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.

What Energy Efficiency Improvements Are Available?

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 

Are Energy Efficiency Loans or Leasing Right for Your Business?

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 

How to Get a Quote for Qualifying Commercial Energy Improvements

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?

Contact Team Financial Group for All Your Commercial Financing Needs

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.

What Is an Equipment Life Cycle or Obsolescence Plan?

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.

Why Is the Equipment Life Cycle Important for Your Business?

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

What If You Don’t Have an Asset Management Plan?

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.

Match Financing With Your Equipment’s Life Cycle

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.

Partner With Team Financial Group for Fast, Flexible Financing

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

 

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.

What Type of Equipment Is Eligible Under Section 179?

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.

What Vehicles Qualify for a Section 179 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

What Equipment Is Ineligible for Section 179?

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.

Partner With Team Financial Group and Get Fast, Flexible Financing Today

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.

Understanding Fixed Interest Rates

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?

The Good and the Bad of Fixed Interest Rates

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

Is a Fixed Rate Still the Best Choice 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.

Team Financial Group Offers A Variety of Equipment Financing Options to Fit Your Needs

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.

Starting a new business is a thrilling experience. After all these years, you’re finally ready to make your dreams a reality, and you’re poised for success. This new venture takes serious bravery, ambition, and finances, so you’ll want to make sure you’re doing everything you can to start on the right foot and outpace the competition.

Keep reading to learn how to get a credit card for your new business and get answers to the most common questions about credit cards for new businesses. We’ll also explore some other financing options that you might not have considered, but should.

3 Common Questions About Credit Cards for New Business

As you evaluate all of your new business’ financing options, you need to realistically assess your creditworthiness, your goals, and whether a credit card is your best financial option. However, most new business owners have fundamental questions about obtaining financing.

Do I Need an Established Credit History?

There’s no clear-cut answer to this question, but if you already have good credit (680+), you’re definitely in great shape for a new business credit card, even if your new business hasn’t yet turned a profit. The credit issuer will review your personal finances and your business plan to determine your eligibility, so be confident and honest in your answers to help ensure success.

However, many credit card companies and banks are overly reliant on business owners’ credit scores. At Team Financial Group, we know that there’s more to your business than a single number. While our financial professionals consider credit scores and your credit history, we take a more holistic, thoughtful approach.

What Are the New Business Credit Card Application Requirements?

The issuing institution will ask you for several key bits of personal and business information, including:

If you alone are running the business, you’ll declare your company a “sole proprietorship.” (Don’t worry, you’re still eligible for a new business credit card).

What Is a Personal Guarantee?

As the name implies, a personal guarantee is your guarantee that you will become personally responsible for any debt you incur if your business fails— even if your business is structured as a corporation or LLC. To be clear, if your business fails, the credit issuer can pursue repayment in the form of your personal assets. In most cases, you will be required to make a personal guarantee when applying for a new business credit card.

On the plus side, agreeing to a personal guarantee helps clear the path toward a line of credit even if you don’t have a lot of revenue. However, if you’re required to make a personal guarantee, you will be subject to a detailed credit check that will likely result in a slight temporary dip to your credit score. To complete the credit check, you will probably have to provide the following information:

To further discuss the responsibilities and potential consequences of a personal guarantee, please contact Team Financial Group today. We offer flexible equipment financing options that, unlike a credit card, might not involve a personal guarantee.

RELATED: Why Would I Personally Guarantee Financing if the Lease Is in My Business’ Name?

Tips for Small Businesses to Secure Credit Cards and Financing

New businesses come in all shapes and sizes, with different legal classifications, financial constraints, and competitive landscapes. So, it’s important that new business owners choose a new business credit card and financing options that align with their unique needs. Here are a few tips to help you do just that.

Choose Business Financing That Aligns With Your Needs

Some crucial considerations to keep in mind when researching new business credit cards are:

 

 

Explore All Possible Financing Options

New businesses often require fast (or even immediate) financing for big-ticket items, like machinery or vehicles. And since these purchases can mean the difference between failure and success, you want to choose financing options that are both practical and cost-effective.

Many of our clients receive same-day approval or even funding on request for small business financing. At Team Financial Group, we offer various options, including $1 buyout leases and fair market value (FMV) leases for equipment purchases. This helps new business owners avoid using up their company’s available credit and includes additional perks, including:

Whatever you decide, be sure to weigh all of your financing options with whatever time you have available before committing to a solution. Our clients believe that partnering with Team Financial Group has been fundamental to their long-term success—and we’d love to hear more about your business and its goals.

RELATED: Forklift Financing Turns Into a Long-Term Partnership: Duo Robotics

Contact Team Financial Group to Secure Financing for Your New Business

At Team Financial Group, we are committed to small business owners, which is why we offer diverse and flexible financing options to meet your unique needs. Our application process will not affect your credit score and takes only a few minutes to complete, so please click here to apply today!

Or, if you have any questions or would like to discuss your potential financing options further, please reach out by calling (616) 735-2393 or completing this brief form.

 

The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.

 

 

Small business owners frequently need to offer a personal guarantee to get commercial financing. Sometimes, these guarantees can cause anxiety for owners — it’s a little uncomfortable to put your personal assets on the line to secure the financing you need. So, why do lenders ask business owners for these personal guarantees?

In this article, we’ll talk about personal guarantees, including why lenders want them and how they work.

Why Lenders Want Personal Guarantees

Small businesses may have a limited credit history, which means they pose a fair amount of risk to a lender. Credit history is often the first thing a lender looks at when working to approve your loan. A lack of credit history can make it more difficult for a lender to understand how you’ve treated lending institutions in the past.

When a business owner provides a personal guarantee to secure a loan, they are promising to pay back the loan personally if their business defaults. Because of their flexibility, personal guarantees have become more common in recent years, especially since the 2008 financial crisis and recession.

Personal guarantees are often used as an alternative to loan covenants. A loan covenant is a clause in a loan where the borrower agrees to certain conditions and restrictions. Loan covenants can serve a purpose, but for most borrowers, a personal guarantee is simpler and more flexible. Some loan covenants can be overly restrictive and complicated, which may cause borrowers to violate the covenant on accident, possibly without even knowing it.

In general, there’s a strong relationship between personal credit and small business credit; if a small business owner has good personal credit, chances are their small business is creditworthy.

It can be intimidating for a business owner to put their personal assets on the line to get financing — but that’s also part of the reason why these guarantees are effective. The personal guarantee shows the financing partner that the business owner has “skin in the game” and is committed to repaying the credit.

RELATED: 5 Tips to Improve Your Personal Credit Score

Should I Sign a Personal Guarantee?

A personal guarantee is more of a safety net for a lender than anything else. If your business is able to meet its debt obligations, your personal assets won’t be at risk. Often, the most important function of a personal guarantee is to show the lender that you’re strongly motivated and serious about establishing a successful business.

Personal guarantees also offer some distinct advantages for borrowers. A guarantee can give you more financing options and help you secure a loan when you don’t have collateral that you want tied to a loan. And since a personal guarantee makes the transaction less risky for the lender, signing the guarantee may allow your lender to make your loan more affordable or otherwise offer more favorable financing terms.

However, it is important to remember that you take on responsibility when you sign a personal guarantee. Before you sign a guarantee, you should feel very confident about your ability to repay the loan.

Can I Negotiate My Personal Guarantee?

Even if a lender asks for a personal guarantee, you may have some room for negotiation and flexibility, especially if you work with an independent financing partner like Team Financial Group.

For example, you may want to ask if the lender will either put a time limit on the guarantee or agree to review the guarantee after a certain amount of time. Often, the lender is asking for the guarantee because your business hasn’t been around long enough to establish a track record of financial responsibility. After a couple of years, they may have a better understanding of your business’ current situation and history of profits, and they may be willing to remove the guarantee at that point.

Partner With Team Financial Group and Get Fast, Flexible Financing Today

At Team Financial Group, we offer flexible payment terms tailored to meet your business needs. Our application process is easy and won’t affect your credit score, so apply today to get started.

If you have any questions about the financing application process or which financing option is right for your business, fill out our online contact form or call us at 616-735-2393. We’d love to chat with you about your options.

The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.

A UCC-1 is a financing statement that a creditor files to notify other parties that they have a security interest against one or all of your assets. UCC-1s sometimes cause confusion for business owners who need equipment financing, and these filings can affect your business credit score. However, UCC-1s are generally nothing to be afraid of.

This article will explain what UCC-1s are, why lenders use them, and how they affect your business.

Understanding UCC-1s

UCC stands for the Uniform Commercial Code. The UCC is a set of rules designed to ensure that lenders and borrowers receive some fundamental protections. Every state has its own laws regarding commercial sales, leases, and financial agreements. The UCC exists to standardize the applications of these laws, so companies that do business across state lines don’t have to deal with a patchwork of laws and systems. Today, most states have adopted the UCC.

There are various types of UCC filings, but UCC-1 financing statements (often called UCC-1 filings) are the type of UCC filing that business owners most often encounter. Lenders file UCC-1 documents with the secretary of state when they provide a secured loan for a customer. When a lender files a UCC-1 statement, they announce their right to collateral or liens to secure a loan.

This filing process is also called “perfecting” the lender’s security interest in the collateral. This “perfected” interest becomes a part of the public record, so other potential lenders can see it and recognize the lender’s claim on the collateral.

A UCC-1 financing statement contains the following information:

Why Do Lenders Use UCC-1s?

UCC-1s let lenders communicate to other lenders that there is a lien on an asset. Before the UCC came into effect, there was no universal system to register an asset that was used as collateral in a lending transaction. A business could put the same piece of equipment or set of assets up as collateral for multiple loans. If the business defaulted on the loan, it would create a situation where several lenders all had claims to the same assets.

Lenders don’t file UCC-1s because they’re suspicious of you or believe you won’t pay back your loan. A UCC-1 is just a way for a lender to announce and protect their rights over collateral. When another lender sees the UCC-1 filing for an asset or set of assets, they know not to accept those assets as collateral for another loan (in most cases).

Single Equipment Filings vs. All-Asset Filings

There are two types of UCC-1 filings: liens against specific collateral, such as a piece of equipment, and blanket liens that cover all assets.

What is Purchase Money Security Interest?

Many companies have an all-asset filing on their business because of a line of credit or a bank loan they have. If you have an all-asset filing, you may wonder if it’s still possible to finance a newly acquired piece of equipment.  The answer is yes.

If a business buys a new or used piece of equipment, they may choose to finance that item with someone other than the financing partner who has the all-asset UCC filing. The new finance company will perfect their lien with a UCC-1 and will get in front of the older all-asset UCC using a purchase money security interest on that particular piece of equipment only.

How Will a UCC-1 Affect My Business?

A UCC-1 filing can have a few effects on your business:

Should I Worry if a Lender Files a UCC-1?

In general, UCC-1 filings are a normal part of the financing process and are nothing to worry about. Once you successfully pay back your loan, your lender should either file a UCC-3 financing statement, terminating the earlier UCC-1 they filed, or let the UCC-1 expire.

Most of the time, lenders can simply allow the UCC-1 to expire, and it won’t cause any issues. However, in certain circumstances, it might be important to remove the UCC-1 before it naturally expires. If you find that you need to get your UCC-1 removed, you’ll need to contact the lender and ask them to file the UCC-3 Termination Statement.

At Team Financial Group, we can release a UCC-1 after financing is repaid if you need us to do so, and we’re always happy to review and answer any questions you might have.

Partner With Team Financial Group and Get Fast, Flexible Financing Today

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 and let us do the rest.

The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.

Every business has its own working capital needs. Large companies more often have working capital lines of credit, allowing them flexibility to manage their working capital. For small businesses and newer companies, these lines of credit are rarely available, so it’s much more important to preserve working capital.

In this article, we’ll define working capital and explain how to figure out your business’ needs and whether you have enough working capital. We’ll also talk about how you can use equipment financing to preserve working capital.

What Is Working Capital?

Net working capital (NWC) is the difference between your company’s current assets and your current liabilities. You should be able to calculate your company’s working capital by taking the current assets and liabilities from your balance sheet and applying this formula:

Working capital = (Current assets) / (Current liabilities)

The figure you’ll get when you use this formula is called your current ratio. Another similar measurement is called a quick ratio. To calculate your quick ratio, consider only assets that you can convert to cash in 90 days or less. The quick ratio offers a more conservative view of your company’s ability to resolve short-term liabilities.

In general, when your assets add up to more than your liabilities, your current working capital is positive. When liabilities overtake assets, working capital becomes negative.

Why Working Capital Matters

Your company’s working capital can indicate whether you’re able to keep up with your short-term debt obligations. For example, let’s say your business has zero working capital. You’re keeping up with your financial obligations and day-to-day operating needs every month, so there’s no problem, right? But what happens if business suddenly slows down, and your revenue isn’t enough to meet your debt obligations? Now you need to dip into your working capital. And if you don’t have any, your company may be in trouble.

At Team Financial Group, we try to learn about every business we partner with to get the full picture of their health and challenges — we never reduce a business’ story to one number. But some analysts and financing partners like to rely on a few simple numbers when assessing a company’s health, and working capital can serve as one of those numbers. Working capital that’s negative or barely positive may signal to these analysts that your company is struggling to move inventory, taking on too many short-term expenses, collecting on bills too slowly, or paying debts too quickly.

Sometimes, a working capital crunch can even be a good thing. For example, periods of growth often lead to an increase in accounts receivable, which can reduce working capital. Growth is obviously a positive development on your business, but its effect on working capital still needs to be accounted for.

RELATED: 6 Ways to Better Manage Cash Flow

How Much Working Capital Do I Need, Exactly?

Many first-time small business owners want to know how much working capital they need. Without knowing any details about your business, it’s hard to provide an exact amount of working capital that you should aim for. Different types of businesses can have working capital needs that are worlds apart.

For instance, let’s say you run a consulting business that operates as a sole proprietorship out of your home. You have no employees, no inventory, and almost no operating expenses or overhead. In this case, your working capital needs might be almost zero.

On the other hand, imagine you run a family agricultural business here in Michigan that produces apples, cherries, and blueberries. You have employees, and your business depends on specialized, expensive equipment to operate. Not only that, but your cash flows become much smaller in the winter when nothing can grow. You’ll need enough cash to maintain equipment, pay bills, and service debts during your business’ slow season.

Consider Your Business Goals and Cash Conversion Cycle

Another factor that can affect your working capital needs is your set of business goals. If you’re looking to expand aggressively and move into new markets or product areas, you’ll need more working capital than a business that only wants to maintain what it’s doing.

Also, when you’re trying to figure out how much working capital you need, make sure to consider your cash conversion cycle (CCC), which is the time in days it takes for your company to convert inventory and other expenditures into cash.

To get a better picture of your cash conversion cycle, you’ll want to calculate your days of inventory outstanding (DIO), days sales outstanding (DSO), and days payable outstanding (DPO). DIO is the average number of days it takes your company to turn inventory into sales. DSO is the average number of days it takes your company to collect payment after making a sale. And DPO is the average number of days it takes your company to pay bills and invoices.

The formula for cash conversion cycle is:

CCC = (DIO) + (DSO) – (DPO)

For example, let’s say you run a woodworking business that makes custom tables and chairs. Starting from when you buy the wood, it takes, on average,  45 days to create a table or chair and sell it, so your DIO is 45 days. Then, it takes 30 days on average to receive payment from the sale, so your DSO is 30. Finally, it takes 15 days on average to pay bills and invoices, so your DPO is 15.

(45) + (30) – (15) = 60

In this case, your company’s cash conversion cycle is 60 days.

In general, the longer your cash conversion cycle, the more working capital you’ll need to keep your business healthy and stable.

How to Preserve Working Capital With Equipment Financing

Even if your company can get a working capital line of credit (LOC), making large purchases like equipment is probably not the best way to use it. Generally, a line of credit is used to fulfil working capital needs and the typical sales cycle.  Most LOCs come with a variable interest rate and a monthly interest payment, with principal payments to be made throughout the cash conversion cycle of the business. Short term debt, such as inventory purchases and accounts receivable should be matched with short term borrowing such as LOC.  Longer term debt should be used for equipment purchases to more closely match the life of the equipment.

When you need to purchase or upgrade equipment, you should explore your options for a term loan or lease. When you work with an independent financing partner like Team Financial Group, you may be able to get an equipment financing solution that’s customized based on your exact needs. There may also be some tax benefits from utilizing an equipment finance agreement or lease.

RELATED: Get These Tax Benefits With Commercial Equipment Financing

Partner With Team Financial Group and Get Fast, Flexible Financing Today

At Team Financial Group, we offer flexible payment terms tailored to meet your business needs. Our application process is easy and won’t affect your credit score, so apply today to get started.

If you have any questions about the financing application process or which financing option is right for your business, fill out our online contact form or call us at 616-735-2393. We’d love to chat with you about your options.

The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.

An equipment finance agreement (EFA) is like a loan, security agreement, and promissory note all packaged together into a single document. EFAs also contain some unique features that make them one of the most popular and versatile equipment financing options.

In this article, we’ll provide an in-depth overview of equipment financing agreements, including how they work, how they’re different than equipment leasing, their advantages, and how to get one.

A Little Bit of Loan, a Little Bit of Lease

It’s easy to confuse an EFA with a simple interest loan, since these two financing options look very similar from the financing applicant’s point of view. However, EFAs contain some unique provisions that make them more like a blend of a loan and a lease.

An EFA is like a loan because it creates ownership of the equipment: you get the financing up-front and purchase the equipment outright, then pay back the financing over time. The equipment shows up on your business’ balance sheet as an asset.

With a traditional loan, you’ll receive stated interest rates in your loan agreement, and when you get a balance statement, you’ll see it broken down into principal and interest. EFAs don’t work this way. Instead of interest rates, EFAs have finance charges, which are rolled into fixed payments that you’ll make on a regular basis (usually monthly). These fixed payments will last for the life of the financing term. So, during the repayment process, an EFA works more like a lease agreement than a loan.

In some ways, an EFA is more flexible than a simple interest loan. If you get an EFA with a financing term of 36 months, for example, you’ll need to make 36 equal monthly payments.

How Is an EFA Different From a Bank Loan?

EFAs have some distinct advantages compared to bank loans. When you get a simple interest loan from a bank, the bank will require collateral. Often, they’ll apply a lien to other assets as collateral for the loan. With an EFA, your financing partner has a security interest in the equipment itself, so you often won’t need any additional collateral — the financed equipment serves as the collateral.

A bank loan also may have variable interest rates that are tied to market rates, which involves more risk and uncertainty. If the market rate goes up over the term of your loan, then so will your financing interest rate.

Finally, banks don’t have the flexibility of other types of lenders since they operate in such a highly regulated space. As a result, bank loans often contain loan covenants with restrictive provisions that will require your business to maintain a certain debt service coverage ratio. This type of covenant can make it difficult for your business to borrow money until the loan is fully paid off. If you violate the loan covenant, the bank may demand that you pay the full outstanding balance on the loan.

RELATED: Loans, Leases, and Finance Agreements: Which One Is Right for My Business?

What Are the Benefits of an EFA?

Equipment financing solutions, including EFAs, are extremely popular with small business owners. According to the Equipment Financing and Leasing Association, 79% of companies in the United States use some form of financing when acquiring equipment. Some of the reasons that business owners love equipment financing include:

RELATED: Get These Tax Benefits With Commercial Equipment Financing

Do I Want an EFA, a Loan, or a Lease?

Usually, to answer this question, you should ask yourself three follow-up questions:

1. What Type of Equipment Am I Financing?

If the equipment you want to acquire will hold its value and stay in use for many years, then you probably want to own that equipment. An EFA makes a lot of sense in these situations.

On the other hand, if the equipment will need frequent upgrades or go obsolete in several years (example: computers), then owning the equipment doesn’t offer a lot of upsides. An operating lease is usually the best financing option for these types of equipment.

2. Do I Need 100 Percent Financing?

EFAs are a great option when you want to own the equipment and need financing for the full cost of the equipment. If your business has cash available for a down payment, your financing partner should be able to use that to reduce your payments or the length of the financing term.

If you don’t need anything close to 100 percent financing, then you may want to consider a simple interest loan.

3. Do I Have Any Unique Financial Considerations?

One of the biggest advantages of EFAs is their flexibility. If your business has unique needs, such as season cash flow fluctuations that are specific to your industry, then your financing partner should be able to tailor a payment structure around these requirements.

How Do I Get an EFA?

To get an EFA, you’ll want to find an independent financing partner who understands your business and can customize your financing terms based on your unique needs. At Team Financial Group, we get to know your business so we can work with you to adjust financing terms and amounts. We offer fast, flexible financing and can frequently deliver same-day approval and financing.

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 have questions or concerns you want to address before you begin the application process, we can help. Get in touch with us by calling 616-735-2393 or by filling out our convenient online contact form.

Reference

Industry overview. (n.d.). Equipment Leasing and Finance Association. Retrieved from https://www.elfaonline.org/about/industry-overview

The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.

Managing your cash flow in your everyday operations is extremely important to your company’s success, and even more so when things start to get tight in terms of your ability to pay bills. Different articles we have written touch on this topic, but in this article, we want to outline six specific ways to help better manage your cash flow.

1. Accounts Payable and Accounts Receivable

Most every company will have accounts payable and accounts receivable. Payment terms differ greatly between certain industries and can also differ from company to company.

Accounts Payable

Managing your payments can be a vital source of cash flow. While we don’t recommend “slow-paying,” sometimes paying early can be harmful to your cashflow.

For example, let’s say you purchase material from a company, and the payment terms are net 30 days. If you pay in 10 days without the option of a discount, that is 20 days early.

Above all, communicating with your trade partners is key. If you regularly paid in 10 days and now expect to start paying in 30 days, make your partner aware of that. (They are also working to manage their cash flows). Setting up automatic payments can also take some of the busy work away and eliminate human error.

Accounts Receivable

Just as managing when you pay is important, it’s also vital to manage when you get paid. Again, different industries have different business norms for payments terms, but late payments are never okay when trying to manage cash.

If late payments are an issue, then ask: Why are your customers paying late? Poor invoicing? Lack of clarity? Poor collections strategies? Lack of flexibility?

Offering a discount may be an option. 2/10 net 30 means you will give your customers a 2% discount if they pay you within 10 days of the invoice. This can help increase cash flow, but it will cut into your profit margin, which is something you need to consider.

2. Just-in-Time Inventory Management

Inventory management can also provide some much-needed cash flow. If you apply the just-in-time inventory management model, then your company will purchase inventory only when it’s needed.

While this approach is great in theory, it’s not easy to accomplish. Succeeding with the just-in-time model takes an extensive knowledge of your sales pipeline, manufacturing timeline, and supply chain. When implementing this strategy, many companies run into issues, like not having a part or material. Sometimes, these inventory issues hold up an entire project and delay delivery.

However, if executed properly, the just-in-time strategy for inventory management can save you much-needed cash by eliminating excess inventory and freeing up storage space.

3. Working Capital Line of Credit (LOC)

Opening a working capital line of credit with your bank can help you manage your cash position. Most working capital LOC accounts have a variable interest rate and are secured with an “all asset filing” by your bank. The draw limits are often tied to your inventory and receivables balances (example — 50% of inventory and 75% of receivables).

One of the main advantages of a working capital LOC is that it creates flexibility. There are few limitations on what you can spend the money on as long as the expenditure has to do with your business’s operations.

4. Using Term Debt for Your Cap Ex

You can take advantage of long-term financing to finance different capital expenditures instead of using the cash you have on hand. We have written an entire blog article on this topic, which we suggest reading.

RELATED: Business Health: How Equipment Financing Can Help Your Cash Flow

5. Extending Credit to Customers Who Are Credit-Worthy

Late-paying customers can hinder your company’s cash flow, so you need to understand the full picture of a customer’s creditworthiness before you give them credit terms. Companies such as Dun & Bradstreet and Paynet will give you a report on the creditworthiness of your customers. If you do not have access to those resources, you can ask yourself the following questions about new customers:

The answers to these questions should provide you with a general idea of the creditworthiness of your potential customer.

6. Manage Expenses

Managing expenses is not only important on a day-to-day basis, but there may need to be budget cuts depending on your company’s situation. While ideas in this article can help you manage your expenses, it is up to you as a business owner to decide which expenses you can cut without hindering the operations, morale, and overall health of your business.

RELATED: Business Health: How Equipment Financing Can Help Your Cash Flow

Partner With Team Financial Group and Get Fast, Flexible Financing Today

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 and let us do the rest.

The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.

 

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