How to Set Yourself up as a Lender’s Dream Client
A lot of people don’t even know what makes them attractive to lenders. You may have read our last article about Maryanne and how well set up she was and thought "that is not me!" Here are a few steps to increase your attractiveness to a lender and to ensure that you are getting the best rate possible.
1. Asset backing
Lenders love people who are property owners. It demonstrates that you are able to service debt, you know what it is like making payment commitments and you have a strong financial position.
If this is a box you do not tick and are not going to tick any time soon then the best thing to do would be to save a substantial deposit (20 or 30%) for the asset you wish to purchase.
2. Clear Credit
This one catches a lot of people out. Something as little as not paying a phone or power bill can be recorded as a default these days. If you are in the situation where you do not have a clear credit file, make sure that the outstanding debt has been paid and be truthful to your broker about the story surrounding the debt. Some lenders can be quite understanding of bad situations if the debt has been cleared and no more defaults have been listed since.
3. Previous History
Previous loans and finance will be taken into account when assessing your ability to make repayments. If you have a good credit history (ideally with asset finance in there somewhere) with reputable lenders, that can help in reducing your rate.
If you don’t have previous history, consider taking out a car loan or applying for a credit card with a small limit. Although the amounts financed would be low, if you can demonstrate that you can make regular payments and not go into default etc, you will be a more attractive client.
4. Up to date Financials, Tax Returns and zero ATO debt
Lenders love a good client who is organised regarding their tax obligations. Have your financials up to date and ready to go whenever you can. This demonstrates how strong your business is if you are looking to finance assets in the near future.
However, if you are in the situation where you require finance but have not got up to date financials, depending on the asset and your situation, you may be able to finance equipment up to $250,000 in value without financials.
Also, as we noted above regarding debt, if you have ATO debt but can show a good record of repayment, lenders often will overlook the debt itself. Provided you are up to date with all other tax obligations (BAS etc).
5. Save a Deposit
Sometimes, due to injecting money into business growth or just poor timing, it is hard to come up with a deposit and that is fine! We do everything from cars to massive assets every day without deposits. However, if the asset you are purchasing is a little left of centre field and you don’t tick all the boxes then saving a deposit will be the way to go to receive the best rate possible.
6. Buy New
This isn’t always a realistic situation, but in the case where you do need to finance vehicles or equipment, it being under 4 years old is a big advantage as far as rate is concerned. For example, if you are in the market for a bobcat and truck and have found a new bobcat that you’d like and a great second hand truck and you have enough to either pay for one and finance the other, ALWAYS pay for the second hand item.
7. Purchase from a licensed dealer
This also isn’t always achievable, especially if you are on the hunt for a bargain. But, if you can find what you are after through a licensed dealer, the process of the purchase is always a lot easier, you are more protected and lenders will give you a better rate as a result.
Hope this all helps you on your quest for finance. If you have any questions about anything above, please do not hesitate to give us a call, that’s why we're here!
Asset and Equipment Finance Specialist
(+61) 0409 066 530