What’s Important When Selecting Equipment? Part 4 – Financing and Cost.

POST DATE Nov 14, 2013

AUTHOR Udo Jahn

What I mean by that is, did you choose to leave some options out on the equipment because they drove up the cost, and like most people, you wanted to keep your budget to the minimum? Take my advice and go back and look at the options. Options are typically the items that will dramatically increase your throughput on the equipment and therefore increase your potential profitability. Please revisit this and make sure you take this into consideration.

Financing is usually the last item when purchasing a piece of equipment. If you or your company are independently wealthy then you can stop here. Financing in the past was usually done by going to the bank with your cap in hand and begging for the bank to give you a loan. This has changed and the options are broader now. They are:

  1. Banks – They usually have the best interest rate but can be very slow at getting you the financing unless you have a pre-approval in place. There may be a lot of covenants attached to getting approval which can cause some concerns down the road. If you want to go this route then make sure you have a good ongoing relationship with your bank. This will speed up the process when you need the money.

  2. Private Investment Companies – These are companies that have an investment side as a way of making money. Here again you need to start a relationship with them so that when you need the money you can get it quickly. The interest rate they offer is usually pretty good but probably not as good as the bank.

  3. Brokers – Brokers are good for getting you financed since they deal with many sources and can get you the necessary financing when you need it. The interest rate may be higher than private investment companies or banks.

  4. Vendor Finance – This is where the equipment dealer or manufacturer offers you quick financing. This is usually very fast. They may offer really low interest rates which are competitive with the banks. It should be noted that sometimes using this option will prevent you from getting greater discounts, and you may pay more than if you used other financing.

I have used all four options in the past. They all have their benefits and drawbacks. I highly recommend that you explore all four options to find the best deal. Remember to consider these points before you make your decision:

  • The interest rate — since it will effect the total cost of purchase.

  • The time to get financed — sometimes it is the difference between gaining new customers and losing old customers.

  • The covenants or stipulations that come with the loan — some can dramatically effect your business down the road. Consider their consequences seriously.

  • Your comfort level with the people you are dealing with—please do not deal with people who you are uncomfortable with, or you have any concerns about. Have the organizations checked out, or ask for references from people you know. It may be well worth your time.

I hope this has helped. Remember to consider everything that I wrote about in this four parts series. It is not all inclusive, but I think it covers the bulk of issues you may come across when purchasing a piece of equipment. If you have any questions, please do not hesitate to contact me. Oh, and by the way – congratulations on your purchase!

 

Author: Udo Jahn

 

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