Has The Royal Commission Into Banking Had An Effect On Equipment Finance?
The short answer is: not really for those ‘in the know’ or ‘well prepared’.
To give more detail on this answer the following is relevant.
Equipment Finance Up To $500,000
Most equipment finance up to $500,000 is now automatically approved on a fast track system without the need for financial information and purely based on three simple criteria:
- New and used equipment up to $150,000 being vehicles and acceptable equipment is approved where the business has been operating for two years, has a clean credit history and the principal is a property owner (20 per cent deposit where not a property owner)
- This amount increases on the same criteria up to $500,000 where the new debt replaces an existing finance commitment and the new payments are no greater than 125 per cent of the prior loan which is about to or has just concluded
- This style of matrix or behavioural lending is now accounting for a significant amount of equipment finance and is very quickly arranged
Equipment Finance Over $500,000
For individual requirements over $500,000 (or which don’t fit the matrix policies) traditional finance assessments need to be done.
This is the way traditional equipment finance has been done for 30 years and still is for larger assets or bulk limits.
In this space, the Royal Commission has had some effect in that the lenders are a little more cautious or more detailed in their assessment or to put it another way have increased paranoia that they may be seen later to have ‘got it wrong’. Having said that it is certainly NOT all doom and gloom. Well-prepared submissions with the right level of detail still result in good commercial approvals, but they can take a few more days to get the result.
The more challenging issue is the shortage of experienced commercial equipment finance credit teams within the primary banks and financiers.
This is a specialist area with specialist skills and in reality we are an ageing population with many of the old school experienced equipment finance analysts having either retired some years ago or became capable equipment finance brokers.
In a world where the vast majority of equipment finance transactions (which by sheer number are under $500,000) are assessed under these matrix programs, little full assessment experience is being provided to up and coming credit officers.
As equipment asset values increase, the remaining experienced credit team are increasingly put under pressure, which often results in delays on significant submissions or over conditioned approvals to outright declines if being assessed by more junior, inexperienced credit analysts.
This landscape has further increased the value of capable equipment finance brokers who understand the credit process, recognise the level of information required from the outset, choose the most appropriate lender, communicate in lender terms as well as respectfully but robustly argue the merits and mitigants required to maximise the desired outcome including accelerating the process for the client.
Although the Royal Commission into the banks has had its obvious ramifications, perhaps the most significant affect is the acceleration of the above issues and with recent press confirming that one of the major banks is well on its path to reducing the headcount of its employees by a further 6000 personnel. One can only assume that this area is not going to get better and the advantage of a long-term engagement with a skilled advocate in this space is well worth considering. There are plenty of them out there, you just have to choose the right one.
It is no wonder that over 50 per cent of small to medium size businesses engage the services of specialist Equipment Finance Brokers and this number is growing each year.
Words // Mark O’donoghue, Ceo And Founder Of Finlease
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