With all of the financial turbulence in the UK economy, it seems the perfect time to put straight a few common misconceptions about equipment finance. I know that in all of my time in this industry, finance has always been seen as a bit of a dark art, involving baffling conversations about VAT returns and balloon payments. What I do know is that the more entrepreneurial companies and individuals have reaped the benefits of understanding the basics, and taking advantage of the up-sides that it can undoubtedly bring.
So let me see if I can throw some light on the matter, which in reality is rarely complicated or confusing, by answering some of most common questions:
I can’t get finance because I’m a freelancer…
Specialist finance companies love freelancers. Think of it this way…The finance company owns the kit until the end of the agreement, so it’s important that the kit is safe and well maintained. All of the freelancers I know are totally in love with their kit, and treat it with more care and attention than some members of their own family! If you have your own Limited Company then it’s even more straight forward to arrange finance for you to buy your kit through your business, but we can often help sole-traders too.
It’s difficult and time-consuming getting finance in place…
Wrong (most of the time).
It is true that we generally need to see your year-end accounts and some bank statements to decide if you’re considered a good credit risk. And of course, if you’re looking to borrow a large amount and you are new to us then as you’d expect, we will need to do some checks on you, but most of our deals are approved within a day or so of having the requested information from you.
If you’re a new business then we’ll also need to know your back story and see a reasonably well thought out business plan. We fund many start-ups and MBO’s too, helping the next generation of business owners on their way.
I can’t get finance on second-hand kit…
Think of a finance agreement from our perspective. We lend money against an audio console/camera/lens etc and this asset technically remains “ours” until the end of the term. Worst case scenario is that you go bust, and even though we get the equipment back and can try and sell it on, it may now not cover the amount outstanding. So the longer any piece of kit can hold its value the better. A brand new camera which is then unboxed and turned on is no longer “brand new”, so is now worth perhaps 15% less than it was 5 minutes before. A piece of “pre-loved” kit doesn’t have this initial immediate devaluation.
There are other issues that we’d consider such as where had the kit been used, service history, and hopefully you’ll get a warranty from the seller, so if you’ve found the second hand camera / lens / audio console of your dreams we should be able to help.
Cinematography lenses are a good case in point. You can wait 18 months for a set of fancy new, top-end anamorphic lenses. They are beautiful and “reassuringly expensive”. If you were lucky enough to find a set of used lenses you might find that they are as expensive as a new set. But they are available now, and you don’t have the expense of hiring-in other people’s lenses while you wait the 18 months for your set to be made. And because these lenses last “forever”, we can fund them over a long period. Only someone who really understands our industry and the long term value of the lenses could do this.
Are interest rates going up?
Rates have already gone up, and my best guess is that they will rise a little further before they stabilise. But the banks are still keen to lend so the current situation is nothing like to 2008 financial crash where the Banks stopped lending. The last 10+ years has seen a period of unprecedented low interest rates, which had to change at some point. But you still need new equipment to service your clients, and borrowing could remain a good option for you. It’s just going to cost you a little more each month, but then the price of the kit that you’re buying will likely have gone up too. It’s for you to decide if you can absorb this extra cost, or if you need to review your own pricing model.
I hope this helps to answer some of the most common questions I’m asked. The question “why should I finance my kit purchase?” is to my mind straight-forward. I’d struggle more if you asked me “why shouldn’t I?”
If you have more questions, or are considering your next kit purchase, I’d love to hear from you.