthwhile exercise for anyone contemplating a new business to speak with a reputable finance broker to explore the options which may be available to them.
– Mark O’Donoghue, CEO & Founder of Finlease.