Why Do Most Equipment Finance Loans Fail?

Introduction:

Ask any entrepreneur about the first thing that comes into their mind when their business needs new equipment. An equipment finance loan will be the answer for the majority of them. So, what is it that has made equipment finance loans this popular? 

An equipment finance loan allows you the flexibility of buying, repairing, or upgrading new equipment at any time. You do not have to burden yourself trying to arrange the cost amount within a short period. You can prevent your business from suffering a delay in production. you can opt for an equipment finance loan.  

For some industries, equipment is required for daily tasks. In such cases, you cannot wait to have sufficient funding to buy new machinery if one stops working. Then, it will halt the entire business for an indefinite time.

Is equipment financing useful for businesses?

An equipment finance loan is useful for most businesses. But what about others? Sometimes, businesses sink even after taking an equipment finance loan. Why so? We will tell you.

But for the most important question mentioned above, the short answer is yes. 

Why do most equipment finance loans fail?

We have mentioned above that equipment financing is important for businesses. Then why this contradictory statement? 

Say, you have bought a new and expensive guitar from the musical instrument store. And you don’t know how to play it. Does it add any value for you? No. But, does it nullify the fact that playing the guitar can liven up your mood? The answer again is no. Now you understand the point?

Let us now discuss a few pointers as to why most equipment loans fail. 

1. Old equipment not serving the purpose:

This most commonly happens in IT firms. Technology is constantly upgrading. So is the respective equipment. Software that is highly popular today may become obsolete in the blink of an eye. 

You had bought a second-hand gadget with an equipment finance loan. Let’s assume the gadget was just a few months old when it was sold off by its first owner. Within the next few months, the processor became non-functional in the market. Thus, you can no longer fulfil the purpose for which you bought it. 

2. New equipment not worthwhile:

You have a fascination for brand-new products. So, you financed your new fleet addition. Apart from the regular depreciation, you realize the latest model is actually of a lower functionality than its previous one. More often than not, this happens after you use the vehicle yourself. Hence, your new equipment (that costs more) turns out to not be worth the amount you financed. 

3. Lack of skilled personnel:

You financed new equipment. But none of your employees is well-versed in it. Also, your budget does not allow you to onboard a skilled technician who can operate it or teach you and your team to do so. 

The result? The equipment finance loan you took does not turn out to be fruitful. 

4. Industry downfall:

The pandemic taught us that lives are volatile. And so are businesses. Any industry can fall at any time. Economic crises are rampant nowadays, as is the tough competition. 

So, no matter how great a deal you crack in your equipment finance loan, an industry downfall can cause it to fail. 

5. Floating interest rates:

An equipment finance loan with a floating rate of interest is risky. Interest rates can fluctuate significantly. Your equipment finance loan can fail if the interest rate keeps on rising at a steady rate. Your total repayment value exceeds much more than your expected amount. 

6. Ambiguous terms and conditions:

You were over the moon when you signed your loan contract. You thought that the almost negligible interest rate was sheer luck. No one in your industry could have secured a better deal than you. 

But now, when you are making your repayments, it isn’t corresponding to your budget. Why? You did not read through the agreement terms and conditions thoroughly. You failed to read between the lines. You overlooked the ambiguity in the contract. Hidden clauses have cost you more than the profit you are generating. 

Often, the values are miscalculated. This especially happens without proper expert guidance. Therefore, the company runs into a loss. 

The ROI does not cover other business expenditures. Not just that, you may not even be able to make repayments on time and become a defaulter.  

What are my options if my equipment finance loan has failed?

First of all, consider taking the advice of an expert. 

At Finance Brokers NSW, we will help you avert the situation of failed equipment finance loans. We have significant experience in the finance industry for more than three decades now. Allow us to help you mitigate your risks. 

One of the first options we consider in this case is refinancing. But before you start with this, contact us. Don’t let your past financial mistakes define your business. Don’t repeat your past mistake of making choices without proper knowledge and research. 

Our proficient finance brokers are skilled enough to turn around the fate of a business. Test us. Book a consultation anytime via call or email.