Acquiring plant and equipment using bank finance doesn’t mean you have to risk your home as security. The beauty of equipment finance is that it can be structured as ‘stand alone’ security (without the need to provide mortgage security) if you go about your finance application the right way.
Your equipment financier will rely on the value of the equipment as security while also taking into account the strength of your business and anticipated cash flow when considering your application.
Many business owners tend to think that having all their business finance with one bank is the best thing to do. Having ‘all your eggs in one basket’ is never a good strategy in just about any business circumstance. Your banking is no different.
In many cases it is advisable to split your banking (particularly your plant and equipment finance) for the following two reasons:-
It spreads your risk in the event that your bank decides to change its lending criteria to your business or your industry generally. By having more than one banking relationship it gives you the ability to seek alternative solutions.
It limits the security that each bank holds over your business and personal assets. If your primary business bank hold mortgages over personal or business properties then any additional finance (such as plant and equipment finance) will be automatically captured by the property security under what banks call ‘all monies mortgages’. While this may be convenient to you at the time, problems can occur in the future if you want to sell a security property as the amount the bank will require from the sale proceeds will be a function of your total loan exposure to the bank.
Other factors that a bank will consider when financing equipment include:
- How long you have been in business
- A sound credit history (all banks undertake credit checks on borrowers and guarantors)
- Your overall financial backing
- The amount of the deposit that you contribute towards the purchase
- The type of equipment being purchased