Finance Market Update 9 April 21
Getting new equipment to grow your business is a good idea, but there are delays from suppliers and money can be slow. In this fortnights update we talk about supply constraints on new assets, price surge on second-hand assets and why slow money costs less and quick money costs more.
Equipping for business
If you order a brand-new vehicle for your business today it is likely you will not get it delivered for a few months.
Since the virus crisis disrupted global supply chains the manufacturing and distribution of cars, utes, and other motor vehicles has slowed down considerably. Almost to a crawl.
This has meant that many would be car buyers are waiting a long time to get their new wheels and for a business that needs a truck or large wheeled vehicle that can be a problem.
Oddly one of the reasons for shortages is not the lack of cars but the silicon chips that go into them.
Chips have been in very tight supply and triggering manufacturers to slow down production which leads to slower delivery of vehicles. Then there is the giant boat that got stuck in a narrow passage for a week that abruptly halted the global big ship supply routes and showed the world how vulnerable supply chains from decades of globalisation really are.
This has created shortages for popular cars and equipment and meant longer wait times.
For example, the bestselling SUV in Australia (and the world) is the Toyota RAV4 and you will be waiting minimum 6 months and potentially even longer before your brand-new wheels are ready.
This is annoying for consumers who want a new family car, but it can be a deadly situation for a business that needs an asset to win more work.
Maybe an SUV is not a make or break asset for a business, but it is a pertinent example of supply chains blowing out across the auto market.
Other types of equipment are civil construction or engineering assets, yellow goods, earth movers, heavy trucks, trailers, and most new super utes, all of which are taking much longer to be delivered.
Those kinds of cars and equipment can make or break a job or growth for a small business.
Fortunately, Skyward Financial works with car buyers to help source new vehicles at a discount and sooner than a dealership can deliver them so if you are looking for a new vehicle Let’s Talk.
One of the biggest knock on effects from shortage of new cars is record high prices for used cars.
Across almost every type of used car there has been a double-digit growth in its price. This is especially true for the most popular vehicles but generally speaking prices have inflated considerably.
When financing a second-hand car for your business it is important to ensure the age of the asset at the end of term is appropriate to the lenders policy. For example, big banks might only allow for it to be ten years old while non-bank lenders might accept close to double that or more.
This is important to know, or work with a broker that knows, so that when you sign the contract you are confident you can actually get finance.
Fast money slow money
Slow money is cheap and fast money is expensive.
This week the big four banks all released details of the larger and newest version of the government secured virus loans (SMEGs).
This new round of loans sound impressive with low rates, high limits, flexible repayment holidays and most secured by the government, but as we have discussed almost a year ago getting these loans has been a headache and there is no guarantee this time around will be any easier.
But they present themselves as a good example of cheap slow money.
That is to say, if you tick all the boxes, can provide two years-worth of financials and supporting documents, be prepared to jump through hoops, previously had JobKeeper and have a few months-time to wait before you get any of the money, then yes, the low rates are a great deal.
But most business cannot or do not want to do all those things.
For a business that can be patient and prepared to give and get all the information needed they can get a low rate.
For a business that needs money in the next few days or weeks or cannot or will not have the information needed they will pay a higher rate.
It also can mean a big difference for a business that needs money now and sometimes not getting that funding can mean losing a big contract or job or customer, not being able to pay bills or even the death of the business. Getting money soon can make all the difference for a business to keep operating and grow.
That disqualifies them from the big banks’ loans. This has seen a large uptake of loans taken from non-bank and fintech lenders for working capital.
A constant fight between banks vs non-banks.
Non-bank lenders and fintechs money costs a lot more, as in they have much higher interest rates, but they will approve a loan in a day or so and get you the money shortly after.
The cost of fast money might seem high but for some businesses it is a price worth paying.