In the past, many companies would opt to finance equipment over a longer term, leaving a large residual at the end of the term in order to maximise their available cash flow.
Another alternative commonly used, particularly by public listed mining companies, was to acquire equipment on an operating lease.
Under this product, the equipment was returned to the financier or asset manager, in a fair and reasonable condition, for an agreed value. The equipment would not feature on the company’s balance sheet.
Nowadays, fuelled by demand from China, developments are taking place throughout Australia, putting a strain on the ability of equipment suppliers to service the needs of the industry.
As a result, contractors are facing delays of up to 12 months in order for suppliers to fill orders.
This demand also has the effect of used equipment holding its value over the finance term rather than depreciating significantly as has often been the case in the past.
Accordingly, many contractors are holding on to machines for longer periods because of the difficulty of substituting them with newer equipment.
Finance being used by contracting companies these days is generally over a period of 36-60 months using a chattel mortgage or commercial hire purchase product.
These facilities can be fully amortised or have a balloon value at the end, depending on the clients requirements, said Ledge Finance finance executive Joel Alman.
Alman says the current climate remains favourable to mining companies and contractors seeking to finance equipment despite rumblings from some camps that the commodities boom may have peaked and a downturn is just around the corner.
“Lenders are generally looking for reasons to do a deal rather than reasons to knock it back,” Alman told MiningNews.net.
He said more contracting clients are coming across his desk as companies choose to utilise the services of finance companies rather than deal with banks directly.
This minimises the time a client needs to spend when securing equipment finance and allows the brokerage to use its leverage with institutions and banks in order to get the best rate available from lenders, Alman said.
“We also spread the risk so [a company] doesn’t overexpose itself to one lender,” he said.
“Whereas a client’s core bank might be willing to offer a $2 million financing facility, we might be able to secure several facilities of $2 million from six or seven different lenders, depending on the client’s circumstances.”
