Equipment financing is often a complicated topic. You might have a lot of questions and waiting for the answers can be frustrating.
That’s why we’ve compiled 20 of the most common questions we hear from small business owners about how the equipment financing process works. Hopefully, this will help you understand all the leasing and loan options and benefits available to you. If you still have questions when you’re done reading, please reach out to us. You can use our online contact form to get in touch.
Regardless of whether you are buying used or new equipment, financing allows you to keep cash and working capital available for building inventory or managing receivables and payables. Many successful businesses like to follow the “long-term financing for long-term assets” rule. If the equipment you are acquiring has a useful life cycle of three years or greater, then conserve your cash as working capital for short-term business needs and use long-term financing for those long-term assets (like equipment).
RELATED: How Much Working Capital Do I Need for My Business?
For tax, and accounting purposes, a $1 buyout lease is identical to a loan. You own the equipment, and it depreciates. Team Financial Group simply takes a lien, or security interest, in the piece of equipment as collateral. With a fair market value (FMV), or “true lease,” Team Financial Group owns and depreciates the equipment, and the client can expense the monthly payments for tax purposes.
RELATED: $1 Buyout Lease vs. FMV Lease: What’s the Difference?
You should consult your tax advisor for details about how the different types of equipment leases may affect your taxes. However, it is important to note that many of the “tax advantages” advertised by various lenders are more a matter of timing when your accountant will be expensing or writing off the equipment. With FMV leases, the expenses are in the lease payment itself.
On the other hand, $1 buyout lease expenses are tied to monthly interest AND depreciation. With depreciation, there is some flexibility with timing, so your tax liability often can be deferred. Again, consult your tax advisor to determine what is best for your company.
RELATED: Get These Tax Benefits With Commercial Equipment Financing
Yes, it is. Your equipment will be used as collateral for your loan. There will be some differences depending on the type of lender (asset-based vs. credit risk, for example), but all will require some sort of collateral for your loan.
Team Financial Group frequently can approve and fund loans in less than 24 hours. That being said, there are instances when we may need to wait for additional financial information from a customer or equipment information from the vendor and that may require additional time.
If you have been in business for several years, we generally will be looking for a short, one-page application for requests less than $150,000. For larger requests, we might also need copies of your tax return and financial data.
We may be able to take your application over the phone, which only takes arounds 5-10 minutes.
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For small businesses, we typically look at the owner’s credit history as the basis for loan approval and financing terms. For larger deals, we may need financial statements or tax returns. However, compared a bank, we have more flexibility and will consider your business’ overall health rather than a single metric.
Your interest rate will be finalized by your strength of credit (aka credit risk), loan or lease terms, and collateral valuation. Your strength of credit is determined by a combination of factors, including the age of your business, industry, cash flow, credit reports, annual revenue, and—with larger deals—an evaluation of financial statements.
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Only when the deal closes. Typical “Origination/Documentation” fees are $200-$500, depending on the size and complexity of your transaction.
Yes, when used for a commercial application. Below is a more in-depth list of business equipment we’ve financed:
We don’t have any specific requirements, and we work with many different vendors. We employ streamlined, standardized processes when working with our vendor partners, which helps us maximize efficiency. We try to balance this approach by offering as much flexibility as each vendor needs.
RELATED: 5 Reasons to Become a Vendor Partner for Equipment Financing
We do our best to approve deals even if your credit is not perfect. Sometimes, additional collateral or a significant down payment can help a deal get done.
That said, we do have to pass on deals at times. Even when that is the case, though, we will provide feedback and guidance to improve your credit so you can secure financing in the future. We want to provide resources and information to customers we haven’t worked with yet so that we can hopefully work with them in the future. We have compiled many of these resources on our blog and we are always open for a conversation.
RELATED: 5 Tips to Improve Your Personal Credit Score
The longer we have an established relationship and get to know your business, the easier the entire process will be. We strive to make every transaction smooth and easy. On a monthly basis, nearly 50% of our originations are repeat clients because they have found that it saves them time and money to work with Team Financial Group. A simple phone call or email can get things rolling.
When necessary, we can even get deals approved, documented, and closed within only a few hours.
RELATED: Equipment Financing FAQs
We suggest that you finance equipment over its “useful life,” which typically matches the depreciable life of the asset.
Generally, $5,000 is our minimum and $5,000,000 is our maximum for leasing and loan amounts. However, we have made exceptions.
Yes. However, software and maintenance leases provide no collateral value, so strong business credit is necessary in these situations.
Yes. Team Financial Group needs to be added as a loss payee in case of fire, theft, etc.
Yes. Sometimes, paying off a loan or lease is a smart decision, especially if it reduces your debt-to-income ratio or reduces the amount of interest you’ll pay.
RELATED: Should I Pay Off My Equipment Loan Early?
After the final payment with a $1 buyout lease, Team Financial Group will release any liens on the equipment and you will own it, free and clear.
With a FMV or Fixed Purchase Option lease, you will need to inform Team Financial Group of your intentions 90 days before the end of the lease. This might include equipment purchases, equipment returns, or continuing to rent the equipment on a month-to-month basis.
A sale-leaseback is a means to acquire capital for your business by using equipment that is owned free and clear.
RELATED: What Is a Sale-Leaseback, and Why Would I Want One?
Still have questions? Let us know. We’ll be happy to work with you to identify and customize business financing solutions that meet your unique needs. Team Financial Group’s commercial equipment financing options can improve your business’ cash flow and overall financial health.
To get fast, flexible financing today, please complete this brief online application.
The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.
Founded in 2012, Darby Metal Treating, Inc. is a manufacturing company based in Plainwell, Michigan. It provides heat treatments for the aerospace, automotive, and medical industries. Darby Metal Treating’s goal is to exceed customer expectations with the quality and overall value of the services provided.
No matter the size of the company, the Darby Metal Treating team strives to treat all its customers like family and give them on-time delivery with the best service possible.
Darby Metal Treating’s general manager, Tom Darby, first worked with Team Financial Group on equipment financing when he was president of a sister company named TMD Machining, Inc. A couple years later, Tom founded Darby Metal Treating with his daughter, Adrien, and turned to Team Financial Group to help fill up their facility with heat-treating equipment.
As a new company, Tom and Adrien thought that initial financing would be challenging, but Team Financial Group proved to be flexible, creative, and easy to work with, just as they were with the more seasoned TMD Machining.
The heat-treating company had ambitious goals, and it needed to invest in advanced equipment and technology to succeed. With help from Team Financial Group, Darby Metal Treating could buy much-needed equipment and help its business expand.
“My father’s experience with Tim and Joe at Team Financial Group was always positive, so it made sense to reach out to them for our start-up company, Darby Metal. Despite the limited sales volume at the time, Team Financial trusted our plan and provided the financing to acquire the critical equipment needed to grow our capacity,” Adrien says. “They are extremely responsive and approach our business as if they are a team member. Their financial expertise and passion to help their clients succeed clearly showed with how they have serviced both our companies. They provide more than just financing to us. We really value their insights and opinions related to the economy and our company’s long-term growth objectives.”
Team Financial Group took the time to learn more about the challenges and opportunities faced by Darby Metal Treating. Both Tom and Adrien Darby annually meet with Team Financial Group to discuss long-term goals, year-over-year growth, and capital expenditure budgeting.
Adrien knows that Team Financial Group is a valued partner who cares about her company’s success.
“You won’t be disappointed if you work with Team Financial,” Adrien says. “They are fast, friendly, knowledgeable, and take the time to really understand your business.”
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At Team Financial Group, we offer a variety of fast, flexible financing terms and options to meet your business’ needs. Whether you need to finance heavy equipment, new office furniture, or have other specific needs, you can count on Team Financial Group to offer sound advice and sensible solutions.
Ready to get started? Apply for financing now using our quick and easy online application, or give us a call at 616-735-2393 if you have questions.
The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.
Applying for a small business loan is often a stressful process. It can be confusing to navigate the application process and the sheer volume of options available may feel overwhelming.
The Small Business Administration (SBA) was established to support owners and entrepreneurs with a variety of programs designed to help build and grow businesses. Two of the most popular are the SBA 504 and SBA 7(a) loan programs. But it’s sometimes hard to differentiate between the two programs, and an SBA loan isn’t right for everyone.
Here, we’ll outline the key differences between SBA 504 and 7(a) loans, the benefits your business may enjoy with a small business loan, and why partnering with an experienced lender like Team Financial Group for your equipment financing might be an even better option.
The 7(a) Loan Program is the SBA’s most common loan program and is often used when commercial real estate is included in the purchase of a business. According to the SBA, it also is used to provide help with:
SBA 504 loans, meanwhile, are available through Certified Development Companies (CDCs), which are often nonprofit corporations that serve their local communities and are regulated by the SBA. SBA 504 loans are targeted at business growth and job creation. This can be accomplished in a variety of ways, including:
You should note that a 504 loan cannot be used for working capital, inventory, consolidating, repaying, or refinancing debt, or rental real estate.
It’s also important to point out that the SBA doesn’t lend directly to small business owners. Instead, the SBA helps businesses obtain both loan types by partnering with lenders and agrees to repay a portion of the loan if the business defaults. That means you’ll need to meet both the SBA’s eligibility criteria and the bank’s requirements to qualify for a loan.
RELATED: Business Health: How Equipment Financing Can Help Your Cash Flow
The SBA sets guidelines that are intended to both reduce risk for lenders and make it easy for small businesses to access capital. Here’s a quick breakdown of the differences between 7(a) and 504 loans:
Maximum Loan Amounts
Eligibility Factors
To qualify for a 7(a) loan, your business must:
As a 504 loan borrower, your business must:
Interest Rates
Terms and Conditions
SBA loans are a great option, but they aren’t right for every small business. The requirements for 7(a) and 504 loans can be hard to meet, especially if you don’t have collateral to secure your loan. We’ve seen businesses with strong revenue streams and business plans get denied by the banks. And some business owners are unwilling to put liens on their personal property (like their homes) in exchange for an SBA loan.
But that doesn’t mean that you don’t need financing for equipment and other improvements.
If you’re looking for flexible alternatives to a 7(a) or 504 loan, Team Financial can help. We offer fast, flexible options for equipment financing, including EFA/$1 buyout leases and FMV leases. And because we’re not a bank, we can take a more holistic approach when assessing your eligibility for financing.
When we evaluate a small business’ financing options, we look at many factors: your credit history, debt service coverage ratio, your business’ financial health, and industry conditions. Our goal is to help your business grow and thrive, so we will also provide you with feedback on your application quickly.
RELATED: A Handy Guide to Equipment Financing Language
Need help figuring out which financing option makes sense for your business plan or whether you should apply for an SBA loan? We can help. We specialize in offering fast and flexible equipment financing for a wide range of small businesses.
Call Team Financial Group today at 616-735-2393 or fill out our contact form to talk with a financing expert. If you’re ready to apply for financing, fill out our short online application and we’ll get the process started.
References
7(a) loans. (n.d.) Small Business Administration. Retrieved from: https://www.sba.gov/funding-programs/loans/7a-loans
504 loans (n.d.) Small Business Administration. Retrieved from: https://www.sba.gov/funding-programs/loans/504-loans
The content provided here is for informational purposes only. For personalized financial advice, please contact our commercial financing experts.
Matt Maczka knows the value of relationships. It’s one of the reasons why he returned to his hometown, Grand Rapids, Michigan, in 2012 and joined Team Financial Group. He was named President in 2015 and then succeeded his father, Tim Maczka, as CEO, in November 2020.
Founded in 2001, Team Financial Group has provided over half a billion in funds for businesses towards the goal of helping our customers’ businesses grow. Team Financial Group’s mission is to deliver efficient, flexible financing while applying common-sense lending principles. Matt leads Team Financial Group’s business operations and is heavily involved in the sales arena, where he develops strong vendor and client relationships.
Here, we catch up with Matt, who tells us a little more about himself and his goals for Team Financial Group in the future.
RELATED: About Us: Who Is Team Financial Group?
Can you tell us about your background before you joined Team Financial Group?
Prior to Team Financial Group, I worked as a Project Manager for a large, family- and employee-owned construction company in Indianapolis. My education is in civil engineering, and although I had an engineering degree, I was never really an engineer. I was more of a people manager. I went back to Butler University and got my business degree after about five or six years at the construction company with the idea that I would eventually become CFO.
How did you end up at Team Financial Group?
There was no succession plan at Team Financial Group at the time, and I wanted to move back to West Michigan. So, my wife and I decided to leave Central Indiana and give it a shot. It was a big change for our family, but it was a pretty low-risk move in 2012.
What was it like to transition to President and CEO?
I’m a fast learner, and I have no problem doing the work. For the first four or five years, I was really just learning the business. When I became President, I was comfortable. It was a good transition. I only became CEO about a year ago, and Tim still comes to work every day and is the majority owner of the business. We don’t really get too hung up on roles and titles. We run this as a team.
How have you seen Team Financial Group change in the past few years?
We’ve continued to build our portfolio and the size of our customer base. We’re really in the repeat and referral business. Always have been. We can only be in this business if we treat people fairly with honesty, dignity, and respect Business gets a lot simpler when you treat people with respect, and it’s snowballed over the last seven or eight years.
We measure ourselves like any bank or lender would in total outstanding loans. We went through a major milestone recently; we have crossed the $100 million mark in our loan portfolio.
The world has gotten a lot smaller. That’s something that’s changed a lot in the past seven years—we’re doing a lot more deals outside of the state.
What’s been one of your biggest challenges?
In many ways, what we’re trying to do is grow our book of business, find more of the right people, but not change our culture. That sounds kind of goofy, but what differentiates us is we take care of people. The challenge is how can we bring on more employees but still have the expertise and maintain the “we’ll-take-care-of-you” atmosphere. A lot of people say we can’t grow [and preserve that culture], and maybe they’re right—but we’re going to find out.
What’s the one thing you wish people knew about Team Financial Group?
What our customers value is we take care of them in an efficient manner, but we’re looking out for their best interests as well. A lot of lenders out there are more worried about getting the current deal done and then moving on. We want to take care of people because we know that they’re going to call us back year after year after year. We don‘t just act as lenders. Our customers see us as consultants, helping them address their business’ evolving needs and goals. We’re going to take care of them. We want our relationship to grow and stand the test of time.
What do you like to do away from the office?
I like to do stuff outside: hunt, fish, golf, play sports with my four boys. We’ve got a lot of kid sports going on right now. Lacrosse, basketball, golf, football, baseball, tennis. You name it, we’re doing it.
At Team Financial Group, we work with clients to identify and customize financing solutions that meet their unique needs. Our commercial equipment financing options can improve your business’ cash flow and overall financial health.
To get fast, flexible financing today, please complete this brief online application.
The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.
As the world becomes a smarter, more environmentally conscious place, there are plenty of opportunities for individuals and business owners to minimize our footprint and help ensure a healthy planet for our children. Investing in energy efficiency can also save you money in the long term , so it’s a win-win situation.
That’s why Team Financial Group encourages businesses to apply for loans for energy efficiency improvements. We’ve also partnered with local nonprofit organization Michigan Saves to help Michigan businesses finance their energy efficiency projects.
The process is simple and can cover many potential updates, from LED lighting systems to HVAC systems and equipment. Please keep reading to learn more about loans for energy efficiency improvements and how you can work with a financing partner like Team Financial Group to get approved quickly.
In Michigan, there are plenty of options when it comes to commercial energy efficiency. From demand control ventilation to lighting occupancy sensors to green roofing, there’s almost nothing you can’t make more environmentally-friendly — and more cost-efficient and effective.
By seeking out competitive financing from trusted lenders, you can overcome some of the most common barriers to improved energy efficiency, such as:
RELATED: Team Financial Group Finds Energy Savings Opportunities for LaLonde’s Market
There are a few things you’ll want to consider when exploring potential financing for commercial energy efficiency improvements.
RELATED: How Much Working Capital Do I Need for My Business
To apply for commercial energy efficiency financing, simply complete our secure, online form. From there, we will begin a pre-approval process by evaluating your business’ financial history, including your income and any existing debt. However, unlike banks, our financing team doesn’t use inflexible standards; we look at the full picture, not just a few metrics when evaluating your eligibility.
At the same time, we’ll ask you questions and learn about your business’ needs and the energy efficiency improvements you want to finance. Based on all this information, we’ll craft a customized financing solution for you. Depending on your business’ unique goals, it might involve a loan, lease, or equipment finance agreement.
Because we’re not a bank, our equipment leasing and energy efficiency financing processes are streamlined, fast, and flexible.
RELATED: What Is an Equipment Finance Agreement?
At Team Financial Group, we offer custom leasing and financing options that meet your unique business needs. We are committed to your sustained success and are eager to help your organization thrive through flexible financing and personalized service.
Interested in learning more about how Team Financial Group can help you apply for and receive lucrative energy efficiency financing to accelerate your company’s growth? Simply call (616) 735-2393 today or complete this brief form to speak with one of our commercial financing experts!
Your business depends on equipment to function, but it might seem like you need a crystal ball to figure out what equipment to buy, when to buy it, how to buy it, how to maintain it, and when to dispose of it. Equipment and machinery won’t last forever, so it’s important to understand how to plan for choosing, purchasing, and discarding your business equipment.
That’s where the equipment life cycle comes in. It’s the process that manages the purchase and maintenance of equipment by implementing sound planning at all stages of the equipment lifetime — from acquisition to usage to disposal.
Read on to learn about the equipment life cycle and how to finance equipment purchases to get the best machinery for your business.
Equipment, whether it’s in a factory, office, or construction site, eventually wears out, becomes outdated, or is too costly to repair. Because equipment is a major investment, you should take a proactive approach, building the costs of preventive maintenance, repairs, and replacement into your business’ financial plan.
As part of your equipment life cycle plan, ask yourself the following questions:
Some businesses use IoT (Internet of Things), automation, software, and algorithms to monitor their equipment’s health and asset life cycle management plan. However, if you’re just beginning your life-cycle cost analysis, asking these questions and crunching the numbers is a good start.
There are several benefits to your business having a strong equipment life cycle management program. Here are some tips for implementing an equipment life cycle plan and an outline of the benefits:
Equipment life cycles play a huge role in your business’ operational efficiency and budget. Toward that end, it’s important to make sure that the equipment life cycle plan is communicated to key stakeholders throughout your organization.
Related: Get the Financing You Need to Improve Your Workplace Safety
It may seem to make sense to wait for equipment to break down before you decide to repair or replace it, but this mindset could be costly in the long run. If a vital piece of equipment goes down unexpectedly and you have unplanned repair or replacement costs, your business could suffer. Emergency maintenance costs, forced downtime, employee and/or customer dissatisfaction, and rental costs (depending on the equipment) are just some of the possible expenses and challenges that can result from a lack of planning.
Unplanned expenses can lead to lost revenue and may potentially damage your relationship with your employees and customers. Instead, you should be implementing a life cycle plan that plots the end-to-end stages of your business equipment and how you can incorporate financing into that plan.
From photocopiers to heavy machinery, buying equipment outright can put a huge strain on cash flow. Equipment financing can be the ideal solution — whether you’re looking to keep your company functioning at optimal performance or expanding to meet increased demand. If you understand roughly how long each piece of equipment will last and how much it will cost to maintain and replace that machinery, you can make informed decisions about how to finance your equipment.
In some cases, depending on the equipment, leasing might make more sense than financing. Whether you decide to lease or finance a purchase, it’s important to understand all the implications of any transaction you are considering — including the true cost of financing and any special considerations for disposal when your machinery reaches the end of its equipment life cycle.
If you’re not sure which type of equipment financing is right for your business needs, get in touch with our experts. We’ll speak with you to learn more about your company and your business needs. Then we’ll develop a financing strategy that makes sense for you.
At Team Financial Group, we work with clients to identify and customize financing solutions that meet their unique needs. Our commercial equipment financing options can improve your business’ cash flow and overall financial health.
To get fast, flexible financing today, please complete this brief online application.
The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.
Hudsonville, Michigan-based Straight Edge Customs offers residential, multifamily, and commercial customers a variety of carpentry services, including rough and finish carpentry, custom cabinetry, and decks. Owner Geoff Farrier works to ensure that his deep industry knowledge and positive attitude win over homeowners and contractors. He’s also committed to helping young people find quality careers in the professional carpentry industry.
Like many startups, Straight Edge Customs needed capital to grow. Without vehicles and heavy equipment for large scale, on-site carpentry jobs, the company’s future was dire. But even with a strong business model, banks and other traditional lenders weren’t willing to work with them.
Thankfully, Geoff knew precisely where to turn to make sure his new startup thrived. While working with a different company, Geoff had partnered with Team Financial Group.
“Team Financial Group did not look at Straight Edge as ‘just numbers,’” Geoff says. “They get to know your business and see what you need. Relationships matter to them, and it shows. We can call, and it’s never a worry. If [they] can help you, they will.”
More than five years later, he doesn’t regret his decision. When the company needs to update its equipment, it still turns to Team Financial Group for fast, flexible options.
“Team Financial Group was genuinely there to help then,” Geoff says, “and they’ve supported my financial needs ever since.”
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At Team Financial Group, we offer various fast, flexible financing terms and options to meet your business’ needs. Whether you need to finance heavy equipment, new office furniture, or have other specific needs, you can count on Team Financial Group to offer sound advice and sensible solutions.
Ready to get started? Apply for financing now using our quick and easy online application, or give us a call at 616-735-2393 if you have questions.
The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.
Integrated Technology LLC (ITg) takes a customer-centered, fresh approach to the office automation business. Founded in 2018, the company offers a one-stop business solution for office supplies, document management, VoIP, digital marketing, and managed network services. Today, its goal remains the same: to optimize customer workflows and improve efficiency and effectiveness while substantially improving their customers’ bottom line.
Prior to ITg’s partnership with Team Financial Group, the company couldn’t find a lender interested in offering financing to potential technology customers, according to Integrated Technology’s VP/CSO Sergio Castro. ITg called several major lenders, but none were willing to partner and create a monthly payment option for a small technology company. These companies operate in an industry where equipment quickly becomes obsolete, so having a lender that can offer a variety of monthly payment acquisition options is essential for their sustained success.
“Two years ago, we went to a number of financial institutions to develop a business relationship, but they didn’t want anything to do with a start-up,” says Sergio. “When we met Team Financial Group, their only concern was to help us grow our business. Our partnership has been solely based on trust and loyalty ever since.”
Team Financial Group has also helped Integrated Technology meet their production inventory needs when major orders arise, which empowers them to scale with flexibility.
“In order to keep our partners happy and successful, we need to be able to provide services and solutions at a moment’s notice. Thanks to partnering with Team Financial Group, we’re able to meet that sort of demand in near real-time,” notes Sergio.
The company’s reasons for staying with Team Financial Group are equally clear.
“You can either be just another number at the top of the invoice with some of these financing groups or you can have a financial partner that gives you exceptional one-to-one personal service as you scale and grow. We’re happy to have a partner that is always willing to think outside of the box and deliver when called upon.”
At Team Financial Group, we offer a variety of fast, flexible financing terms and options to meet your business’ needs. Whether you need to finance heavy equipment, new office furniture, or have other specific needs, you can count on Team Financial Group to offer sound advice and sensible solutions.
Ready to get started? Apply for financing now using our quick and easy online application, or give us a call at 616-735-2393 if you have questions.
The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment for the current tax year — instead of writing off the purchase over the course of several years, which is called depreciation.
The equipment can be new or used, as long as it’s new to you. If you purchase some equipment for your business but don’t use it until the following year (say, you buy some equipment at the end of December but don’t use it until January), you’re only eligible to claim it for the first year you use it.
Section 179 can be confusing and intimidating for business owners seeking equipment financing, especially because the rules for how much business owners could claim as a deduction have fluctuated over the last few years.
This article will explain what when you can take Section 179 on used equipment and how it could positively impact your business.
To qualify for a Section 179 deduction, your equipment must be tangible property used more than 50% of the time for business use — and you can only deduct the percentage of the equal to the percentage of business use. So, if you buy a cell phone for your business and use it 75% of the time for business, you can claim 75% of the phone’s cost.
Items used for business purposes less than 50% of the time don’t qualify for a Section 179 deduction.
Examples of eligible equipment include:
For more information about which equipment is eligible for Section 179, the IRS has much more detail in its Instructions for Form 4562 — including tables outlining which vehicles qualify for a deduction.
Section 179 is popularly used by businesses to purchase vehicles. In fact, this obscure bit of tax law became famous several years ago when it became known as the “Hummer deduction” or “the SUV tax loophole” because it was used to write off a significant portion of the cost of these vehicles. The regulation has been tightened in recent years.
As with other types of business property, vehicles can be new or used as long as they are new to you. Vehicles also need to be used for business purposes at least 50% of the time and must be registered to the business (not the business owner) to be eligible for the deduction.
There are some vehicles that will always qualify for a full Section 179 deduction because they aren’t likely going to be used for personal purposes. These include:
It gets a little more complicated for vehicles such as cars, trucks, and SUVs, since they’re more likely to be used for both business and personal needs. For tax purposes, they’re classified by vehicle weight:
Remember, you can only claim the Section 179 deduction in the first year you bought or financed the vehicle. Furthermore, a vehicle first purchased or financed for personal purposes doesn’t qualify in a later year if it becomes at least 50% used for business purposes.
Vehicles that are used less than 50% of the time for business purposes don’t qualify for the Section 179 deduction, but you may be able to depreciate the business-use percentage of the vehicle’s cost over a six-year period. Consult a financial professional for more information.
Related: Purchasing Used Equipment? Use This Checklist Before You Buy
As with other types of tax deductions and expenses, not everything is eligible. Some ineligible items include the following:
Some property is disqualified from consideration for Section 179, including property that is:
Section 179 offers businesses a wonderful opportunity to leverage purchasing power. Team Financial Group can answer your questions about financing used equipment and help you secure the right kind of financing to qualify for this deduction.
At Team Financial Group, we work with clients to identify and customize financing solutions that meet their unique needs. Our commercial equipment financing options can improve your business’ cash flow and overall financial health.
To get fast, flexible financing today, fill out our simple online application.
The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.
Inflation happens when prices rise, which means the purchasing power of your dollar falls. Although that sounds bad, most economists agree that a moderate inflation rate is necessary for a healthy economy, because it encourages people to spend and invest their money rather than parking it in a savings account.
So, what does inflation mean for an equipment loan? In general, how inflation affects your equipment financing will depend on two factors: what inflation is doing (the inflation rate) and whether your loan has a fixed or variable interest rate.
When you have a fixed-rate loan, you pay the same amount each period throughout the life of the loan, regardless of the inflation rate. The other option is a variable-rate loan, which has an interest rate that will move up or down based on changes in the market or fluctuations in the prime rate, which is a guiding interest rate that banks use. (The prime rate is partially based on the federal funds rate, set by the Federal Reserve.)
The predictability of fixed-rate loans is generally a good thing, especially in the world of commercial equipment financing. Most business owners know how much money they need, what equipment they need, and for how long they need it. Fixed interest rates are usually better for these borrowers since a fixed rate lets them accurately predict how much they’ll have to pay each period and how much the financing will cost over the life of the loan.
Because of this predictability, we’ve said in the past that fixed-rate financing is most often the best option for business owners who need to finance an equipment purchase. But with all the financial instability resulting from the COVID-19 pandemic, is that preferred status still deserved?
When the rate of inflation goes up, the fixed-interest rate financing you took out costs you less than when you took out the loan since the dollar has lost some of its value. You’re essentially paying the lender back money that’s worth less than what it was when you took out the loan.
Not only that, but wages and revenues tend to rise during periods of high inflation. So, if you’re making more money but your monthly payments for your financing stay the same, then the payments take up a smaller percentage of your working capital.
On the other hand, the opposite is true: when inflation rates go down, your fixed-rate loan stays the same, but interest rates will generally go down. When this happens, the rate on your fixed-rate loan or lease may not look as favorable as it did when you secured the financing.
RELATED: Understanding Interest: Variable vs. Fixed Interest Rates for Equipment Financing
In general, the COVID-19 pandemic hasn’t changed our view that fixed-rate financing is the preferred method for borrowers utilizing equipment financing. While it’s possible that a period of low interest rates might take some of the shine off your fixed rate, you can also benefit if interest rates are high. Meanwhile, you get the peace of mind and planning ability that comes with knowing the exact amount of your monthly payments as well as how much your financing will cost you over the life of the loan.
Also, it’s usually not a good idea to base your financing decisions on inflation rates since future rates of inflation are hard to predict. Experts haven’t even come to a consensus yet on how the pandemic has affected inflation. The most recent government statistics say prices have risen by only 1 percent in the past year, but many economic analysts say that figure doesn’t accurately capture the cost of living during the pandemic, which may be rising much faster.
Even though we recommend fixed-rate loans to meet the needs of most of our clients, that doesn’t mean variable-rate loans don’t have their uses. The best way to figure out what makes sense for your business is to get in touch with a commercial financing expert who can learn about your unique situation and deliver a personalized recommendation.
At Team Financial Group, we offer leases and finance agreements that we can customize to fit your unique business needs. We’re dedicated to helping our clients grow and thrive by providing efficient and flexible financing options and personalized service.
Ready to get started? Applying is easy! Just visit our application page, fill out your contact information, and one of our commercial financing experts will get in touch to help walk you through the application process and determine which option is right for you. If you still have questions and you need answers before you’re ready to apply, you can use our online contact form to get in touch.
Reference
Wolfers, J. (2020, September 2). Inflation is higher than the numbers say. The New York Times. Retrieved from https://www.nytimes.com/2020/09/02/business/inflation-worse-pandemic-coronavirus.html
The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.