As featured in the Blue Book Construction Network Magazine
Every business has a tool of its trade, equipment it simply cannot be without to provide its goods or services. Business equipment can be expensive and many cash-strapped small businesses and startups simply don’t have the money to purchase the tools of their trade or to upgrade old and malfunctioning equipment, so they remain competitive.
Equipment financing is the term used to describe loans provided for businesses to purchase the equipment they require for business operations and growth. By giving a business the finance to buy a piece of equipment, this type of lending can help improve a business’s working capital.
What Can Equipment Finance Be Used For?
Equipment financing is one of the most common reasons small businesses seek external financing. The funds provided to a small business can be used to purchase the equipment the business requires to operate. Such equipment can range from expensive machinery for farming, to office furniture, PCs and IT infrastructure.
Equipment financing can be used for anything from any type of business. For example, a mobile hairdresser may need to borrow money from an equipment financer to purchase essential hairdressing tools like scissors, razors and colorants. Or a construction business may require finance to purchase major equipment such as excavators, bulldozers and drilling machines.
Some of the most common purchases used by equipment financing include farm equipment, company vehicles, healthcare equipment, commercial computers, printers and servers, restaurant equipment, manufacturing equipment, and larger construction vehicles and equipment.
Equipment Financing for Equipment Upgrades
According to a survey by small business lenders, a staggering 42% of small business owners say they need to secure finance to purchase equipment. All equipment has a shelf line, and equipment upgrades are a major ongoing expense for small business.
The amount of non-bank lenders providing the necessary finance for small businesses to enable them to upgrade equipment is on the rise. A report in the Wall Street Journal in 2015, revealed the small business lending by the ten largest banks in the United States was down 38% from its peak in 2006.
A growing number of non-bank lenders are supplying small businesses with vital equipment financing. Innovative tools and platforms are being launched, designed to simplify equipment financing processes and help small businesses get the best deals to purchase vital equipment.
What Are the Stipulations of Equipment Financing?
There are certain stipulations involving equipment financing. For example, many lenders only agree to fund around 80 – 90% of the cost of the equipment, leaving the business to cover the remaining 10 to 20%.
With an equipment loan, the lender is typically secured by the equipment, so that if the small business can no longer afford to make the loan repayments, the equipment may be collected as collateral.
Are There Any Downsides to Equipment Financing?
Borrowing money to purchase hard business assets can be essential for many small businesses which would struggle to make outright equipment purchases. However, it is important small businesses are aware that entering an equipment financing agreement will end up costing them more than purchasing equipment outright, as they will pay interest and fees on the loan.
Interest rates are typically between 6 to 9% and arrangement fees can be around 4%. The usual term for equipment financing is between two and seven years.
Equipment financing can be quicker to qualify for than other business loans and traditional business financing. This type of financing can be extremely useful for small businesses of all industries needing to make vital equipment purchases and upgrades.
When you consider that most leases require no money down and no security deposit it actually allows a business to keep more of their capital in tact. Additionally, many leases do not affect your business line of credit, keeping that line open for other uses. Finally, most leasing companies provide 1 or 2 day approval with just an application and bank statements.
How to Separate Personal and Business Credit
The NSBA report also shows that 87% of small business owners could separate their business and personal credit files. Their stats from December 2017 show:
- 12% Sole proprietor
- 2% Partnership
- 19% Corporation
- 33% S-corp
- 35% LLC
87% could choose to position their business to no longer be tied to their personal credit history because they are incorporated or have established an LLC. They are also protecting their personal assets should the business fail, but only if they have not provided personal guarantees on debts.
Separating your personal and business credit insulates one from the other in the case of unexpected downturns personally or in business. Wolters Kluwer recommends the following steps to make it clear that the business operates separately from the owner. Most businesses will have already taken many of these steps:
- Incorporate your business or form an LLC
- Obtain a federal tax identification number (EIN)
- Open a business bank account
- Establish a business phone number
- Open a business credit file
- Obtain business credit cards with a company that reports to the credit reporting agencies
- Establish a line of credit with at least 5 vendors and/or suppliers
- Always pay your bills on time
Review what business credit agencies consider when calculating your credit score so you are clear on how to manage your finances.
Consider paying your bills ahead of time as that can improve your score.
Also, consistently use your business credit cards and keep them paid off monthly to exhibit excellent credit utilization.
Small Businesses Fail Due to Lack of Cash
Even if you do not plan to borrow money now, bear in mind that statistics show 29% of small businesses fail because they run out of cash. Even if you plan well, it is impossible to anticipate all the variables that can affect your business.
Being able to get a loan to expand, hire new employees, take on a big client, or deal with unexpected emergencies provides peace of mind. Having a credit rating that allows you to get favorable interest rates and credit terms with both banks and vendors will speed your success.
* An excerpt from an article written by Gail Gardner
As you look at your strategic and tactical plans for growth that will lead to new revenues-think about this:
BUSINESSES THAT FINANCE EQUIPMENT ARE GROWING FASTER AND MORE FREQUENTLY THAN THOSE THAT PAY CASH.
Certainly, we all understand the “peace of mind” that may come with having no debt, but we also understand that when your business can’t leverage your position to take advantage of an opportunity-You Don’t Grow.
The fact is that equipment depreciates, meaning that, as it loses value, businesses really have to ensure they are getting paid for its use to drive return on investment. If a business pays cash and is typically only going to get a 5 or 7-year useful life from the asset, at the end of the term, they’ll have 100% equity in an asset worth only 15 -20% of the original investment.
At the end of the day, isn’t the point of investing cash to increase the value of the investment? If cash is tied up in fixed depreciating assets, it is not being invested in areas that create stronger returns. Or more simply-growth (ROI) is not maximized.
Companies that deploy equipment financing as a real strategy reap the following benefits (among others):
- Stronger and more predictable cash flows
- More cash on hand for higher return investments
- They use newer equipment, driving efficient operations
- They have fewer equipment failures
- They have lower employee turnover
- Easier to bid on and scale new business opportunities because expenses more closely match revenues
- They are growing!
At Cardinal Business Financing, we work with small and medium-sized businesses in a consultative manner which enables us to provide the exact and proper financing platform leading to an increase in ROI and cash flow. If you want to learn more about how “The Cardinal” can help your business scale and grow-give us a call at (866) 578-5999 ext. 101
Written by Brian Kirlin at SLS
In a recent independent survey of 1400 Small Business Owners (less than 10 million in revenue) that make at least 2 equipment purchases per year, found:
- Companies that pay cash for equipment keep equipment longer
- Companies that pay cash for equipment have higher maintenance expenses
- Companies that pay cash for equipment have more equipment downtime
- Companies that pay cash for equipment have more employee turnover
Think about it–the longer a company retains equipment the higher the maintenance expense. Higher maintenance expenses typically mean that there are “down time” expenses because of equipment failure. And while these events are occurring, small businesses are perhaps missing the single biggest negative impact:
The most damaging by-product of the “pay cash and run it till the wheels fall off” strategy is not the rental expense, nor maintenance or even cash flow spikes- it’s employee turnover.
Business owners’ single biggest expense is most likely labor. Their people. Finding good ones seems to be getting harder and the cost of losing one and then finding another good employee is extremely expensive and disruptive to a small business. When a company is using older technology and equipment leading to issues of “down time” and inefficient performance- employees leave.
82% of 7,226 small business equipment operators (from entry level to advanced in industries ranging from construction to IT) said current equipment was a major factor in their job satisfaction.
No wonder the same research revealed that companies that paid cash reported higher turnover among equipment operators.
And now a thought…….Financing allows companies to stay on the cutting edge of technology- a simple monthly payment for a period of time, only to replace the equipment at the end of the finance term with the newest model and/or technology.
Financing executed the right way becomes a program to ensure businesses and more to the point- their employees -have the tools to do the job.
Cardinal Business Financing, Inc. has been working with small businesses to create an equipment acquisition plan that will improve employee retention and improve their overall profit picture. Cardinal offers a variety of lease and finance programs to suit the needs of any small business. Call us today for a no-obligation analysis of your business’ equipment retention schedule. Call “The Cardinal” at 866-578-5999 today!
Written by Nicole Hall/SLS
Not all scammers are as obvious as the ones who spam your inbox claiming to be bank managers from Nigeria with millions of dollars to disburse. There are plenty of sophisticated crooks ready to prey on your business, and keen to exploit the meteoric growth in online lending.So what are the most common scams and how can you spot them?
1. The peer lending scam
Peer-to-peer lending has become one of the most important sources of online financing. Unfortunately, there are some shadowy operators out there, using Facebook Messenger and other less traditional avenues to hook in victims.
The scam works like this: You’ll be contacted out of the blue and offered peer-to-peer financing, then asked to pay an arrangement fee or fork out for background checks. You’ll never see the promised cash and you could lose quite a bit of money, as well as data that can be used for identity theft.
2. The business angel scam
This is a variant on the peer lending scam, only this time the individual contacting you will claim to be a wealthy investor with plenty of cash on hand. After being flattered that your business sounds like an excellent investment prospect, you will be asked to pay for background checks, due diligence paperwork, or legal documentation.
3. The consultancy fee scam
This isn’t strictly speaking a scam, as it’s probably legal, but it’s a complete waste of money nonetheless. The individual or firm in question will approach you, claiming that obtaining business financing is so complicated that you stand no chance without their assistance.
In some cases, alongside coaching on getting a loan, you will be offered access to an exclusive low-interest deal, which probably doesn’t exist. Nobody said getting a loan was easy, but it certainly doesn’t require any special expertise—or anything that you can’t do yourself.
4. The credit repair scam
Most young businesses have an inadequate credit score. It’s a simple fact of life. However, there are plenty of predators out there who’ll be keen to convince you that they have the expertise and tools to transform your score—in return for a hefty fee, of course.
These services are a straightforward waste of time and money, and should not be confused with similar services for personal credit scores, where it is possible to make a difference.
5. The loan broker scam
Loan brokers exist to identify the right products for your business, make introductions to lenders, and prepare the paperwork to ensure a smooth process. There are plenty of legitimate and professional brokers, who get paid a commission from lenders for arranging loans; unfortunately, there are also quite a few sharks, who charge upfront fees for the same service.
6. The advance fee scam
Tantalising you with the prospect of a generous business loan with very low interest rates—even if your credit score is damaged or incomplete—the scammer will persuade you to part with an upfront arrangement or processing fee. Of course, the supposed loan will never materialise, and in any case legitimate lenders don’t require payment in advance.
So if you’re contacted out of the blue via Facebook Messenger or Skype, offered a deal that sounds too good to be true, and asked to pay an upfront fee, run far and run fast. In particular, be very careful of lenders without physical premises that you can visit or which use generic email addresses, and never give in to hard sell tactics. A legitimate lender won’t tell you that a particular offer is on the table for today and today only. In short, keep your wits about you and always trust your instincts.
Written by Carl Faulds
Cardinal Business Financing, Inc. is a full service commercial lending company specializing in working capital loans, equipment financing and commercial real estate lending. Call us today for a free consultation about your business’ financing needs.
Cardinalbusinessfinancing.com/100 Main Street North, Suite232, Southbury,CT/ (866)578-5999
Economic growth has been hitting north of 3% in recent quarters, and with the new tax reform, it should edge even higher. In addition to this, consumer confidence is at levels that haven’t been seen in many years. Now may the time for small businesses to access working capital in order to grow or expand their opportunities.
Current business owners should consider strategies like these:
- Hiring to quickly implement a strategic growth plan or realize a sudden opportunity
- Marketing and advertising in new areas in order to reach new market segment
- Boosting inventory to secure better pricing to support opening new markets
The problem many small business owners have is that they don’t have the funds to finance shorter, fast-turnaround situations, like the opportunities that I believe, are presenting themselves right now and in the coming months.
A form of financing for established small businesses—working capital loans—is a little less familiar to many owners, yet working capital loans can be the ideal financial tool to handle opportunities (or problems) that present themselves in the shorter term.
All about working capital loans
The requirements for working capital loans differ significantly from bank loans (and you won’t have to fine-tune your elevator pitch like you would if you were to pursue private financing.) Here are some of the highlights:
- You don’t need to lay out a detailed plan of what you want to do with the money. Paperwork is minimal.
- If your credit score is at least 500, you’ll need to show an annual profit of $50,000; if your credit score is at least 600, that gets cut in half to $25,000. If you’ve been denied a bank loan, your chances may still be good for a working capital loan.
- You have the flexibility of choosing the type of working capital loan that best meets your needs: a term loan, cash advance, invoice factoring, revolving line of credit, or purchase order advance.
Here’s a basic overview of these types of working capital loans available to you, along with some of their benefits:
Term loan. This is a basic loan that the borrower pays back over a given term or period of time—no surprise there. Today they are sometimes available via online peer-to-peer lending networks. Typically, you need to have been in business for two years, and they are best when you have predictable income flows.
Cash advance. Think of this as a mini-term loan. Just like the “cash advance” payday loan store across town from you, the interest rate will be higher than other loans, such as the standard term loan. But if you have an opportunity to get a great deal on discounted inventory and know that you can turn it quickly, this loan can still work well.
Invoice factoring. With invoice factoring you’re essentially selling your open invoices to a third party. You will receive about 80 to 90 percent of the invoice immediately, and the balance minus a small percentage when the entire invoice is collected.
Revolving line of credit. Here’s your business credit card. The interest rate won’t be as high as a cash advance. Also, a credit card can make expense tracking easier and also help you control spending.
Purchase order advance. This is the flip side of invoice factoring. Say you’re working to establish a new major customer and you finally get the big order your team has been working on. You can borrow against the new customer’s purchase order to fund materials or the additional labor required to meet the order. You can then pay off the loan as the money starts to roll in.
All of these working capital loans can be useful and perhaps a combination of loans—such as a company credit card and a term loan—could put your company in a better position than it is in today.
Take a good look at the current potential for growth in our economy, and if you don’t have the funds on hand to take advantage of those opportunities, find the best working capital loan for your purposes.
The folks at Cardinal Business Financing are experts at creating a funding package that matches your business’ needs and helps you achieve your short and long-term goals. At “The Cardinal” we don’t provide cookie-cutter solutions; rather a solution that makes sense for your business. One that drives revenues and bottom line results. You don’t need to fit into our box. We do our best to find the financing that fits into your box. Call us today at (866) 578-5999 for a free consultation to discuss your business financing needs.
With the passage and signing into law of H.R. 1, aka, The Tax Cuts and Jobs Act, the deduction limit for Section 179 increases from $500K to $1M for 2018 and beyond. The limit on equipment purchases likewise has increased, from $2M to $2.5M. In addition, the deduction now includes any of the following improvements to existing nonresidential property (i.e.the improvement must be placed in service after the date the property itself was first placed in service): roofs, heating, air-conditioning, and ventilation systems;fire protection, alarms and security systems.
Bonus depreciation: The act extended and modified bonus depreciation under Sec. 168(k), allowing businesses to immediately deduct 100% of the cost of eligible property in the year it is placed in service, through 2022.
The act also removed the rule that made bonus depreciation available only for new property.
Sec. 179 expensing: The act increased the maximum amount a taxpayer may expense under Sec. 179 to $1 million and increased the phaseout threshold to $2.5 million. These amounts will be indexed for inflation after 2018.
The act also expanded the definition of Sec. 179 property to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging.
- ***Important Update*** Section 179 Qualified Financing
Using Section 179 with an Equipment Lease or Equipment Finance Agreement might be the most profitable decision you make this year.
Why? Because the amount you deduct will almost always exceed your cash outlay for the year when you combine (i) a properly structured Equipment Lease or Equipment Finance Agreement with (ii) a full Section 179 deduction. It is a bottom-line enhancing tool (plus, you get the new equipment and software you’re adding to your business).
Also, the ‘$179 Bonus per $10,000 Financed’ is available for a limited time during the 2018 year. This means that you (a) get your equipment, vehicles, and/or software now, (b) get to take full advantage of the Section 179 deduction in 2018, and (c) get Section 179 Bonus Cash as well.
- Leasing & Section 179
Did you know that your company can lease equipment and still take full advantage of the Section 179 deduction? In fact, leasing equipment and/or software with the Section 179 deduction is a preferred financial strategy for many businesses, as it can significantly help with not only cash flow, but with profits as well.
- Equipment & Software Leasing – Non-Tax | Capital Leases
The main benefit of a non-tax capital lease is that you can still take full advantage of the Section 179 Deduction, yet make smaller payments. With a non-tax capital lease you can acquire and write-off up to the deduction limit worth of equipment this year, without actually spending that amount this year.
In other words, a small business that is managing cash flow can leverage a non-tax capital lease to minimize out-of-pocket cash, and still take the full Section 179 Deduction.
Examples of non-tax capital leases include a ‘$1 Buyout Lease’ and a ‘10% Purchase Upon Termination (PUT) Lease’. In many cases, the amount you save in taxes will be MORE than the total of your first year’s payments.
Cardinal Business Financing, Inc. are experts in creating financing packages that will increase your cash flow and provide a greater ROI. We will work with your CPA to make sure the program we offer works in your business.
An excellent article by Louis A. Del Monte. Needing working capital is a natural business necessity no matter how profitable or successful. Read more about the excellent use of a working capital loan and how it can grow your revenues and return on investment (ROI) when procured properly.
A small business loan may be a strategic move. Almost any business may need a loan at some point. At first, this may sound negative. However, there are strategic reasons when your small business should get a loan. Let’s discuss them.
1. To expand operations – If your business is booming, you may need to add space, people, move to a larger physical location, and even add talent. In this case, a business loan makes strategic sense. The opportunity to expand your business and achieve greater profits outweighs servicing the debt.
2. To Purchase Inventory – If you have a sizable backlog of orders that you are unable to fill because of limited inventory, this is another strategic reason for getting a business loan. In fact, not doing so may damage your business in the form of lost customers and poor cash flow. This is especially true of small businesses that are seasonal in nature. If, for example, a business makes most of its sales during the holiday season, it makes strategic sense to purchase most of their inventory prior to the holiday season. The opportunity for a successful holiday season outweighs servicing the debt.
3. To Purchase Equipment – You may need addition equipment to meet increased orders or to expand your product offerings. If you need equipment to meet increased orders, that suggests business is booming. Getting a loan ensures you will capitalize on the opportunity to increase revenue and profit. Not purchasing the equipment may allow a perceptive competitor to offer better delivery terms and shut you out.
If you need to expand your product offering, this is potentially another strategic reason to get a loan. Expanding your product offerings potentially will make you more competitive, in the form of “one stop shopping,” and provide additional sources of revenue.
From a tax viewpoint, getting a loan can be a savvy move. You can take a significant tax write-off the first year and depreciate the rest of the equipment over its economic life. In either case, the additional revenue and tax write-offs associated with purchasing the equipment can outweigh servicing the debt.
5. To Consolidate Debt – Small businesses incur numerously debts requiring steep monthly payments. If you find your business in a situation of servicing numerous high-interest debts, consider consolidating those into a simple, transparent monthly payment and free up cash flow to run your business.
6. To Pay Business Income Tax – Many small businesses file their taxes annually. Unfortunately, they may have insufficient funds to cover their taxes. There are numerous ways to deal with this situation. One way is to arrange for a small business loan. This will remove the stress associated with dealing with the IRS and the potential penalties they may impose. However, before you make any decisions, you should consult with your attorney and accountant.
Often, when a small business needs a loan, time is critical. Unfortunately, according to Forbes you can “Expect to get an answer within two to four weeks.” Other experts state that traditional banks can take 60 to 90 days to approve a loan. This is likely not going to fit your time constraints.
Whether you need $10,000 or $500,000, Cardinal Business Financing, Inc. can help you secure working capital for your business. Cardinal through its affiliations with over 75 different lenders and underwriters, along with it’s own access to capital will find the right loan product for your business. Cardinal takes a consultative approach and will learn the what, how and why’s of your business to insure your success. Cardinal Business Financing, Inc. is knowledgeable, efficient and responsive. Most loans close within 10 days from application to funding. Some as little as 3 days. Click on this link to learn more about business loan opportunities: Cardinal Business Financing Business Loans
1. Create a financial plan for your
first year in business. Too often we see established businesses that have no business plan! Set up a sales forecast and a target expense budget. These are essentially your best guesses, and you should have a “plan B” in case things don’t work out as you expected. Don’t know where to start? No problem. The SBA provides a great guide to writing a business plan.
2. Be prepared for the unexpected. As mentioned in tip #1, things don’t always go according to plan. Newly launched small businesses can be especially vulnerable to macroeconomic factors, weather conditions, and changing regulations. Understand your market, its demographics, the seasonality of your business and other factors which can impact your revenue stream.
3. Diversify your risk by working with a large number and variety of customers. If your business relies on just a handful of big customers, you risk losing a hefty portion of your revenue and profit if one of them decides to take their business elsewhere. Your business can also warp around the specific needs of those big customers, which could hurt your chance of attracting new clients. In general, it’s a good business practice to not let one customer make up more than 10% of your revenue. As an aside, that is why the SEC requires investors to register when they own 5% or more of a public company. If you have a customer that owns more than 5% it could be risky.
4. Don’t depend on just one supplier—especially if they’re a small business too. You never know what could cause a shipment to be delayed or a supply chain to break. Try to have a backup supplier in case inventory doesn’t come in on time. If that’s not possible, communicate openly to your customers about delays and be prepared to make things right with discounts on future purchases or no hassle refunds. While it might hurt your bottom line immediately, a bad reputation is much harder to recover from. See tip #7 for more on this.
5.Don’t run out of cash. Although it seems obvious, many new entrepreneurs don’t realize that their business can die even if they run out of cash for just one day. Think of it this way—if you’re short on cash on payday, you could pay your staff late by a day or two. But do this even once and you risk losing employees and hurting morale. It’s just not worth it.
6.Manage your cash flow. Understand how cash flows into and out of your business. For example, is your business seasonal? Are there fast and slow periods? When are your bills due, and how likely are customers to pay you on time? As with tip #2, always have a backup plan so you’re covered when things go wrong.
7.Maintain a good relationship with your customers. While this applies broadly to anyone who interacts with your business, poor customer satisfaction can tank your business faster than anything else. If things go wrong, be prepared to make them right – use discounts, free product, refunds – whatever it takes. This may also help your business when you’re in a jam.
8.Don’t be afraid to get advice or help. Leave your ego at the door and always look for opportunities to keep learning. This is true for new small business owners or those with decades of experience. Talk with other business owners in your industry or in your local area. You can also find great information on resources throughout the internet. For example, Guidant Financial has a great Learning Center with content that is particularly helpful to new business owners and startups.
9.Become active in your community. Join civic organizations such as The Rotary or Kiwanis Clubs. Understand the challenges being faced in your community and become involved. Join a networking group. For example, organizations such as Center Sphere which connects business leaders who will drive revenues for your business and who can play an important role in your growth.
10.It’s never too early to start building your business credit. Most entrepreneurs don’t realize that at some point, you’re likely to need capital to grow the business. Be sure you take the essential steps to build your business credit now so that you’ll be ready when you need to apply for financing. You can start with applying for credit at Home Depot, Lowes, Costco and others. You don’t need a big credit line to have an excellent rating.