Not all that long ago there were many people, like the talented but capital-shy inventor, who saw their ideas become reality only after being implemented by the cashed-up corporates. It was often a despairing experience and existence.
Certainly if they had a record of success, the finance might be available - with the moneyman calling the shots. But so often, without financial backing, success could not be achieved. It was a catch-22 situation.
Today that has changed. As an increasing number of self-starters are seeking capital, there are a corresponding number of finance companies who are prepared to listen, and to lend.
Australian Reseller News spoke to four finance providers. Here's what they had to say.
Dennis Roams, manager, business banking, Commonwealth Bank, says that should buyers already have an existing loan, then the application to increase it is not a problem, as it is not an involved or lengthy process. "And indeed, if the customer's going for a first-time loan - say, between $4,000Ð$5,000 - then it still should be no problem at all," he added.
"Obviously, their ability to repay together with their existing credit performances are good indicators to an organisation. Once that's done, it's a simple matter of establishing some hire-purchase or leasing arrangements, both of which carry some taxation benefits to the applicant. The Commonwealth has a policy of no restrictive amount under this basis," he said.
Roams says, depending upon a number of factors, leasing is often the most advisable means of being able to afford computers and other equipment such as printers, fax machines, copiers and other peripherals necessary for a successful small business operation. Whereas the direct purchase of any of the above entitles the user to get standard depreciation on equipment, those entering leasing arrangements are entitled to claim on any expenditure.
"In other words, leasing is more tax effective than hire purchase, loan or credit card purchase," he told ARN. "It's the most cost-effective way of gaining tax benefits.
"The bank has also to consider a number of other consequences. For instance, if in time it became apparent that a business was not generating profit, then this could result in a whole reassessment of the original arrangement. Then we start getting into involved calculations."
Roams says the residual value factor for any high-tech equipment is another vital aspect to be considered by any bank or finance company, for it could fall by 40 per cent or more almost from the point of sale.
"Obviously as the equipment becomes older and is superseded by the market arrival of faster and more improved technology, then that value falls even further, to the point where its second-hand valuation is virtually nil," he said.
"In some cases, the Taxation Commission can allow an accelerated depreciation claim level. However, as a general rule this is not as rapid as the drop in depreciation of the technology."
Roams says that on the plus side for the buyer, good deals are available, as the leasing and hire-purchase markets are extremely competitive. Also the difference in repayment performance - that is, whether they are in advance or arrears - could make a significant difference.
"My advice to people considering making an application for a loan of this nature would be to carefully consider the alternatives, comparing quotes on a like-for-like basis," he said. "Anyone who is considering such an application can have our offer, terms and conditions fully explained at any of our Business Banking Centres or other similar areas."
Allan Quan, sales manager of Harris Technology in North Sydney, organises all his clients' needs through Capital Corporate Finance (CCF).
Following the initial interview, Harris Technology faxes the necessary paperwork to CCF, which in turn couriers the necessary forms back to the client. The type of information required, Quan says, includes:
Existing income and expenses, or projected ones;The past record on any loans;Details as to any default; andWhat possessions the client may have, either owning or renting.
"Following a successful credit reference check, the client could possibly have the required finance within 24 hours," he said.
"One of our conditions of any sale is a 10 per cent deposit on goods, and for a prearranged amount. As depreciation on any computer-related equipment is high, we work on a policy of two years to zero value."
Quan says that his company targets the business and corporate markets, while its database also lists single and professional users.
"The majority of our operation would be in dealing with small and medium businesses - an area growing at a healthy rate - and with the corporate companies," he said. "CCF is actually one of our clients."
Harris Technology is about to launch its own consumer finance plan, through which the company will do all the necessary paperwork with the potential client in the store. "This will speed the provision of finance at a 'one-stop-shop' level," Quan said. "We regard this as being very important psychology, as well as good, sound business practice."
Quan says another attractive feature of Harris Technology is that its operation, based in the Konica building, is open seven days a week, allowing potential customers the time and opportunity to examine the goods and discuss prices and finance without interfering with other weekday working activities.
John McDonald, a partner in Accredited Lease & Finance of Milsons Point, Sydney, agrees that most banks and finance corporations today will provide finance for acquiring computers and other IT equipment for "solid" clients.
His own company, for instance, can arrange finance for as little as $3,000Ð$5,000 up to $150,000Ð$200,000.
"We would prefer the applicant to have had about three years of satisfactory trading as a successful consultant or financial controller working from home," he told ARN. "Former experience in a field utilising computers would obviously be an advantage. And exposure with computers would be looked at very seriously.
McDonald's company lays down a number of prerequisites. "First and foremost, they must have a successful track record," he said. "Certainly, no accounts seriously in arrears. And definitely no bankruptcy.
"Another requirement we would be looking at is the applicant's ability to service a debt, to give evidence of an existing cash flow or the potential for a really sound future one."
Accredited Lease & Finance says that all types of computer hardware can be financed, while computer software is an expense in the years when it is incurred and as such can be claimed in full at the end of the financial year.
"Computers under finance should generally be taken out over a short period under a corporate hire-purchase contract as they attract a high rate of depreciation, and are subject to high obsolescence," McDonald added.
"We suggest normally a three-year period - the longest term is five years - with a nil balloon at the end, thereby paying off the contract in full."
What isn't hard and fast, McDonald says, are the needs of the applicant for specific equipment, and therefore the selection of the right financial option is of paramount importance.
"It really is a matter of horses for courses," he said.
"Many individual businesses are like no other. The financial structure, size, cash flow, method of operation and goals are unique. Similarly, its equipment needs could well be different from any other company. So there is no one simple answer."
McDonald says if the applicant can produce the right credentials to finance the expansion of existing or potential projects, then they will be considered.
"As I said, it's horses for courses, and we like to help the starters pick the right one," he said. "After all, everyone likes to be on a winner."
Anthony Dunlop, director of Interlease Capital, Sydney, says that, until a few years ago, no-one was combining IT marketing with finance. As a result, those seeking backing had no alternative but to go to the banks.
"And the banks then could be very cumbersome, taking up to a week or more in handling the smaller transactions, those in the $10,000Ð $20,000 range," he told ARN.
"Now we concentrate on helping small business - that is, under the $20,000 mark - up to big business represented by the major corporate and government areas representing much higher amounts. As a result, we compete just as aggressively, and write just as much, in both markets. It was that concentration on the smaller markets which led to many of our corporate clients," Dunlop said.
"That section of finance of $10,000 and under was one of the most poorly-serviced sectors of equity finance in Australia, and we saw the opportunity there. We've secured it by streamlining our processing by reducing the amount of paperwork, something we've been able to achieve through vendor programs.
"It's now generally recognised that small business today is becoming increasingly bigger," Dunlop said. "What is small business today can be big tomorrow." Dunlop said the advantages of securing finance include:
No capital outlay;
An opportunity of enhancing cash flow - critical to small businesses; andA way to minimise cash liability.
"In the past three years or so we've seen operating leases (rentals) becoming more and more popular," he said. "In turn, this has allowed the client the flexibility to replace or upgrade computers and other machines."
Dunlop claims that there is also a very liquid market for second-hand equipment in countries such as Pakistan, India, Zimbabwe and South Africa.
"This has allowed these people to get them cheaper, and at a subsequent cheaper borrowing cost. As a result, rentals have grown dramatically compared with the traditional methods of finance."
Dunlop says that gone are the days when biggest was automatically the best, opening the doors to companies such as his own to provide a more acceptable and attractive alternative.
"We have an expertise in the IT market that banks don't."
contact your local branch for details
Tel: 02) 9957 1142 Fax: (02) 9957 3345
Accredited Lease & Finance
Tel: (02) 9922 4388 Fax: (02) 9959 5215
Tel: (02) 357 1222 Fax: (02) 357 7788