Buyer’s Bliss

This blog will feature news and information specific to the needs of buyers

Loan or Lease?

| Zeb Wright

Bank Loan or Equipment Loan or Equipment Lease?

Business owners have options when it comes to commercial equipment financing. The most common are bank loans, equipment loans, and equipment leases. This post will address the advantages and disadvantages of each.

What’s the difference?

Bank Loan

If you have a good credit history you can qualify for a bank loan. Depending on available terms at your bank, these loans can have the lowest payout. If you are buying new equipment and your dealer or bank qualifies you for promotional-rate financing, such as 0%-5%, take that money and run. No one can offer you better terms.

Advantages:

  • Typically the lowest payout over the life of the loan

Disadvantages:

  • Small credit window – 85% of applicants are declined
  • Typically require significant down payment
  • Normally require significant amounts of tedious documentation and income verification
  • Sales tax may be due upfront
  • May tie up available lines of credit
  • Process usually takes several weeks

Equipment Loan

Equipment loans can come in many different names; Equipment Finance Agreement (EFA), Capital Lease, Finance Lease, $1.00 Buyout… all are considered equipment loans by the IRS. The IRS does not classify these leases as “True Leases” because even though they incorporate the lease mechanism for the loan, the buyout is not significant enough to be considered a true lease. More recently equipment loans have been very popular because of Section 179. For example, depending on the tax year, businesses could immediately deduct the full cost of equipment, up to $500,000, against their taxes. They are also popular because these loans are easier to qualify for than bank loans, have less paperwork, and typically take much less time to fund.

Advantages:

  • Equipment Loans are Lease-To-Own – You own the equipment after completing agreed upon payment schedule
  • Easier to qualify for and less paperwork than a bank loan
  • Low to no down payment required
  • Similar finance terms as bank loans up to 5 years
  • Fast funding, in as little as 24 hours after signed documents are received
  • Immediate tax deduction available for cost of equipment

Disadvantages:

  • Payments are not fully tax deductible
  • Payments can be higher than a lease with a residual buyout
  • No option not to buyout equipment

Equipment Lease

The IRS classifies equipment leases as True Leases, which are the same type of transaction as leasing a car. With a True Lease there is a significant buyout, typically 10% – meaning if you lease a $25,000 piece of equipment, the buyout option would be $2,500. Equipment leases are popular because usually 100% of the payments are tax deductible. They also typically offer the lowest monthly payment option because you’re often only financing 90% or less of the equipment. This type of transaction does include a choice at the end of the lease term to either buyout the equipment, return the equipment, or continue renting the equipment.

Advantages:

  • Typically the lowest monthly payment option
  • Payments are usually 100% tax deductible
  • Easier to qualify for and less paperwork than a bank loan
  • Low to no down payment required
  • Similar finance terms as a bank loan up to 5 years
  • Fast funding, in as little as 24 hours after signed documents are received
  • Includes buyout options

Disadvantages:

  • In order to own the equipment the buyer has to pay to the residual amount not financed in the lease agreement

So which one is best and when?

Why Equipment Leasing Is Usually Better Than An Equipment Loan, But Not Always

This is why we have a job. We talk to customers every day looking to finance their next business equipment purchase, and every one has their own situation and experiences. With that being said, in many cases using an Equipment Lease to purchase equipment can have the greatest bottom line savings.

Let’s say you want to buy some equipment for $40,000 and finance it over the next 4 years…

Equipment Cost:    $40,000

Loan/Lease Term:    48 Months

Quoted Lease Payment:    $1,194

Quoted Loan Payment:    $1,261

Lease Residual:    10%

Your Tax Rate:    30%

                               Lease          Loan

Total Payments:   $57,312     $60,528

      Tax Writeoff:   $17,194      $12,000

After-Tax Payments:  $40,118     $48,528

     Residual:  $4,000      $1

Net Ownership Cost:    $44,118     $48,529

Total Lease Savings:   $4,411

This example shows how a borrower can save $4,411 simply by choosing an Equipment Lease over an Equipment Loan for the exact same piece of equipment. Buyers travel hundreds of miles to buy equipment for less when they can save thousands just by choosing to finance with a True Equipment Lease as opposed to a Bank or Equipment Loan.

Is A True Equipment Lease Always The Best Choice?

There is no one solution that is always the best in the world of business finance. That is why we here at Kingswood are ready to find the best solution for your specific situation.

If, for example, you are having an exceptional year and have abnormally high income, a faster depreciation may make a lot of sense. Our finance calculator automatically provides you with a free estimate on total bottom line equipment cost after a Section 179 deduction, so that you can see the potential savings before committing to any purchase. As always, check with your accountant before making any decisions. We are a finance company and are aware of these tax benefits, but only your accountant can tell you if this is the best tax application for your business.

Kingswood Client Featured In Food & Drink Intl Magazine

Kingswood Client Featured In Food & Drink Intl Magazine
| Zeb Wright

Boston Showcase Co. featured in Food & Drink Intl Magazine

Boston Showcase Co. started as a family-owned carpentry business 102 years ago, building showcases and store fixtures for retail stores. After a while the Starr family got into building bars, which led them into the foodservice industry that they have succeeded in throughout the years. Today, Boston Showcase’s clients include restaurants, universities, hospitals, hotels, country clubs and assisted living facilities.

Family Values

Boston Showcase Co. is now owned and operated by Alan and Jack Starr, carrying on a tradition from their father Jason and grandfather Max. And a fourth generation is poised to carry on the family business as Jack’s son Matthew grows his career with the company. The Starr’s pride themselves on a family culture and extend their family values to their staff, most of which have found a place to make a home and career for themselves.

“It’s rare that someone comes to work here and leaves. We treat them like part of our family. We want people we can count on and they can count on us.” – Alan Starr

Boston Showcase consistently trains and promotes the long-term values that the company has been built on. Kingswood has benefited from these values having the opportunity to meet and train with the Boston Showcase staff on several occasions. The close, personal relationships that Boston Showcase fosters helps keep most of their client base loyal and provides a great foundation for repeat and referral business.

“We are an old company and are relatively content with modest growth. We are not looking for huge new markets or expansions in the immediate future. We are focused on doing a good job at what we do now.” – Alan Starr

Read the full article at http://www.fooddrink-magazine.com/index.php/featured-content/1725-boston-showcase-co

 

Equipment Plus Cash Program

| Zeb Wright

Kingswood Equipment Plus Cash Auto-Express Program

In today’s lending environment it is often difficult for small to mid-sized businesses to easily access working capital for their business growth opportunities. We recognized this at Kingswood, and are excited to offer a brand new program that enables us to automatically qualify an equipment buyer for a working capital loan. Now, if you have received an approved credit decision in the last 90 days to buy a piece of equipment, you are automatically pre-approved for an additional working capital loan of $10,000 – $25,000. No additional credit check is needed, however, certain guidelines and restrictions apply.

Program Guidelines:

  • Must have an approved decision within the last 90 days
  • Minimum time in business must be greater than 2 years
  • Minimum FICO score of 649
  • Minimum bureau history must be greater than 10 years
  • Annual revenues must exceed $300,000
  • Must not have an outstanding working capital loan
  • This product is restricted in the following States: CO, CT, MI, MT, ND, NJ, NV, NY, RI, SD, VT
  • Restricted Industries: Adult Entertainment, Agriculture, Asset Management, Auto Dealerships, Churches, Collection Services, Consulting, Credit Repair Companies, Day Trading Enterprises, Federal Government, Financial Services, Gambling Companies, Legal Profession, Medical Marijuana Dispensaries, Non-profit, Owner/Operator Trucking Businesses, Tax Preparation Services, Wholesale

These guidelines are only for the Auto-Express program, and in no way disqualifies you from other working capital options we can provide you. If you need additional working capital, we can arrange for a higher loan or line of credit, up to $250,000. This can be approved and funded within 48 hours with some additional information.

We appreciate the opportunity to provide financing for your business. Please contact us to discuss any finance needs you might have.

Kingswood Finances Start-Ups

Business owner and son holding an open sign
| Zeb Wright

Opening a new business can be one of the most exhilarating experiences of a person’s life, and one of the most frustrating. Ask anyone who has attempted to open a business and has to secure capital to do so. It’s not easy. That’s because the credit markets look at startups as a risky investment, and either charge higher rates to compensate, or don’t offer financing at all to those buyers. According to Neil Patel, a contributor to Forbes Magazine, 90% of startup businesses fail. Reasons why startups fail can vary, but in general the marketplace tests every business plan without prejudice, and banks understand this better than most. And this is why it can be so difficult to secure the capital needed for investment. You are limited by the number of banks that will lend money, and criteria and guidelines one must meet in order to secure that money is more stringent. The good news is that this process will only make you stronger.

Startups by definition have little to no established business history. A credit decision is therefore supported in large part by the financial strength and credit history of the owners. However, other factors can contribute to a decision, such as a thoughtful business plan. Not every business owner takes the time to write out a business plan, which is why we provide a Startup Questionnaire that clients can fill out in order to increase the strength of their credit application. Do you have to fill out this questionnaire in order to get approved for financing? No. Will it help if you do? Yes, especially when no business plan is available. Showing a bank that you have completely thought through your business venture is critical to securing financing for startup businesses.

Every credit approval is like a table that needs to stand up on its own. When established business credit is not available, we need to build a table that has at least three legs to support it. Having a well thought out plan can be one of those legs. But financial strength is going to be another important leg to this table. Providing a Personal Financial Statement for each of the owners involved is a good way to build that leg. Banks want you to succeed just as much as you do, but they also want to know that any liabilities can be covered should success not be realized in a timely manner. Having additional streams of income or assets increases the confidence of banks to lend money. Do you have to disclose all your assets and liabilities in order to get approved? Not necessarily. Does it help if you do? Significantly.

Kingswood has built a reputation of getting more startups the financing they need when others cannot. We have earned this reputation by learning what it will take to secure startup capital, and with this experience provide clarity to help our clients navigate what can be a challenging process. Because of this experience, Kingswood has been able to get more money for our clients than our competition, all at the best rates available.

Are you, or someone you know, looking for financing for a startup business or new location? Experience the Kingswood advantage – Apply now to get started.