You’ve probably heard it’s not a good idea to get a loan to purchase a vac truck, but financing can have huge benefits
As a business owner, you’re in constant decision-making mode. With everyone relying on you to make the right choices, even small decisions can feel consequential. And when it comes to big decisions involving trucks and equipment, it can feel downright stressful.
Without the right equipment, your business comes to a grinding halt, but procuring it isn’t always a cakewalk. To add to the frustration, financing — one of the most common buying options — is shrouded by myths and misconceptions. To alleviate some of your stress and make your decision about whether or not to finance a bit easier, take a look at some of the most common equipment financing myths.
Myth: It’s just too expensive.
Truth: Expense often proves to be the biggest deterrent for businesses seeking financing, but in reality, truck financing isn’t unreasonable. Most commercial trucking equipment is expensive. Period. Financing just breaks down the payments and makes it easier on your bank account. While there is interest to consider, sometimes the benefits outweigh the cost.
Myth: You need perfect credit.
Truth: If equipment financing companies only worked with perfect credit, their deals would be few and far between. Although good credit often translates to better terms, businesses in the lower credit bracket can still receive great financing plans. Lenders can determine a way to get your equipment financed by taking into account other aspects of your business. When first starting the financing process, being up-front with your consultant can work wonders. It gives them time to find the best solutions and shows that you’re serious about getting your business the funding it needs.
Myth: There are strict limitations.
Truth: Somehow it got out that only certain types of equipment can be financed. That couldn’t be further from the truth. Software, computers, trucks, embroidery machines — pretty much anything can be financed. The trick is to find the right financing company. Working with a company in the pumper truck industry means they know the equipment and what it takes to finance it.
Another big misconception is that used trucks can’t be financed. While it can be more challenging, it’s definitely possible. Careful consideration must be made when evaluating and choosing the equipment, but other than that, the process is similar to financing new equipment.
Myth: You never get ownership.
Truth: It’s surprising how many people are unaware of all the end-of-lease options when financing equipment. When people think of leasing, they usually think of personal cars that get turned in at the end of the lease. Financing equipment for your business is a completely different ball game. Financing consultants will gladly work with you to figure out the best program for your business’ needs.
One option is lease-to-own, a program that plans for you to own the equipment from the start. It’s a great option if you’re looking to use the equipment for an extended period of time. When the end of the lease rolls around, you simply pay the agreed-upon amount. That amount depends on how the lease was structured at the start. With a $1 buyout, the equipment will be signed over to you for the cost of a cup of coffee. A 10 percent buyout will cost you a bit more at the end, but your monthly payment will be lower throughout the lease.
A terminal rental adjustment clause (TRAC) can be applied to a vehicle or trailer that will be used commercially more than 50 percent of the time. It’s pretty much perfect for pumper trucks. This type of lease gives you three end-of-lease options, while still keeping the monthly payments low. The options are: purchase for 20 percent of the equipment price, upgrade/replace the equipment, or turn it in for cash. A TRAC lease is great if you‘re looking for a little more freedom in equipment financing plans.
Myth: Banks are the only lenders.
Truth: Banks often struggle when it comes to used equipment and commercial trucks and trailers. Though they do grant loans for equipment, they lack truck/equipment and industry expertise, may not provide the best rates, and certainly aren’t the only option. Equipment financing companies specialize in leasing equipment to small businesses.
Myth: There aren’t enough benefits.
Truth: Financing actually has benefits that tend to sway businesses to finance over other buying options. It would take another full article to completely explain the benefits of financing, but here is an overview of the top three:
Tax advantages — The Section 179 tax deduction allows you to deduct all or part of the purchase price of qualifying financed equipment. Basically, after financing the equipment, the tax savings puts money back into your pocket.
Flexible programs — The flexible payment options provided by some equipment financing companies make it easier to afford the equipment you need to grow your business. By crafting a plan that works for your unique needs, you can manage to acquire equipment in a way that stabilizes cash flow and encourages profit.
Credit building — It can be hard to build business credit, especially for startups. Financing equipment and making payments on time is a great way to build good credit. Establishing good credit by financing equipment makes it easier to purchase or lease in the future.
Myth: Cash is always best.
Truth: It’s long been believed that cash is the ideal way to make purchases. In some instances, this is correct, but other times financing is the better option. When deciding between paying cash and financing, liquidity comes into play. For businesses without massive amounts of cash on reserve, financing tends to be the way to go. Conserving your cash ensures you’ll have it when you really need it for an emergency. Countless businesses have gone under because they lacked liquidity.
Utilizing financing to manage cash flow and keep money in your wallet is often considered the soundest financial choice.
Myth: Startups need not apply.
Truth: Apply! Apply! Apply! There’s no harm in trying, and many equipment financing companies will happily finance startups. The deal might take a little more work, and you might have to rely on your personal credit, but that doesn’t mean it’s impossible. Plenty of new businesses got their start by financing equipment. There’s no reason your business can’t do it, too.
Myth: There’s no easy way to upgrade.
Truth: Financing is actually a great way to get equipment if you plan on upgrading in the near future. Having a long-term plan for your equipment will help when developing the right financing program. You might even be able to upgrade without increasing your monthly payment. A financing consultant will be able to help you find a way to work toward upgrades.
And there you have it: the truth behind the nine most prevalent equipment financing myths. It turns out financing isn’t really your enemy, and with a well-structured program, you’ll be left wondering why you ever considered paying cash in the first place.
About the author: Ryan Driscoll is a business development consultant at Beacon Funding, a leading equipment financing company. Ryan has been in finance for over 16 years, and 12 of those years have been dedicated to commercial vehicle leasing. For more information, contact Driscoll at 347/532-7878 or RDriscoll@beaconfunding.com.