Factors that Could Derail an Equipment Finance Credit Application

The following article will show the main factors that could jeopardise an applicant’s ability to obtain Equipment Finance for Trucks and Heavy Equipment.

Applying for finance with various financiers at the same time

If someone looking for finance has many applications out at any one time, their credit file shows a credit enquiry with each of the lenders. This not only negatively impacts on their credit score, but each lender becomes wary as to why there are so many credit enquiries against the applicant’s name and question whether or not the other funder declined the deal.

Applicants often fall into this trap when they apply for the same loan with various brokers or the big four banks, thinking that ultimately they are maximising their chance of successfully sourcing the best deal they can.  However, let’s say broker one puts an application out based on a specific set of financial information and a specific story relating to that applicant. But then broker two, puts the same application out based on a different set of financial information that is contrary to the first broker. If the same deal was assessed by the same financial institution, they would question the creditability of the applicant based on the fact that they have received two totally different applications for the same client.

Moreover, even if broker one sent the application to a different lender than broker two, the discrepancies would still be found out. There is legislation in Australia that allows each financier to discuss between each other not only credit history on current Equipment Loans, but also on current credit applications. As this is the case, the Credit Manager from financier one will more than likely ring the Credit Manager from financier two to discuss why they declined the deal or to compare the financial data in the applications. Given the fact that financiers talk amongst themselves, discrepancies in the information provided in credit applications can easily be found out.

If an applicant has put the deal to even more than two different avenues, the problems become even more amplified. Once the broker finds out that the applicant has been applying for Truck Finance with various different people, their commitment to the deal is significantly reduced and might even stop working on the deal all together. Not only could the commitment of the broker be jeopardised, but also the financier looking at the deal more than likely will decline the application – leaving the applicant with no finance approvals at all.

It is for the above reasons, that clients seeking Heavy Equipment Finance should complete their due diligence and research first, before submitting any credit applications.

Beware when requesting numerous finance quotes

Applicants that are fixated on requesting various finance quotes in an attempt to get the lowest monthly payment are also leaving themselves open to an outcome that is not in their best interest.

It is easy for any Bank or Broker to provide a finance quote over the phone even before they enquire about the applicant’s financial background or proposed scenario. It is not uncommon for an applicant to go with the option that yields the lowest monthly payment or lowest quoted interest rate. Some Truck Finance brokers quote unrealistic monthly payments or interest rates to a client, in an attempt to secure their business. If an applicant decides to go ahead on this basis, they are probably going with a Broker that does not have the necessary skills or experience to structure an application that will ensure success for the client. Not only is their chance of securing an approval at risk, but the actual payment that they end up paying is higher than the payment and interest rate that was initially quoted.

The world of Equipment Finance is extremely complex and an applicant can be easily bamboozled by a slick talking Finance Broker looking to put their interests before the clients.

Compare apples with apples when looking at finance quotes

There are many different ways to structure a loan relating to the purchase of Heavy Equipment. The below factors can make considerable variations to the monthly payments on Chattel Mortgage loans used to purchase Heavy Equipment;

• Term of the loan
• Balloon payment
• Structured payments – payment methods alternative to monthly payments
• Bulk reductions – gst payments or one off reductions over the term of the loan
• Interest rate – not the same for all deals as the interest rate is determined on many different factors
• Payments in arrears or advance

Equipment Finance is a specialist field and can only be understood by a finance professional. It is for this reason that an applicant needs to have the proposed Truck Finance quote in writing so an apple for apples comparison can be made. If at the end of the day, one quote significantly differs from any other – questions need to be asked why.

An applicant might think to go with the finance quote with the lowest monthly payment, however they may be hit with a one off payment or a larger balloon at the end of term – compared to another quote with a higher monthly payment.

A Broker or Financier that specialises in Heavy Vehicle Finance will quote a payment with the clients best long term interest in mind, whereas a Broker or Financier that does not specialise in Heavy Equipment Finance is likely to quote a payment with their own interest at heart. Again if the applicant is only looking at the lowest monthly payment option, they could end up applying with a Broker or Financier that does not have the ability to secure the finance approval they are after.

Think twice about putting all your eggs in one basket

Some people think that going to the Bank they have their home loan and business accounts with, is their best chance of seeking Equipment Finance – but that may not be the case.  Let’s say, a customer is looking to purchase a new Drilling Rig for $1M and submits a credit application to their own Bank. If that particular Bank does not have a desired risk for that type of Equipment, the application will be declined.

In addition, let’s say a client decides to apply with the same Bank they have all of their other Equipment Loans with – due to the fact that they offered the lowest repayment structure. If this same business wishes to expand through the acquisition of additional Capital Equipment in the future, the lender they have all lending facilities with may decline any additional lending due to having reached the maximum exposure for that customer. However, if the client had spread their financial risk around with other lenders, they would have a credit rating with other lenders that would open up more funding options going forward.

Form a relationship with an Equipment Finance Specialist

As has been explained in this article, Equipment Finance is a standalone area of Finance that is totally different to other types of lending such as residential home loans, commercial property loans, business loans, overdrafts, personal loans and commercial bills. A Bank Manager has experience in all of these areas, but does not specialise in one specific area.

So that a business owner can reach their full potential and facilitate growth through the acquisition of Capital Equipment, it is important they align themselves with an Equipment Finance Broker of Equipment Finance Lender that specialises only is this area of funding.

Forming a relationship with a specialist in Heavy Equipment Finance, means that the success rates for approvals is increased and a long term funding portfolio is developed. This ensures that a customer can maximise growth potential and open up more lending options for the future.

Do your research on the company before you submit a credit application

It is a good idea to do some research on any potential Finance Company or Finance Broker that you are looking to submit a credit application to. Below are a few suggestions on how to undertake such research or to find an Equipment Finance specialist;

Google – type into google the Equipment you are looking to purchase – ie “Concrete Pump Finance “or “Prime Mover Finance “to find Companies that specialise in that one area of Equipment Finance.

Search the internet for reviews on the Company you are looking to deal with.

Facebook and other social media platforms – have a look at the company profile to see how many followers they have and what the reviews look like.

Industry Bodies – for instance if you are a member of an Association relevant to your industry (as is a Finance specialist), it is very likely that that Company can assist in the purchase of Capital Equipment relevant to your industry. Example of this would be a Drilling Rig owner being a member of the Australian Drilling Industry Association (www.adia.com.au) and comes across a Finance Company that is also a member of the association – who very likely specialises in Drilling Rig Finance.

Supporters of trade shows and charitable events – Finance Companies that specialise in Equipment Finance relevant to a specific industry often give back to the community through sponsoring events or donating money to charity.

It is very important that an Individual or Company seeking ongoing Heavy Vehicle Finance, to establish a connection with a Finance Broker or Financier that specialises in only Equipment Finance. Heavy Vehicle Finance, is a Company that does this and deals exclusively with Heavy Industry Australia Wide. For more information, you can check out our web site at www.hvf.petmanager.com.