A physician would never use a scalpel to take blood pressure or an ultrasound to draw blood. But recent research indicates when it comes to small business borrowing, owners are making just that kind of mistake.
68% of small to mid-sized physician’s practices use their bank working capital line of credit to finance long term fixed assets.
Working capital is for short term use. It’s the remedy for the cash flow gaps created by long reimbursement delays in the revenue cycle, valleys in revenues or one time consumable expenses. It helps you meet payroll, cover day-to-day operating expenses and generally effect smoother cash flows in your practice. But more and more, we see leasehold improvements, technology and equipment sitting on the bank revolving line of credit. Long term financing requirements sitting in a credit facility that is meant to handle finance needs paid off in less than 12 months. Or put another way, like using a scalpel to take blood pressure, you are using the wrong tool.
Long term fixed assets, like equipment, are assets generally used for more than a year that have some manner of depreciable life. A long arm, office furnishings or even an iPad all meet this description. Accumulating assets like these on a bank line of credit actually lessens your total credit availability. So, while you are paying interest only for the eye laser on the bank line, it’s actually limiting the amount of money you can leverage to cover for the short term pain of a longer than expected insurance reimbursement cycle. Keeping fixed assets out of the bank line ensures maximum flexibility to run your business.
Equipment financing actually helps you be proactive with more than just a cleaner line of credit. It allows a low to no down payment method of equipment acquisition. You preserve your capital and have manageable monthly payments to enhance cash flows. And at the end of that schedule of payments and the equipment life, you can simply re-invest in the newest technology replacing the old payment with a new one—with no interruption in your cash flows. This approach keeps your business on the cutting edge of technology while keeping your bank line free of the long term asset “clutter”.
Use the right tool. We can help. At Red Thread Financial we offer businesses an easy, straightforward and uncomplicated way to clean up your bank lines and stay on the cutting edge of technology for an affordable monthly payment. Let’s talk.
One size definitely does not fit all. Many lenders today have a relatively small “box” of credit criteria and are eager for you to send all the customers that fit their “box”. But what about all the customers that don’t quite fit? Where do they go? And why should you have to know what customer fits what credit “box”? Finding an equipment finance partner that can help not just your stronger credit customers, but those that have had some challenges is critical to success. Here’s why…
You sell equipment for a living, you don’t arrange and structure financing.
Put simply, you shouldn’t have to know the details of what lender can help what customer based on credit backgrounds. That puts you in a difficult sales situation. Do you really want to counsel a customer through a challenged credit scenario or negotiate the real difference in interest rate over cash flow impact? No. You want to sell equipment. So do that by staying out of the finance business. Find a partner that can handle the best, bank “worthy” customers, and also handle many folks that have had some more difficult times. This way you can hand off your customers to a trusted relationship that will handle the tough conversations from end to end, work fast and get your sale closed and paid…all without having to overinvest in finance conversations that really aren’t your strength anyway.
Today’s business world subjects businesses to swings in performance.
Ten years ago, a customer may have had the banks lining up at the door to give away low cost money. Six years ago, they couldn’t find a banker to return their call and today they’re somewhere in between. Does that mean you have to know 3-6 different kinds of equipment lenders to meet their needs over time? No. Developing a relationship with a lending partner that can help strong and challenged credits allows you to keep selling equipment simply no matter how the economic winds might be pushing the sails of your customer’s ship.
Help customers when they need help the most.
It’s easy to find a finance partner that helps the 790 credit score. While offering financing to this business owner is important to help grow sales, it’s nothing compared to the impact of helping the business owner that has recently been through some tough times. Customer loyalty is never higher than when you help someone with revenue producing equipment turn around their business when everyone else says no. And when they return to profitability, they are far less likely to go to the dealer on the other side of town over a small difference in equipment price. You were there for them when they needed you because of a finance partnership that can help them up and help them when they are on top.
At Red Thread Financial, we think people are more than numbers. Far more than a credit score. In fact, we’re far more Main Street around here than Wall Street. That enables us to offer some of the most competitive financing for your strongest customers while still finding solutions for many that have encountered some challenges—all with a single phone call. So we can help you help more customers with a fast, easy finance process. And to have a program like this for your customers, all you have to do is call. Let’s talk.
Optimism across the business landscape has returned. Businesses are slowly emerging from the “status quo” mentality of the last several years and making plans for growth. The ice that formed on the “maybe laters” and “what ifs” that have been far too present in your equipment sales conversations could be thawing moving into 2017. Knowing this, how can you get a fast start on your sales goals for the year? Here’s a few ideas:
Sell a payment
If your prospects are genuinely interested in growing their businesses with more revenue producing equipment, they may not be well-prepared financially. To grow you need cash—before the revenues start rolling in and bank relationships, putting it mildly, just aren’t what they used to be. Customers may not have the cash on hand to write a big check for equipment or have access to cash through a bank relationship. But by leveraging a partnership with an experienced equipment financier, you can offer financing that allows them to keep their cash and leave delicate bank relationships uninterrupted. A simple monthly payment that allows them to scale their business up as revenues arrive, instead of large cash outlays long before they arrive.
Mine the “maybe laters”
To get started quickly in 2017, build a database of every customer that told you “maybe later”. Research the equipment offering they were investigating at that time and reach out with a simple marketing campaign that tells them they can have the equipment in 2017 for as little as $XXXXX/mo. No sales prices—keep your margins in tact—just the equipment they wanted with an easy monthly payment and a challenge to make things happen in their business this year. This simple activity can drive some nice opportunities into your pipeline early and often.
The growth challenge
Home Depot’s famous tagline is, “You can do this”. Challenge your market to grow again. Your customers can take their business out of neutral and take a chance on growth. They can bid on the bigger piece of business or reimagine efficiencies in the company. They put more revenue producing equipment to work in their business and take market share. They can do this. And you can help with the equipment they need and a simple, affordable entry point that allows them to scale their business up as revenues arrive without creating a cash burden or difficulty in their bank relationship. While your competition is falling all over themselves to sell bits and bytes or gear ratios and tonnage you can sell more than that. You can sell a real plan to make more money with your equipment. Cool, huh?
At Red Thread Financial, we help equipment sales teams grow their business with finance programs. Simple, fast competitive financing for your customers that makes your equipment easier to afford is waiting for your team. If you’d like to get a jump on your 2017 sales goals, let’s talk.
A bitter and divisive election season is over. And regardless of what you may think of the outcome, there is an undeniable move to optimism across the business landscape. The prospect of less regulation, lower taxes or any policy that might lend itself to business growth has business stakeholders on the move. Or maybe it’s just as simple as stakeholders understanding what the direction of things might be, rather than patented uncertainty? Either way, optimism breeds action. Action leads to investment and investment to growth.
Prepare yourself to win more business.
Bidding on more or larger opportunities requires your business to have the infrastructure to execute on it. Over the last few years, capital expenditures have been at or near all-time lows and many businesses find themselves simply not equipped for growth. Now is the time to evaluate your equipment need and put a plan in place.
Consider your financial position.
Are you financially prepared to grow? Consider your financial position and retain a finance partner that preserves the cash requirements to buy new equipment, while leaving your delicate banking relationships uninterrupted. By working to achieve close to 100% financing, you can minimize the cash outlay while waiting for the new business revenues to arrive—matching income to expenses. This is also a scalable approach that allows for affordable growth.
The interest rate game is upon us.
No more maybes and what ifs. Interest rates a rising…now. Since the election the 5 year interest rate swap (a key index of lending rates) is up nearly 30%. The Fed will raise rates very soon, so the long undisturbed low interest rate environment is ending if not already over. Though the increase will be gradual, the time to act to ensure your cost of borrowing remains low is now and for the next 18 months.
At Red Thread Financial, we have a long history of financing equipment that powers the growth of businesses. Simple, fast and competitive financing with a personal level of service that is a little old fashioned. Be optimistic and let’s grow together.
For years, popular “money experts” have preached that you should “never buy with credit what you can buy with cash”. And while this is a nice sentiment, it is more of a ideal than an actual recommended business practice. Many of these experts have forgotten one of the most universal rules of business—that any debt, regardless of rate, is usually far cheaper than equity. Or put another way, that using someone else’s money to pay for something is generally more beneficial than using your own.
Here’s a few reasons why financing is better than paying with cash:
- Equipment depreciates rapidly. Spending capital on something that is going to be worth less with every day that passes means you are stuck with useless equipment the end of that equipment’s lifetime. Imagine you purchase a $50,000 asset that will be worth $35,000 in 3 years. If you paid cash, at the end of that period you’d have $50,000 equity in a $35,000 asset. Not a great investment. If you financed it, you’d only be paying for essentially what you have used of the asset, preserving capital and cash flows along way.
- Soft costs can add up fast. When purchasing a comprehensive equimpment solution, soft costs like labor, installation, and maintenance are often not included in the sale price, which means you’re outlaying more cash initially than you would if you had decided to pay monthly for the same equipment.
- Upgrading equipment often can be expensive when paying with cash. When you outgrow your equipment, the burden of finding a new solution falls on you – the owner – and the process begins all over again. When you finance equipment solutions, you can easily upgrade your equipment, often for the same monthly payment, and not have to worry about purchasing new equipment.
- It’s easier to budget when you have a monthly payment. Paying cash outright for an expensive solution can mean that your operating expenses for that month, or year, are totally used up. This leaves no room for emergency spending and often times can eat away at reserve funds. When you make monthly payments, you can allocate the money you had previously budgeted into the operating expenses you need to address the most.
When cash reserves are nearly always plentiful and abundant, paying cash may have some merit as a solution. But who lives there? In a rapidly evolving, equipment driven economy, being nimble and adaptable to the changing landscape is incredibly important. The ability to upgrade to new equipment quickly and easily, and budget properly are just a few reasons why financing equipment projects make more sense than paying with cash.
For the last several years, our beloved politicians have made the decision to limit the deduction potential of your equipment purchases. But after almost eight years of sluggish recovery and once in a generation slowness for capital investing, the light bulb finally came on in December of last year and you can acquire new commercial equipment for a large discount if you take advantage of this new legislation.
Late last year, Congress brought back the strength of the Section 179 Tax Deduction for businesses. Under the “Protecting Americans from Tax Hikes Act of 2015,” the Section 179 limit is expanded to $500,000 with additional benefits of bonus depreciation for amounts over $500,000. The new law will make this a permanent change and that is really big news! But 73% of small business owners still haven’t gotten the word. In a recent survey more than 7 out of 10 small business owners didn’t understand the financial impact on the affordability of commercial equipment. Well, let’s fix that.
The Section 179 deduction often allows small businesses (subject to specific limitations) to deduct upfront, rather than depreciate over a number of years, the cost of equipment such as computers, vehicles, manufacturing equipment, farm machinery, office furniture, etc. Combined with the benefits of bonus depreciation, the incentive to acquire equipment and stay on the cutting edge of technology is significant.
That’s a savings of up to 35% (depending on your tax bracket and specific situation)!! Each year these assets need to be purchased and put into service by Dec. 31 to qualify for taking the deduction in that tax year. Please also note that businesses exceeding a total of $2 million of purchases in qualifying equipment will have the Section 179 deduction phase out dollar-for-dollar and completely eliminated above $2.5 million. Additionally, under this new law, the Section 179 cap will be indexed to inflation in $10,000 increments in future years. 50% Bonus Depreciation will also apparently be extended under this legislation through 2019, and will be phased down to 40% in 2018 and 30% in 2019.
Start planning now
By working closely with your tax advisor and an experienced equipment financier, you might be able to put more or better revenue producing equipment in-service. You can stop running equipment “until the wheels fall off”. You can bid on that new project more effectively. You can put more revenue producing equipment in-service. A little planning as we approach the 4Q can position your business to maximize this tax deduction and your opportunities for growth.
At Red Thread, we work with customers every day to maximize their equipment purchasing power—putting more revenue producing equipment in-service—with a simple process. If you’d like to discuss how to leverage Section 179 to fuel your growth between now and the end of the year, give us a call.
Equipment purchases typically slow in summer months. Sales teams are often challenged with indecisive customers during this time period. But have you ever wondered why sales follow these similar cycles from year to year and what you can do about it?
The real reasons for the “summer slump” are many, but the consistent behavioral pattern follows the yearly result. At the beginning of the year companies are building and at the end of the year there are tax benefits in addition to knowing with some certainty how the year will wrap up. In the middle, there may be more concern over how the company is tracking toward performance goals. The result…a summertime haze on your pipeline.
73% of small business owners spend less on capital equipment from June to August. The top reason: conserving cash for the big year end push and handling seasonality in the creative services industry.
With some out-of-the-box thinking and a focus on affordability, equipment sales teams have an opportunity to build a pipeline for a busy summer. One best practice involves a simple email communication combined with a finance offering to indecisive prospects, 2-3 times throughout the slower months.
THE EXAMPLE EMAIL:
SUBJECT: Keep your cash, reduce your expenses…new equipment made affordable
Summer might be the best time to think about your next machine purchase. And we make it easy whether you have the cash on hand or not. At XXXX, we offer the best solutions for embroidery equipment combined with the most competitive finance solutions that allow you to preserve your cash and for a low monthly payment…gearing up for your busiest time of year!
In fact our (ASSET MODEL) is available for you as low as XXXX/mo with no money down. As you have equipment needs this summer or just need an idea how to improve your business, give me a call!
We feel a commitment to this simple activity will allow you to more easily meet the needs of a previously indecisive market. At Red Thread, we think finance is at the heart of selling more equipment. We help dealers achieve more with simple, competitive commercial equipment financing. Let’s talk.
It’s summer. And for many of you that can mean your busiest time of year. For others, maybe a time to gear up for your busy season. Busy schedules from seasonal business fluctuations mean stronger revenues, but it can also mean sudden expenses. Whether paying for the unexpected maintenance issue, the urgent office technology need or considering the equipment need to keep up with growth, developing financial options now could lead you to a stronger bottom line when schedules are less hectic. Here are a few tips:
Just because you have the cash now, don’t get crazy.
With stronger cash flows in in peak seasons, you might be tempted to just pay cash for the equipment need. But be careful, preserving that cash for less active months by financing your equipment could give you more predictable cash flows and a financial cushion in the slower seasons–when you need it most.
Expenses now…revenue later.
We often see companies adding staff and more revenue producing equipment to meet demand in the seasonally active months. That growth has terrific long term implications, but in the short term, can put you in a cash crunch. The steady cash flows afforded by well managed equipment financing can help you meet growing needs without struggling in the short term.
Quick money is not always the best money. If you are getting a loan for equipment or working capital, be careful. Some lending options can put big money in your account quickly, but the payment structure is really harmful long term. Make sure you know what you are agreeing to and find partners that can help you quickly AND fairly.
Work with people that know your business.
Let’s face it, very few lenders really understand businesses like yours. So, find a partner with deep experience in the seasonality, unique customer demands and other issues that are very unique to your industry. A partner that has deep knowledge of the equipment you count on and strong understanding of the cash flow implications you face.
At Red Thread, we help business owners dream big and manage the peaks and valleys of seasonal demand. Let’s talk!
The big picture includes the total cost of a solution, above and beyond the thing itself— services, maintenance contracts, and all those extra pieces that turn the piece of equipment from a dumb box into a smart, connected machine. It also includes understanding the opportunity cost. Will this machine replace a less efficient machine? What happens to my business if I don’t have this equipment? And if I do have it, what other costs are involved with running it?
When considering adding assets, leading business owners say TCO—total cost of ownership—is clearly part of the transaction’s bottom line. Forecasting everything, right down to the bank conveyance, they pretty much know all the costs for the asset. They know the cost to staff it. They know the cost to maintain it, etc. They’re forecasting the full P&L, all capital investments they make.
Carrie Radloff of Red Thread Financial, provides an example of how TCO can influence equipment decisions: “An experienced business owner will look at assets that are 3 years old, and will say, ‘Our quilting output is far lower that what newer long arm technology can produce and reduce maintenance issues. If we get a new asset, we’ll be able to all but eliminate downtime issues and increase our production by as much as 20%.’”
These days, total costs are just as likely to include software upgrades as they are to include oil changes. When a company is installing thousands of dollars of equipment, that’s great. But understanding the software needs, maintenance and help desk support system just begin to round out the TCO.
Technology is changing the face of financing decisions as software and services are becoming a bigger part of the deals. But there is more software and services within all kinds of equipment. There are the diagnostics that you use to measure performance of embroidery output. There are telemetric devices that you put in your fleets of cars. Even for something as basic as quilting equipment, you are finding front-end systems that run them. People aren’t just standing at the machine and cranking things out anymore. They run it via a control network.
As a result, smart borrowers now have the ability to bundle all of those things into a transaction and offer our customers a seamless product, with financing and servicing all on the same invoice. Equipment-driven financiers offer an even easier solution as their depth of equipment knowledge makes the “bundling” of TCO an easier process.
At Red Thread, we help small businesses find the balance of TCO for their business. Across a wide variety of assets and industries, count on Red Thread to help you dream big. Let’s talk.
As a seller of smaller ticket commercial equipment, there are a number of finance options you can offer your customers. But be careful, many of these options may not be healthy alternatives.
When it comes to financing the small ticket commercial equipment purchase, many dealers find it easy to offer more “retail credit” solutions. Retail credit alternatives are either similar to—or actually are– credit cards. The approval process is very simple and approvals happen at the end of a computer screen. While the speed may feel like a positive experience, the devil seems to be in the details.
Like a credit card, the interest rates can skyrocket to 20% or more. These high rates are born from essentially unsecured credit programs where most of the offering is based purely on personal credit score and only a few minimal business inputs—least of all commercial equipment. These lenders rarely have any real knowledge of the equipment and the businesses that actually use it. As such, the payment terms are a “one size fits all” solution. They may not understand that a certain asset could easily be financed for 48 months rather than the 24. That lack of understanding just doubled your payment. Another very important factor to consider is that these “credit card-like” solutions may require your investment as a dealer. A real equipment finance partner would never charge you for offering financing to your customers.
But don’t lose heart, there are alternatives out there. Seek lenders that understand the equipment you sell and the businesses that depend on it. These lenders primarily work with smaller businesses and understand the cash crunches they face. They understand the importance of monthly cash flows. And they can help them with a fast, reliable process to acquire the equipment you need without resorting to the “credit card-like” options. A relationship with lenders like these will position your dealership to move beyond a single sale to a long term relationship with the equipment buyer.
Financing a $9000 commercial asset is NOT a point of sale decision. At Red Thread Financial, we know that our finance programs can help dealers achieve with a stronger program to sell desperately needed small ticket commercial equipment. And we never charge dealers for our programs. Tell them to keep their credit cards in your wallet and count on Red Thread. Let’s talk.