Before making a commitment to buy anything, of course, you’re going to want to know how much it is going to cost. The same goes for business finance and commercial loans. Before you can proceed with placing your order for that car, truck or equipment purchase, you’ll want to know what your loan is going to cost. The most common questions that our consultants are asked is what interest rate I will get and what will my repayments be on my loan.
Business Finance provides a number of resources to assist you to estimate your repayments on different loans and we’re providing this overview on the differences and variations in different commercial loans.
Business Loan Products
When purchasing equipment, cars, trucks and other business assets, business owners have the choice of a number of different loan products.
The business finance selection includes:
Loan types vary in their structure and those differences flow on to differences in the interest rate that lenders apply to each finance product. Typically CHP and Chattel Mortgage have the lowest rates, Leasing next and Rent to Own the highest.
While it would seem like a no-brainer to select the commercial loan product with the lowest interest rate, it is not always that simple. The individual features of another loan type may deliver your business a more appropriate and more attractive benefit in other ways. For example with Leasing and Rent to Own, the lender retains ownership of the asset you are purchasing during the lease term. This is called off-balance sheet finance as the value of that asset is not posted to the accounts/balance sheet of the borrower. This is often referred to as ‘improving the balance sheet’ and seen by many businesses as a distinct advantage in their overall accounting strategy.
Business Loan Interest Rates
The interest rate is the key determining factor to the overall cost of any loan. Securing a cheaper interest rate on business finance can reduce not only the overall cost of the finance but also of course the monthly repayments.
Individual lenders set their rates based on numerous factors but the foundation and commonality is the official cash rate. This is the rate set by the Reserve Bank of Australia (RBA). Currently, that rate is set at 0.1% which is a historic low. The bank takes into account both the Australian economic position and the global situation in setting rates. The rate was lowered several times in 2020 as a COVID-19 stimulus measure.
At the May 2021 board meeting, the RBA held rates and reiterated their intentions not to increase the rate until inflation reached their target of 2-3% and unemployment was in the low or sub 5% range. With this outlook, it is anticipated that the current low-interest rate position for commercial loans and business finance will remain for some time.
Lending Interest Rates
Interest rates on business finance vary from lender to lender and across different industries and types of equipment. This is based on the risk assessments of individual lenders of different sectors and their preparedness to lend to that sector.
The interest rate on cars may be different from that available for equipment. The rate for equipment in the construction industry may be different from equipment for say gym equipment.
As rates vary across the lending market, Business Finance has sought and achieved, highly productive working relationships with a broad swathe of lenders. We have connections with banks and non-bank lenders including many specialist lenders. Some non-bank lenders specialise in specific industries or types of finance. This aspect tends to make these lenders more competitive than say the major banks in some areas of finance.
By having a large number of lenders we have the capability to source the cheapest finance deal that meets the individual requirements of each customer. View our online business finance interest rates to compare figures across a variety of banks and lenders
Calculating Your Repayments
Now to the main question – what will your repayments be? We address and source every application individually and you will need to request a quote in order to get an exact price for your loan. But to make the planning and estimation process easy we provide loan calculators.
Our interest rate calculator allows you to quickly calculate repayment estimates on the same equipment for different loan types. See immediately the possible difference if you select Chattel Mortgage or Leasing.
We also have a business loan repayment calculator as an additional feature that allows for the inclusion of a balloon/residuals. This allows you to vary that percentage and other values to start to build an idea of how you would like your loan structure.
When using these calculators, we advise all users to utilise the interest rate we are currently displaying for the finance product of choice. Our consultants will be working towards negotiating the cheapest rate.
To know exactly what your loan will be, you can request a quote or better still, ask Business Finance to source you pre-approved finance for your purchase. This is obligation-free so you are not committed to taking up the finance if you change your mind. But it does present significant advantages in knowing exactly what you will be paying on finance before your buy.
Contact 1300 000 033 to discuss a quote for your specific acquisition
DISCLAIMER: THE SPECIFIC PURPOSE IN PROVIDING THIS ARTICLE IS FOR GENERAL INFORMATION ONLY. IT IS NOT INTENDED AS THE SOLE SOURCE OF FINANCIAL INFORMATION ON WHICH TO MAKE BUSINESS FINANCE DECISIONS. BUSINESS OWNERS WHO REQUIRE ADVICE OR GUIDANCE AROUND THEIR SPECIFIC FINANCIAL CIRCUMSTANCES ARE RECOMMENDED TO CONSULT WITH AN ADVISOR OR ACCOUNTANT. NO LIABILITY IS ACCEPTED IN REGARD TO ANY MISREPRESENTATIONS OR ANY ERRORS RE ANY DATA, SPECIFICS, POLICIES AND OTHER INFORMATION AS SOURCED FROM OTHERS.