Commercial Finance Blog

Business Financing, Equipment FinancingNovember 28, 2007 3:58 pm

Equipment Finance Association Survey

The Equipment Leasing and Finance Association’s 1/ (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports equipment finance activity showed that overall new business volume for October was virtually flat (0.10%) when compared to October 2006. However, according to year-to-date cumulative totals, new business volume for January to October 2007 was 6.5 percent higher when compared with the same period in 2006.

Equipment Leasing and Finance Association’s Survey of Economic Activity: Monthly Leasing and Finance Index   

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Business Financing, Credit, Equipment FinancingNovember 15, 2007 6:51 pm

Section 179 – Letting the Government pay for your Stuff

I have gotten some questions regarding my last post on section 179, mostly what types of equipment applies?

Excerpt:


"Before you start scratching your head while scrolling down the page looking for sections 1 through 178 I am referring to the US IRS Code.

It’s day 2 of the 4th quarter rush and a lot of the new recruits have no idea why it gets so crazy in the office during this time. Most have to do with the general flow of business Equipment Seller are sending out promos to try and move inventory for a strong year end close; while one of the other major reasons is the tax benefits associated with financing during this time.

Technical… Section 179 of the United States Internal Revenue Code (26 U.S.C. § 179), allows businesses to immediately deduct the cost of certain types of property on their income taxes, as an expense (rather than requiring the property to be capitalized and depreciated). This property is generally limited to tangible personal property such as equipment and vehicles. Buildings are not eligible for section 179 deductions. Depreciable property that is not eligible for a section 179 deduction is still deductible over a number of years through MACRS depreciation."

"Certain types of property": Well the truth is it can be anything from printing presses and machine tools to Hummers and Navigation units (Of course all for business use. ‘Essential use’ is a pretty vague definition.).

If you have further questions simply ask anyone wearing a bowtie.

Next time I will discuss the finer points of frying a turkey.

 

Related

 

Qualifying Equipment

 

Section 179 Calculator

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Uncategorized, Business FinancingNovember 1, 2007 10:27 pm

Residuals (continued)

In a prior post I covered the difference between apples and oranges and how oranges taste so much better. Never mind that was on another blog, I did however cover the differences between a lease and a loan and as promised I wanted to clarify some of the common residual types.

 

In review…

 

A Lease by nature has to have some type of residual at the end; imagine a residual to be a portion of the original cost that is left unfinanced. Common residual options include but are not limited to $1.00, 10% and FMV. Each of the options can be coupled with the words “Purchase Agreement” or “Purchase Option”. (Remember this for next time.)

 

$1.00 Residual: this is typically the most common type of lease to purchase structure. In this agreement the customer is financing all of the equipment cost minus $1.00. (Now obviously the $1.00 residual is somewhat of a technicality that qualifies this as a lease structure) This structure yields the highest monthly payments but also a next to nothing residual at the end.

 

10% Residual: in the case of a 10% residual the customer is financing 90% of the equipment cost leaving the remaining 10% as a residual at the end of the term, hence the name. This structure has a lower monthly payment than a $1.00 for obvious reasons but also has a 10% Residual or “balloon” payment left at the end of the term, which in most cases can be financed again, or of course paid in full in cash.

 

FMV Residual: though not difficult to understand this structure typically is difficult to explain so I will reserve this for a later date and time.

 

Stay tuned while I formulate my thoughts on explaining the difference of a purchase option versus purchase agreement and the infamous FMV.

 

 

Related Articles and Links:

 

Residual Types

 

 

 

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Uncategorized, Business FinancingOctober 24, 2007 1:24 pm

Fast Financing Options for Small Businesses

Cash flow is essential to the life of any business, big or small.  Proper allocation of cash resources will allow a business to flourish.  When revenue generation is at a lull, a business may need to seek funding options to ensure steady growth without interruption.  There are many quick financing options available to businesses.  The funding can be used for purchasing, refinancing, business expansion or for any development purpose.

Traditional Methods
Depending on the size and type of business, peer-to-peer and personal loans may be practical.  There is a plethora of resources on the web if personal contacts do not suffice.  Another traditional loan option is through a bank, however, institutionalized loans can take anywhere from weeks to months to process.  It may also be difficult to obtain one of these. 

Secured & Unsecured Loans
Other types of loans are the low rate business loans which come as secured and unsecured.  Unsecured loans do not require collateral but may charge a higher interest rate.  Secured loans are issued with the lowest rate of interest determined against a valuable asset the businessman owns.  Depending on the value of that collateral, the loan amount is determined.  Business owners with poor credit may also qualify, but with a higher interest rate.  In the case of non-repayment, the loan issuer gains the right to sell off the security to the asset.

Factoring
Invoice Factoring may be an option for companies that have clients with pending termed invoices.  Instead of waiting for the terms of payment, the business can factor the invoices, receiving payment from a funding source in as little as two days.  The invoices then become an instant capital source.

Purchase Order Financing is another great option for resellers and wholesalers.  Purchase order financing provides instant funds necessary to pay off suppliers through a letter of credit.  This allows a company to fulfill its supply requirements and move forward to selling to its own customers.

Equipment Financing
In the recent years, Equipment Leasing and Financing has become a booming industry in itself.  Through leasing and financing equipment, businesses can slowly pay for expensive equipment over time allowing them to hold onto valuable cash resources.  By leasing, business profit can grow without the burden of debt.  There is also a myriad of benefits to equipment leasing and financing including tax benefits, specialized product selection and maintenance, and more.

Online loan and financing providers are constantly competing for your business. The online application has evolved a great deal over the past years, allowing for better rates and speedier processing time for the funding seeker.  This may be a viable resource for those searching for a way to quickly acquire funding for their business operations.

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Business FinancingOctober 18, 2007 4:58 pm

Leases and Loans the Difference between Apples and Oranges

Because leasing has such a wide definition I am specifically talking about lease purchases; where the intent is to purchase the equipment at the end of the term.

What is the difference between a Lease and Loan? This is a pretty broad topic so I will try to cover it in bite sized chunks.

Technical…

Equipment Loan: is where the Lender (the party that is providing the money) is loaning out a specific sum of money to the Buyer (the party that is purchasing the equipment), that is to be applied towards the purchase of a piece of equipment. The Buyer purchases the equipment in their name and the Lender then files a UCC or Lien on the equipment until the agreed upon payments have been made.

Equipment Lease: is essentially a rental agreement. The Lender buys the equipment on behalf of the Buyer and after the agreed upon payments have been made the Buyer then can purchase the equipment for a predetermined residual amount. (Common residuals include $1, 10% or FMV, to be covered at a later date)

Real Life…

In short the difference between a Equipment Loan and a Lease is the ownership of the equipment during the course of the payment plan. Also a Lease by nature has to have some sort of residual at the end of the term.

 

Related Articles and Links:

Residuals

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Business FinancingOctober 2, 2007 8:21 pm

Section 179

Before you start scratching your head while scrolling down the page looking for sections 1 through 178 I am referring to the US IRS Code.

It’s day 2 of the 4th quarter rush and a lot of the new recruits have no idea why it gets so crazy in the office during this time. Most have to do with the general flow of business Equipment Seller are sending out promos to try and move inventory for a strong year end close; while one of the other major reasons is the tax benefits associated with financing during this time.

Technical… Section 179 of the United States Internal Revenue Code (26 U.S.C. § 179), allows businesses to immediately deduct the cost of certain types of property on their income taxes, as an expense (rather than requiring the property to be capitalized and depreciated). This property is generally limited to tangible personal property such as equipment and vehicles. Buildings are not eligible for section 179 deductions. Depreciable property that is not eligible for a section 179 deduction is still deductible over a number of years through MACRS depreciation.

Example: Purchase price $125,000

  • 1st Year Write Off:  $112,000
  • ($112,000 is the maximum Section 179 write-off in 2007
  • Normal 1st Year Depreciation: $ 2,600
  • ($125,000-$112,000 = $13,000 x 20% = $2,600)*
  • *Depreciation calculated at 5 years = 20%
  • Total 1st Year Deduction: $ 114,600
  • ($112,000 + $2,600 = $114,600)
  • Tax Savings Assuming Rate of 35%: $ 40,110
  • ($114,600 x .35 = $40,110)
  • 1st Year Savings / Lowered Equipment Cost: $ 84,890
  • ($125,000 - $40,110 = $84,890)

 

Real Life… You can write off up to $108,000 of the equipment cost the year you purchase it.

Easy Example: Purchase price $125,000

  • *Magic Happens…*
  • Save $ 40,000 on your taxes!

Related Articles and Links:

Section 179

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Business FinancingSeptember 30, 2007 9:08 pm

To Whom am I speaking?

I called a friend of my last night and his 5 year old daughter answers and said "To Whom am I speaking?" I just about busted out laughing, I digress.

Mr. *Mysterious Online Personality* who are you and why are you blogging? Well the first question is easy; the second question has to do with sanity of mind during the work day, but out loud let’s just say that I enjoy educating people.

I am the sales manager for a capital equipment finance company and have been doing ‘this’ for going on 18 years now. I get asked politely when I meet new people if I enjoy my job, and the truth is yes, yes I do. However realizing that most people in general have very little idea as to what I do; in retrospect I think a proper introduction is in order, especially if I am spouting out advice into the abyss that is the World Wide Web.

I wrote once in a college paper oh-so-many-years-ago that finance, next to harlotry, is one of the oldest businesses in the world. In short I sell money by partnering with equipment sellers to be offered as a payment solution at the point of sale.

We work with a variety of industries, everything from printing presses and machine tools to being one of the few equipment finance companies that will do prepackaged and custom software solutions.

I spend most of my days training instead of selling and thought I could use this blog as an idea journal to both archive my thoughts as well as maybe pass along knowledge to the general masses of small and medium sized business owners in the search for financing equipment.

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Business FinancingSeptember 12, 2007 6:42 pm

I’ll Pay Cash

Expanding on ‘Lack of Capital’ from the earlier post whether you are a start up or a 5 year old company the question remains, ‘Why pay cash?"

The truth is while money is cheap paying cash is like digging an early grave. From the banks’ perspective if a customer has a low 4 figure bank balance and is asking to borrow a moderate 5 figure sum the applicant will either be denied or the rate will be higher, and here’s why.

Technical… Lenders want to see that any company applying for a loan earns enough money to meet payroll, cover fixed operating expenses, and comfortably make timely payments on a new equipment loan or lease. While there are a number of ways to define cash flow, lenders most often calculate the cash flow available to repay new debt as net profit plus such non-cash expenses as amortization and depreciation. (Source)

Real Life… Let’s bring this closer to home. If you were considering loaning money (say $50,000) to either Gary or Paul you would first want to make sure that both were going to be in a position to pay you back. For arguments sake let’s say that on the outside Gary and Paul lived identical lives, made the same amount of money lived in the same neighborhood drove the same car and so on. The primary difference between the two of them was that Gary paid cash for everything he owns and Paul financed his lifestyle. If you are looking through bank statement for both parties Paul has well over the amount he is trying to borrow where as Gary has next to nothing.

Paul has managed his lifestyle through small monthly payments while Gary has emptied his cash savings into each purchase he has made. When the time comes to finance not only has Paul built up a credit reputation (covered at a later date) of on time payments but has cash in the bank for emergencies; Gary has neither.  

Consider that to a lender each loan is an investment and that investment has to make sense. Paul in this situation is borrowing money to continue improving his life where Gary is now in a position (short on cash) to borrow money to stay ahead of day to day necessities. There is a reason you will never see a bank classified as a non-profit entity; and for that reason Paul is the better investment.

Cliff Notes… Paying cash is not 1, but 2 nails in the coffin. Financing when cash is not a concern not only helps build necessary credit for future use but also keeps you ahead of the curve. Financing should not be your last resort but a beneficial tool that should be used to help grow your business or lifestyle from the foundation.

Related Articles and Links:

Prime Loan Interest Rate

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Business FinancingSeptember 5, 2007 11:23 pm

Financing a Small Business Start-up

With stats ranging from 50% to 80% of new businesses failing in the first 5 years, how can you increase your chance of survival?
Having worked in commercial equipment finance for the past 15 years I have sorted through my fair share of start-up applications; imagine a large mountainous eye sore of unprepared hobbyist willing to stake their future unknowing of the basics of running a business full time. To answer the question ‘How to succeed’ (covered at a later date) you must first examine the reasons for failure:

1)     Lack of Capital: Most start-up businesses fail to prepare for the inevitable lack of money. The un-educated think that an immediate windfall of money will result from opening their doors, while the under-educated seem to prepare with a small nest egg of ‘just in case’ money; both result in the same outcome, with the latter arriving a little while later than the first. The truth is whatever revenue you may generate in the first 2 years needs to be reinvested back into the company.

2)     Poor Credit: We live today in a society where 40% of Americans spend more than they make. If your business plan hangs in the balance of being approved through one of the limited sources of financing available to you be prepared to air out your dirty laundry. If you have little to no credit, slow payments, over exposure of credit card debt or anything below perfect credit and stout financials dig up the coffee cans in the backyard financing will be an exercise of futility.

3)     No experience: Society has taught us to follow our dreams; it has failed to mention how to make a living while doing so. If your sole work experience has been as a carpenter and your dreams of opening up a bohemian coffee shop will not leave well enough alone, take leave of building shelves and gain experience as a barista. Businesses will fail, and in mass, when the captain of the ship doesn’t know the first thing about sailing.

Related Articles and Links:

U.S. Small Business Administration

IRS Guidlines for Starting a Business

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