Interest rates on the run

2 September 2009
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tom_radovanic_250.gif

Interest rates on the run 

There is has been a lot written and said of late about whether the economy is recovering or still sputtering either way it is almost certain interest rates have bottomed. In the case of rates for equipment financing you will probably find they have already started to rise.


You could even argue that rates for equipment finance never really came down when you consider the current inter bank rates. The reason is that spreads or the interest charged by banks and financial intuitions above their cost of funds has increased dramatically.

 

 Tom Radovanic has over eleven years experience in the equipment leasing industry.
He attended University of North Carolina at Charlotte – Belk College of Business and is now the Director of True Lease Pty Ltd, a specialised equipment finance broker in Sydney. He also works with Logistics Bureau as a specialist consultant.

The reason is really threefold:

Firstly there is a shortage of cash in the overall financial market place and as a result lenders tend to allocate more money to highly secured loans such as home loans and less to areas such as equipment leasing.

Secondly financial instruments such as securitization and derivative style default insurance which have help keep spreads to a minimum in the last seven to ten years have become either unavailable or to expensive. This is due mainly to the financial meltdown.

Thirdly many specialised equipment Leasing company’s have either gone to the wall, or stopped lending others have had trouble raising adequate capital, thus exasperating the problem above.

Having baffled you with all that, the bottom line is conditions for financing new equipment are about as good as they are going to get for some time. If anything it will get more expensive. The real question is whether and to what extent the economy will recover in the next twelve months and the only comment I would be game to make on that is “your guess is as good as mine”. However an old saying comes to mind “fortune favors the brave”. So if your view is one of optimism now may very well be a good to start tooling up for growth in the second half of this financial year.

Tom Radovanic
Director
True Lease Pty Ltd
http://www.truelease.com.au/

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