You’ve got a great business plan, a competent team surrounding you and a can’t-miss product — you’re ready to take the market by storm.
Before your plan can get off the ground, however, you need equipment, whether it’s trucks and machinery or computer hardware and software. But not every business owner knows how and when to properly finance that equipment.
“You have to anticipate the need for equipment,” says Stefanie Fitzgerald, a business sales officer with Wells Fargo Bank. “Once you know what equipment you need and when you need it, talk to your banker. The more time you give your banker, the better your options will be.”
Smart Business spoke with Fitzgerald about how business owners can find the best equipment financing for their specific needs.
What types of equipment can businesses finance? ?
You can finance virtually any kind of equipment your company needs. Whether it’s new or used, you can finance vehicles, business aircraft, trucks and trailers, bulldozers and other heavy machinery, computers, etc. If the machinery/equipment has an intrinsic value and the bank is capable of taking it as collateral, you can usually finance it.
Why is it important to have a business plan when financing equipment? ?
Any time a company applies for any type of financing, it’s important to present the request with a detailed business plan. It will help the bank evaluate your management team as well as the financial strength of your company. A good business plan is always a valuable tool, whether seeking financing or not. Most importantly, it will help you determine when and how to buy or replace equipment. Decisions like that are very complex and involve many more considerations than which model to buy. Having a plan in place will help you with those tough decisions and ensure that you always have the equipment and capital your business needs to thrive.
Can multiple pieces of equipment be financed? ?
Yes, you can do an individual loan for a certain piece of equipment, or if you anticipate that you’ll have multiple equipment needs over a certain period of time, you can do an equipment finance line of credit. With an equipment finance line of credit you can purchase equipment as you need it, without having to get reapproved. You can do a lease or a loan, the rate is predetermined and, instead of making individual payments, you have one combined payment.
When should companies apply for equipment financing? ?
Common times that businesses apply for equipment financing are when they have capital expenditures, are doing an expansion, moving locations, planning to introduce a new product line, and/or looking to upgrade or replace old equipment. But since every business is different and equipment needs vary, it’s best to work with your accountant and tax adviser to determine what’s best for you. You should always, however, arrange for financing before you start shopping for equipment. This will allow you to separate the cost of the equipment from the cost of financing, and it will assure that the deal won’t be delayed or fall through at the last minute due to financing problems.
What factors should business owners consider when financing equipment? ?
Numerous factors come into play when financing equipment. Ask yourself the following questions: Do I need 100 percent financing? Am I prepared to make a down payment? Do I want a fixed or floating rate? Do I want a lease or a loan? What’s more important, depreciation or lower payments? Do I want off balance sheet financing? What is my capital expenditures budget? It’s always good to consult with your business banker in answering these questions.
Are there special interest rates or payment plans available for equipment financing? ?
Yes, you can customize a financing structure that meets your exact needs. There are many different transaction types, structures and terms, all of which can be tailored to match your cash flow, tax and accounting needs. Work closely with your banker to determine which of the many different elements of equipment-financing loans will work best for you.
Do certain types of equipment financing offer tax advantages? ?
Yes, especially this year with the American Recovery and Reinvestment Act, which includes bonus depreciation and an expense deduction. The bonus depreciation provision allows a taxpayer to take an increased depreciation deduction on his or her 2009 taxes for qualified business assets purchased this year. This front-loaded deduction offers a major benefit to businesses. The expense deduction is also a nice benefit. If your company buys certain categories of equipment in 2009, you may be able to deduct the full cost of that equipment, up to $250,000. It’s always smart to visit with your CPA and tax adviser on a regular basis to see what opportunities are out there.
How can business owners apply for equipment financing? ?
You can apply online, but it’s recommended that you go to your bank and have a face-to-face discussion with your business banker, who will be able to customize the best financing plan for your needs. If you’re starting a relationship with a business banker, look for experience and knowledge. You want to find someone that knows your business and the or industry it’s in as well as someone who will be with you for the long haul.
Stefanie Fitzgerald is a business sales officer with Wells Fargo Bank. Reach her at firstname.lastname@example.org or (409) 861-6371.