Financiers assess  the  credit  worthiness  of  a  client  via  various quantitative   and   qualitative   techniques.   Credit   assessment however is not a precise science and the credit judgement is often used to determine whether an application is approved or declined.  The  purpose  of  this  document  is  to  simplify  the  credit process  and  to  give  practical  guidelines  to  make  the  process  as efficient and profitable as possible. Financiers may look at a balance sheet differently to an Accountant or Financial Planner so it helps to understand how financiers assess credit applications.

Motor Vehicle and Equipment Finance vs Housing Finance Home Loans

Housing finance is based on a person’s ability to repay the loan but also a strong secondary position taken by the lender against the asset itself (i.e. a bank has the mortgage on a house). Commercial finance,  which  includes  motor  vehicle  and  equipment  finance,  is based  predominantly  on  the  cash flow  of  the  borrower. Extra security is generally not taken against further assets (i.e. if the borrower defaults the financier can only recover funds from the resale value of the asset). Selling assets quickly at auction may resultin  a  significantly  lower  amount  received  especially  for assets such as office equipment, furniture and fittings.

New  equipment  finance 

Some  equipment  finance  advisors  starting  to  write  business receive a difficult deal such as a fitout for an office or restaurant  which  is  subsequently  declined.  This creates a negative image regarding motor vehicle and equipment finance that it is “too hard”. In reality, this type of finance is one of the easiest products to write especially if equipment finance advisors focus on the right types of clients and equipment.