While mobile homes account for 42% of the purchases made via a goods loan, they can also finance the acquisition of cars and heavy gear such as agricultural and construction equipment. This makes a goods loan an excellent choice for business owners looking to purchase an asset without disrupting their cash flow.
Let’s see what you need to know before applying for a goods loan and how it will benefit you.
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What Is a Goods Loan?
A goods loan is a credit facility offered to purchase tangible assets. It can be used to fund business assets, such as heavy machinery, technical equipment, and vehicles.
According to this goods loan guide, this type of loan is also called a chattel mortgage. And it is usually secured against the asset purchased, making it a low-risk option for lenders.
The terms and conditions of the loan will depend on the lender and your business’ credit history, but you’ll get outright ownership of the asset. The lender will hold a lien on the asset until you make all payments, so they can sell it and recover their money in case your company defaults.
What Are the Eligibility Criteria for a Goods Loan?
Before you apply for a goods loan, you should know whether you’re eligible for it. Here are some things to keep in mind:
- You may be required to put down a 5-10% down payment. The higher your business’ credit score, the lower your down payment.
- If you have any outstanding past-due accounts, you must settle them before obtaining a goods loan.
- Goods loan lenders typically want a credit score of at least 575. This is significantly lower than the 620 required for standard mortgages.
- To demonstrate your ability to service the loan on time, you must have a valid Australian Business Number (ABN).
How to Apply for a Goods Loan?
Applying for a goods loan is similar to obtaining other loans, such as home equity and personal loans. To apply for a goods loan, you must first choose a lender. Online loans might be a better option than brick-and-mortar lenders because of greater flexibility and lower interest rates.
After you’ve decided on a lender, you can apply for a loan online by filling out a form. If the lender does not offer online applications, you can phone them or visit their local branch.
Before making a decision, the lender will consider your business’ creditworthiness and capacity to repay the loan. They’ll also want documentation confirming your company’s identity and legality.
If everything is in order, most lenders will arrange for the loan to be settled, leaving you with nothing to do but purchase your asset.
What to Consider Before Applying for a Goods Loan?
Here are two important considerations to make before applying for a goods loan:
1. Alternative Financing Options
A goods loan isn’t your only option when it comes to financing a business asset. Consider other sources of funding before you make a decision, such as leasing or renting the item instead.
You can also look into a hire-purchase agreement. In a hire-purchase agreement, you won’t get immediate ownership of the asset. Instead, the lender will retain the ownership and give it to you only once you’ve made all your payments. But this also means they will be responsible for the maintenance of the asset, which can help you maintain a better cash flow.
2. Repayment Time
Goods loans tend to have shorter terms. This means you’ll have to make relatively larger repayments in a short period, so make sure you have the budget.
What Are the Benefits of a Goods Loan?
There are many benefits of a goods loan, including:
- Goods loans often have shorter durations than standard mortgages, which means you’ll be able to pay off your debt sooner.
- Taxes on property titled “chattel” rather than “real” may be reduced.
- Goods loans are typically less expensive to process than regular mortgages.
- Chattel mortgage interest rates are lower than unsecured loans.
What Are the Disadvantages of a Goods Loan?
At the same time, a goods loan has a few cons that are important to know. These include:
- Goods loans offer higher interest rates and fewer consumer safeguards than traditional mortgages, making them riskier.
- The National Consumer Credit Protection Act does not govern goods loans in Australia.
- Since your business will own the asset, the responsibility for maintenance and upkeep will lie with you.
A goods loan is a great way to finance the purchase of a business asset. It is similar to how you apply for a mortgage loan online. Before you apply, make sure you’re eligible and have considered other sources of funding.
Also, keep in mind that goods loans offer fewer safeguards and higher interest rates than regular mortgages, so you’ll need to compare your options and make sure that a loan is economically viable for your business
But with the right lender and the right circumstances, a goods loan could definitely prove to be a good way to purchase an asset without tying up all your cash into it. Good luck!