Equipment Financing for 21st

Century

“ Tools To Make A Cost Justification

For Acquiring New Equipment “

Common Perceptions of Error

• Focus on interest cost not opportunity cost.

• Leasing companies charge higher rates than traditional banks

• Leases cannot be paid off early or rewritten

Profile of Typical Financer

• 2 to 5 years time in business

• Growing faster than cash available

• Under $ 2 million in annual sales

• Less than 10 employees

• Prefers to minimize after tax profit

• Intensive / continous equipment needs

• Good personal credit – pays their bills

10 Common Myths

• Cash doesn’t cost a cent – Opportunity cost• Lease companies don’t like to finance used

equipment, auctions or private party sales• Established businesses don’t lease their

equipment ( tax savings over convenience)• Credit cards offer lower rates than leasing• New businesses lease more often than

established

Equipment Lease History

• 2010 BC - City of Ur leased agriculture tools to land owners

• 1700’s - United States - Liverymen leased

• horses, buggies , & wagons

• 1870’s - Railroad cars & barges

• 1954 - Modern Leasing - US Leasing Corp

Lease Classification

• Large Ticket Leasing - $ 500,000 +

• Mid Ticket Leasing - $ 100,000- 500,000

• Small Ticket Leasing - $ 2000-100,000

• --- Application only , typically no financial

• statements , what we’ll be discussing

History/ Statistics

• 1960’s - Xerox , IBM popularize leasing

• 2002- $ 240 Billion Leased

• 80% of Small Businesses Lease Equipment

• 35% of All Equipment Lease Financed

10 Common Reasons to Lease

• Preserve Cash Flow & Working Capital

• Convenience

• Tax Savings

• Fixed Monthly Payment

• Easy to Budget for Future Equipment Need

• Flexible Financing ( ie Seasonal Payments)

Ten Common Reasons to Lease

• Convenience – fast response to immediate opportunities • Preserve Cash Flow • Keep Bank Lines Of Credit Available• Consistent budgeting• 110 % Financing – Shipping / Install• Tax Writeoffs • Flexible Financing – Deferred/Skip/Seasonal• Immediate ROI / Profitability

Type of Leases Available

• Finance $1 buyout- Conditional Sale

• True/Operating Leases- 10% / FMV

• Operating Leases

• Equipment Finance Agreements

Steps to Favorable Terms

• Keep personal credit score high • * no slow payments ( revolv/install) • * low revolving debt - credit card debt• ( consolidate into home equity line) • * reveal any issues ( ie divorce, identity theft) • * Establish installment loans early on • Update your D&B Report regularly – report suppliers • Provide bank statements • Reveal any comp credit borrowing

• Getting Startups Approved – • * Share business experience / background • * show additional sources of income • offer spouse as personal guarantor

Getting Terms for New Businesses

• Share Business Background/Experience :

• Cost Justify ROI > monthly lease payment

• Show Additional Sources Of Income

• Always offer spouse as guarantor

• Provide all owners as pg’s – even silent ones

• Share comp credit - other leases or loans.

Conclusion

• You need to decide for yourself if leasing is right for you .

• Determine long term equipment needs

• Don’t always believe your business associates, banker, or friends.

• Use lease payments as cost justification

• to evaluate equipment purchase.

Resources Available

•Equipment Lease Association : http://www.chooseleasing.org/http://www.chooseleasing.org/informed/Articles/SmallBusiness.pdfFree credit report - https://www.annualcreditreport.com/cra/index.