New machine purchases are at the top of many contractors’ wish lists, but can they afford it? Forestry Journal spoke to some of the leading experts from the world of forestry finance to get their perspective.
IT’S been another turbulent year for the UK economy, with rising interest rates and spiralling costs causing headaches for all industries – not least forestry.
In such circumstances, you could be forgiven for holding off on new purchases, but with new, more productive machinery coming to the market all the time, it’s worth exploring what options are available to secure funding and improve your business.
Three experts in the field offered their thoughts.
HONEY ASSET FINANCE
Cameron Small, director of Honey Asset Finance, emphasised the point that modern forest machinery has significantly improved in terms of efficiency, sustainability, and automation.
He said: “Investing now could mean benefitting from newer, more productive, and environmentally friendly technologies. If existing machinery is outdated or nearing the end of its useful life, investing in new equipment can reduce downtime, lower maintenance costs, and improve operational efficiency. This would positively impact the business financials, meaning potentially lower costs of financing in the future.
“With interest rates looking to fall over the next six months, funding on variable rate means you can unlock additional savings throughout the length of your finance agreement. Upgrading equipment can help businesses remain competitive, especially if competitors are also modernising their operations.”
Having said that, obtaining favourable financing terms can be challenging if you don’t have the right broker by your side. “Higher interest rates and restrictive lending criteria from banks can deter businesses from investing in equipment,” said Cameron. “Market volatility can be unsettling for many business owners; they may not want to commit to long-term funding if they are unsure of the business performance. That is where a reliable and honest brokerage can work with you to ensure that the decision is right for you and that the financial product you pick works with you and not against you.
“Capital equipment often involves substantial upfront expenditures, which can be a significant financial burden for businesses. This is particularly pressing for small and medium enterprises (SMEs) with limited access to capital. With the right finance company you can defer any VAT payments and reduce deposit payments too, importantly keeping the cash in your business.”
With interest rates increasing, a lot of pressure has been put on businesses to shop around and find the best rates. “Having a broker who specialises in agricultural funding (like Honey Asset Finance) is crucial as it means accessing lower rates, and more suitable funders,” said Cameron. “The cost of equipment has increased dramatically over the last 18 months. Additionally, other business input costs have increased, which only puts further pressure on cashflow. Businesses looking to secure funding now are often experiencing cashflow pressures but require the equipment for specific contracts or growth. That is where a finance company which understands your business is key to moving forwards.
“We are a specialist broker and lender in the sector. We take the time to understand your business and its needs, ensuring that you have all the options laid out prior to making a decision. We offer funding for new-starts and established businesses, from new equipment to used, and we can even fund with no deposits and deferring the VAT. We have a ‘think outside the box’ approach which means we can truly tailor the funding to your business as we appreciate that not every business is the same. Why not reach out to us to see just how flexible we can be compared to the others?”
EAGLE ASSET FINANCE
Stephen Clark of Eagle Asset Finance offered a broadly positive outlook for the forestry sector. “Although there are still day-to-day challenges, many contractors are still thriving in the current climate,” he said. “However, they are having to re-align themselves with the ever-changing market and, at times, move away from mainstream harvester/forwarder work to more lucrative areas within the sector.
“Although interest rates are currently higher than we have been used to in the UK over the past 20 or so years, it is a false economy to avoid paying monthly finance repayments whilst machine repair costs continue to escalate, as does the corresponding downtime. Postponing the purchase of the machine only widens the gap between your part-exchange value and the cost of a replacement. By extending repayment periods or building in balloon payments into finance agreements this can allow monthly payments to arrive at a manageable level.”
The challenges that exist for those seeking finance mainly stem from increasing interest rates coupled with escalating prices of new machines, parts, insurance, fuel, oils, labour etc, which are all conspiring to make it more difficult for the contractor to justify changing machines, he said.
“The length of time it can take for contractors to be paid for the work carried out and the absence of contracts demonstrating work ahead can also reduce the confidence of those looking to invest in machinery. The rates the contractor obtains for the work carried out have not, on the whole, risen in line with costs over many years meaning that the contractor has to work longer and demand more output from their machines to obtain the same return.
“The major change in the finance sector over the past year to 18 months has been an increase in interest rates. Lenders’ appetite to do business has increased over this time, with new lenders coming to the fore. However, with ever-increasing machine prices, this means that amounts being borrowed have significantly increased.”
Asked what a company like his could offer to someone seeking finance, he said: “I think that speaking to someone who understands the assets, people and dynamics of the industry certainly helps. This, coupled with 25 years of experience in finding the best solutions for customers and tailoring a finance package ideally suited to their personal circumstances, helps too.
“Eagle Asset Finance provides hire purchase and leasing services for new machines through to those 20-plus years old and everything in between. Eagle Asset Finance also has access to funders who provide commercial loans and mortgages.”
EVANGATE FINANCIAL SERVICES
Asked to describe the current state of the market, Kyle Robertson of broker Evangate Financial Services said: “Despite the Bank of England’s decision to maintain the base rate, the finance market has maintained a robust interest in forestry businesses, particularly in the asset finance sector.
“During the year’s initial months, wood movement from harvesting sites to mills was slow, possibly leading to businesses experiencing cashflow issues. Partnering with a specialised broker like Evangate can provide a zero-per-cent deposit on purchases, VAT deferrals to aid cashflow, or the refinance of existing agreements to reduce the monthly payments the business has to make.”
But what makes now a good time to invest in forest machinery and equipment?
“With interest rates on larger purchases showing signs of easing and the anticipation of improved weather conditions leading to a boost in the construction trades, the current outlook is positive, making now a good time to invest,” said Kyle.
He added: “Speed is the key differentiator when dealing with finance companies and brokers. You will not get the quickest approval with the cheapest rates, so some balancing is required from the customer’s perspective if a purchase is required urgently.”
Comments: Our rules
We want our comments to be a lively and valuable part of our community - a place where readers can debate and engage with the most important local issues. The ability to comment on our stories is a privilege, not a right, however, and that privilege may be withdrawn if it is abused or misused.
Please report any comments that break our rules.
Read the rules here