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Do cheap interest rates equate to smart finance structures?

We all understand that buying cheap does not always equate to the best value purchase but when it comes to finance, the interest rate is often the primary focus and this can lead to poor customer outcomes. This is because finance can be complex and other more important factors like structure, terms and conditions can have a much greater impact on cash flow than interest rate.

 It’s very common to see businesses with cash flow issues that have poor asset finance structures as the primary cause for this. This is because it is now hard for Customers to make a value judgement when choosing a finance provider as finance has become a commoditized product where the interest rate is the perceived point of differentiation.

 What is now often missed from the value equation is consideration of whether finance structures and terms make sense in line with the remaining economic life and intended use of assets…in other words:

·       if you have a long-life asset then consider the impacts of a short term and what this might do to your cashflow. A shorter term will generally equate to higher payments and may result in negative cash flow.

·       if you have a short life asset then consider whether a longer term makes sense in line with the remaining economic or useful life. A longer term in this circumstance may result in negative equity i.e. you owe more than your assets are worth.

To avoid these pitfalls, ensure that you’re dealing with a knowledgeable funder who can help you with structuring loans that make sense based on your business circumstances.

 Speirs Finance are a specialist Equipment Financier, for small to medium sized businesses and we want to bring back "people dealing with people" to the finance industry. We know business and understand equipment. Through our nationwide Network of Accredited Agents, we will work with you to structure finance appropriately to match your intended use of it, with a focus on affordability – and have a local Speirs agent contact you within 24 hours.