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.

 

Small businesses can become cash-strapped for lots of reasons, some of them beyond your control: seasonal fluctuations, natural disasters, and world events (we’re looking at you, COVID-19). If your business needs to cut costs, it’s important to do so with a coherent plan in mind — you don’t want to hurt your business’ long-term viability when you make sacrifices for the short-term.

In general, small business owners have a few primary areas where they can cut expenses:

In this article, we’ll give you nine tips you can use to evaluate your expenses and implement sensible cost-cutting measures.

#1: Reduce Nonessential Expenses

Now is the time to keep a tight hold on the company credit card. Check every discretionary expense to look for ways you can save. Unless a particular expense is critical to your business’ health and development, you should reduce or eliminate it.

Even if you’ve already signed a contract or made a commitment to spend money, don’t write off that money as spent and gone. If you contact the other party or service provider and explain your company’s current situation, they may be willing to cancel the contract or renegotiate its terms or interest rates, especially if they’re a long-term partner or are likely to become one. In the end, they may say no, but it never hurts to ask.

#2: Consolidate the Business Expenses You Can’t Cut

Even the most cash-conscious businesses have to make nonessential expenditures once in a while. If you can’t get rid of an expense, look for ways to consolidate.

For example, maybe you’ve determined you can’t do away with every celebration and team-building event because it would damage employee morale. Rather than canceling these events entirely, look for ways to combine them and reduce their frequency for an overall cost savings. You can also try to combine social activities with employee training sessions and other vital employee development efforts.

#3: Look for Ways to Save on Office Space

If you’re dealing with a down market or economic downturn, then chances are your business isn’t the only one hurting. The upside of a bad business climate is that prices for office space and commercial real estate tend to fall. You may be able to use this to your advantage and negotiate with your landlord for a better lease or move to a newer, more budget-friendly space.

If you run a solo operation or a small business with very few employees, it might be time to reconsider whether you need an office. Doing business out of your home can save you a fortune in rent, and it can also open up various tax breaks and deductions. Just make sure to do some research before you make the move — in many areas, zoning issues and local bylaws restrict the type and scale of businesses that you can operate out of your home.

RELATED: 5 Tips to Improve Your Personal Credit Score

#4: Re-Examine Your Advertising Costs

Don’t stop advertising altogether just because you’re cutting costs — marketing is essential to your business’ long-term health and growth. However, marketing can also burn up a lot of money, so you need to judicious with your budget.

More and more businesses connect with the majority of their new customers online, and digital advertising is often much more affordable and cost-effective than traditional media like billboards and TV ads. If you’ve been spending money on expensive ad space like a billboard or newspaper ad, you can probably cut that expense, take half of it and reinvest it in your web presence, and still get more long-term value than you were before.

Even if your business doesn’t have a website and you can’t afford one right now, you can still start building a web presence. You can create business pages and profiles on social media sites like Facebook, Yelp!, and Google My Business for free and start connecting with potential customers online.

#5: Try to Reduce Your Debt

If you’re behind on the bills and creditors are calling, you may want to ask whether your creditors are willing to restructure your debt or provide some payment relief. This strategy will probably work better with some types of creditors than others; a credit card company probably won’t offer you much help, for example. However, lenders and independent financial partners like Team Financial Group have many different options available to help you in these types of situations. We would always rather work with a customer than see them fail.

The most important element to working with your creditors is communication. The sooner you let a creditor know that you may have trouble making payments, the better. If you can work with your creditor and come up with proactive solutions before you start missing payments, then you may be able to avoid consequences like negative items on your credit history and collection actions.

#6: Be Careful About What You Buy

Your business can’t stop spending money altogether. You still need to pay for the essential equipment you need to do business, whether it’s maintenance, upgrades, or purchasing new equipment that you absolutely need. You also need to pay for essential business costs like phone and internet service, utilities, custodial services, and payments to vendors.

However, just like we discussed with real estate, an overall down market can give you some leverage to renegotiate prices on essential expenditures. Your vendors and partners may give you a lower price if you make it clear that it’s necessary. And don’t be afraid to shop around — now is the time to take bids and re-evaluate vendor relationships to see whether they still make sense for your business. This advice holds true whether your business needs to purchase heavy equipment or small office supplies.

You also don’t have to sacrifice your business’ bottom line to get the equipment you need. At Team Financial Group, we specialize in providing fast, flexible equipment financing for businesses of all sizes. We can work with you to find an affordable, customized financing option that makes sense based on your business’ current financial situation and unique needs.

#7: Lower Your Insurance Costs

Since insurance is so essential for any business, it can be an easy area to overlook when trying to save money. Under no circumstances should you eliminate essential coverage for natural disasters, theft and vandalism, or liability. However, you may be able to reduce your payments, even for essential coverage.

Check out some different insurance providers and try to find the most competitive rates. Then, ask your current provider if they can match that rate. You can also take stock of your policies to make sure you don’t have any redundant coverage and look for opportunities to consolidate policies under a single carrier. And if you’re in a bind and still need to cut insurance costs further, you could ask about increasing your deductibles to lower your premiums.

#8: Consider Personnel Changes

It’s not fun to think about laying off employees, but if your business is facing serious cash flow challenges that threaten your survival, you may have no choice. Ask how busy your employees are and whether every position is truly essential. Consider every option as being on the table, whether it’s consolidating positions, moving full-time employees to part-time work, or hiring freelancers.

But before you fire someone who’s not as productive as you’d like, make sure the problem lies with the employee. Ask whether your staff has the tools they need to get their work done efficiently. Look for inefficiencies, distractions, and timewasters within your company policies and culture, whether it’s meetings, departmental structures, or communication practices. You can downsize your team, but if you’re not putting employees in a position to succeed, you won’t get outstanding results from a team of any size.

#9: Cut Employee Perks and Benefits

Slashing benefits hurts, but most employees can handle it if they understand that it’s temporary and may be saving their jobs. During a crisis, you may need to suspend certain employee benefits. Don’t sacrifice your employees’ health plan unless it’s the only way to survive — losing health insurance puts your employees in an extremely risky position and could drive away your best workers. However, it may be appropriate to suspend or reduce other benefits and perks like free meals in the breakroom, employee wellness programs, and gym memberships.

Be transparent with your employees about the company’s current cash flow and financial situation. Let your workers know why you’re changing their benefits and how long they can expect the changes to last. If you’re going to make policy changes that make life harder for your employees, the least you can do is be honest with them throughout the process.

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. Even if you have a low credit score, don’t get discouraged — our commercial financing experts are here to help, and we’ve been able to provide financing for businesses with all types of unique circumstances. 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.

If your business needs new equipment, you probably want to know about your financing options. In this blog article, we’ll break down the similarities, differences, and pros and cons of two of the most popular equipment lease options: $1 buyout leases and fair market value (FMV) leases.

What Is a $1 Buyout Lease?

A $1 buyout lease is a type of capital lease, which means you own the equipment or property throughout the life of the lease (and afterward too). The leased equipment will show up on your balance sheet as an asset. A $1 buyout lease can also go by other names; you might hear it called a capital lease or an equipment finance agreement (EFA).

Compared to a typical operating lease, where you strictly lease the equipment and the leasing company or financing partner (the lessor) still owns the asset, a $1 buyout lease “feels” more like a loan.  The lease gets its name because, at the end of the lease period, you’ll complete the payments on the asset for a nominal price, often $1.

But when it comes time to make monthly payments (or however often your lease term specifies), the $1 buyout lease resembles a lease more than a loan. Your $1 buyout lease won’t have stated interest rates like a loan would. Instead, you’ll make fixed payments, and the finance charges get rolled into your payments.

So, you can think of a $1 buyout lease (a.k.a. equipment finance agreement) as a sort of hybrid between a loan and a lease. You may be able to get 100% financing with no down payment and fixed payments like you would with a lease. However, you own the equipment from the time of purchase, and the equipment appears on your balance sheet, similar to a loan.

Business owners who are purchasing equipment tend to like $1 buyout leases because they’re straightforward, streamlined, and easy to understand. Also, when you finance an equipment purchase with a $1 buyout lease, you may be able to write off the entire cost of the equipment in the first year as “bonus” depreciation under the Tax Cuts and Jobs Act. This bonus depreciation is available for any qualified asset that you purchase and put into use before 2023.

Why Would I Want a $1 Buyout Lease?

Since you own the equipment, a $1 buyout lease often makes sense when you’re looking to purchase a piece of equipment that will stay in use for many years and retain most of its value.

Examples of the types of equipment we’ve helped clients acquire with $1 buyout leases include:

What Is an FMV Lease?

A fair market value lease (FMV lease) can be a type of operating lease, which means it functions more like a rental agreement compared to a $1 buyout lease. With an operating lease, you don’t own the equipment you’re leasing. However, the payment structure is similar to a capital lease (like the $1 buyout lease): you may be able to get 100 percent financing with no down payment, and you’ll make fixed payments until the end of the lease term.

At the end of the term, you’ll usually have the option to purchase the equipment at the current fair market value (FMV), which is where the FMV lease gets its name. You can also choose to continue making your lease payments and using the equipment. If you don’t want to exercise your purchase option or continue leasing the equipment, you can return it and walk away. FMV leases tend to last between one and five years.

Why Would I Want an FMV Lease?

So, why would you want to lease without the benefits of ownership? For some types of new equipment that go out of date quickly and lose most of their value, ownership doesn’t have many benefits.

Think about a computer as a classic example: when you buy a new computer, it will lose most of its value in the first few years, so you can’t resell it for anything close to what you paid for it. In five to ten years, technology will move on to the point that the computer will have almost no resale value, no matter how cutting-edge it was when you bought it.

Other equipment types that we’ve helped customers acquire with FMV leases include:

Comparing FMV and $1 Buyout Leases

Which type of equipment financing is right for your business? Both FMV leases and $1 buyout leases have pros and cons:

FMV lease:

$1 buyout lease/equipment finance agreement

Which solution works best often comes down to the type of equipment you want to finance. An FMV equipment lease usually makes sense if your business needs to stay current, and you update equipment frequently. If you plan to use the asset for a long time or think you can sell it for a good value when you’re finished using it, then a $1 buyout lease may be the best solution.

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

Contact Team Financial Group to Learn About Your Equipment Financing Options

Have questions about which type of financing option makes sense for your business or whether you qualify? We’re here to help. Call Team Financial Group today at 616-735-2393 or fill out our contact form to talk with a financing expert from Team Financial Group. And if you’re ready to apply for financing, fill out our quick online application and let us do the rest.

Reference

IRS. New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act [press release]. (2018, April). Retrieved from https://www.irs.gov/newsroom/tax-law-offers-100-percent-first-year-bonus-depreciation

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

If you own a small or medium-sized business, your personal credit report is vitally important. A great credit score can not only help you receive a loan but also improve the interest rate you pay on that loan. For a more in-depth overview of how your personal credit can affect your business, read our previous article, “Credit Check: Will My Personal Credit Affect My Business Loan?

For a quick overview, keep reading. In this article, we’ll give you some practical tips to improve your credit score fast so you can reap the benefits and save money.

1. Keep Your Credit Utilization Low

Credit utilization is a measurement between two factors: current credit card debt and credit card limits. For example, a person with $500 in credit card debt with a $5,000 limit has a credit utilization rate of 10%, which is very low. A low credit utilization gives you flexibility in case unforeseen business expenses arise.

A good rule of thumb is to try and stay below a 25% utilization rate. To get your utilization that low, you may have to make multiple payments per month or ask the credit card company to increase your credit limits.

2. Make Payments on Time

Staying organized and paying your bills on time is extremely important when trying to improve your credit score. The later the payment, the bigger the negative effect on your credit score.

A late payment before the 30-day mark may cost you a few more dollars in late fees, but it won’t get reported on your credit score. Once you’re 30 days late, the late payment will show up on your credit report.

Being 30 days late is bad, but not getting current is worse. Getting current and staying current on all payments plays a big role in determining your overall credit score. To stay current on payments, consider setting up automatic payments or text reminders.

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

3. Think Twice Before Closing Old Accounts

Are you thinking about canceling an old credit card you never use? You may want to think again. Having a good payment history can help in your credit score, and that old credit card may be serving this purpose. If you close the old card, the payment history will drop off your credit report, and your score may go down as a result. Not only that, but the old card may be adding to your overall credit availability and lowering your credit utilization (see tip #1).

4. Have a Credit Mix

There are many different types of credit you can hold. Some of the most common types are mortgages, credit cards, and auto loans. Other examples include charge cards to retail stores, home equity lines, and recreational loans.

Having a mix of different credit types can be as important as paying your bills on time. The ability to maintain a credit mix and pay on time shows your lender you can manage multiple credit lines, which tells the lender you’re a responsible borrower who knows how to handle credit.

5. Dispute Errors

Errors happen, so it’s critical to check your credit score regularly. If you do find an error on your credit report, report it right away. Credit reporting companies don’t require fees to file a dispute, so correcting the error should cost you nothing (except time).

You can dispute the inaccurate information with either the credit bureau (TransUnion, Experian, Equifax) that issued the report containing mistake or the company that reported the incorrect information to the bureau. If the information is truly inaccurate, you should be able to get it pulled from your credit report and fix any damage to your credit score.

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. Even if you have a low credit score, don’t get discouraged — our commercial financing experts are here to help, and we’ve been able to provide financing for businesses with all types of unique circumstances. 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.

Every so often on this blog, we answer frequently asked questions about our most popular financing options so you can get a better understanding of the many solutions available to you and the benefits of each.

This month, we’re focusing on the sale-leaseback, which is a financing option many businesses may be interested in right now considering the current state of the economy.

What Is a Sale-Leaseback?

A sale-leaseback is a unique type of equipment financing. In a sale-leaseback, sometimes called a sale-and-leaseback, you can sell an asset you own to a leasing company or lender and then lease it back from them. This is how sale-leasebacks usually work in commercial real estate, where companies often use them to free up capital that’s tied up in a real estate investment.

In real estate sale-leasebacks, the financing partner usually creates a triple net lease (which is a lease that requires the tenant to pay property expenses) for the company that just sold the property. The financing partner becomes the landlord and collects rent payments from the former property owner, who is now the tenant.

However, equipment sale-leasebacks are more flexible. In an equipment sale-leaseback, you can pledge the asset as collateral and borrow the funds through a $1 buyout lease or equipment finance agreement. Depending on the type of transaction that fits your needs, the resulting lease could be an operating lease or a capital lease.

Although real estate companies frequently use sale-leasebacks, business owners in many other industries may not know about this financing option. However, you can do a sale-leaseback transaction with all sorts of assets, including commercial equipment like construction equipment, farm machinery, manufacturing and storage assets, energy solutions, and more.

Why Would I Want a Sale-Leaseback?

Why would you want to lease a piece of equipment you already own? The main reason is cash flow. When your company needs working capital right away, a sale-leaseback arrangement lets you get both the cash you need to operate and the equipment you need to get work done.

So, let’s say your company doesn’t have a line of credit (LOC), or you need more working capital than your LOC can provide. In that case, you can use a sale-leaseback to raise capital so you can kick off a new product line, buy out a partner, or get ready for the season in a seasonal business, among other reasons.

How Do Equipment Sale-Leasebacks Work?

There are lots of different ways to structure sale-leaseback deals. If you work with an independent financing partner, they should be able to create a solution that’s tailored to your business and helps you achieve your short-term and long-term goals.

After you sell the equipment to your financing partner, you’ll enter into a lease agreement and make payments for a time period (lease term) that you both agree on. At this time, you become the lessee (the party that pays for the use of the asset), and your financing partner becomes the lessor (the party that receives payments).

Sale-leasebacks usually involve fixed lease payments and tend to have longer terms than many other types of financing. Whether the sale-leaseback shows up as a loan on your company’s balance sheet depends on whether the transaction was structured as an operating lease (it won’t show up) or capital lease (it will).

The major difference between a line of credit (LOC) and a sale-leaseback is that an LOC is typically secured by short-term assets, such as accounts receivable and inventory, and the interest rate changes over time. A business will draw on an LOC as needed to support current cash flow needs.

Meanwhile, sale-leasebacks usually involve a fixed term and a fixed rate. So, in a typical sale-leaseback, your company would receive a lump sum of cash at the closing and then pay it back in monthly installments over time.

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

How Much Financing Will I Get?

How much cash you receive for the sale of the equipment depends on the equipment, the financial strength of your business, and your financing partner. It’s common for an equipment sale-leaseback to provide between 50–100 percent of the equipment’s auction value in cash, but that figure could change based on a wide range of factors. There’s no one-size-fits-all rule we can provide; the best way to get an idea of how much capital you’ll receive is to contact a financing partner and talk to them about your unique situation.

What Types of Equipment Can I Use to Get a Sale-Leaseback?

Most often, businesses that use sale-leasebacks are companies that have high-cost fixed assets, like property or large and expensive pieces of equipment. That’s why businesses in the real estate industry love sale-leaseback financing: land is the ultimate high-cost fixed asset. However, sale-leasebacks are also used by companies in all sorts of other industries, including construction, transportation, manufacturing, and agriculture.

When you’re trying to decide whether a piece of equipment is a good candidate for a sale-leaseback, think big. Large trucks, valuable pieces of heavy machinery, and titled rolling stock can all work. However, collections of small items probably won’t do, even if they add up to a large amount. For example, your financing partner most likely won’t want to deal with the headache of assessing and potentially selling piles of used office equipment.

Is a Sale-Leaseback Better Than a Loan?

A sale-leaseback could look very similar to a loan if it’s structured as a $1 buyout lease or equipment finance agreement (EFA). Or, if your sale-leaseback is structured as a sale and an operating lease, it could look very different from a loan. Since these are very different products, trying to compare them is like comparing apples and oranges. It’s not a matter of what product is better — it’s about what fits the needs of your business.

With that said, sale-leaseback transactions do have some distinct benefits.

Tax Benefits

With a sale-leaseback, your company may qualify for Section 179 benefits and bonus depreciation, among other potential benefits and deductions. Often, your financing partner will be able to make your sale-leaseback very tax-friendly. Depending on how your sale-leaseback is structured, you may be able to write off all the payments on your taxes.

RELATED: Get These Tax Benefits With Commercial Equipment Financing

Lower Bar to Qualify

Since you’re bringing the equipment to the table, your financing partner doesn’t have to take on as much risk. If you own valuable equipment, then you may be able to qualify for a sale-leaseback even if your business has unfavorable items on its credit report or is a startup business with little to no credit history.

Favorable Terms

Since you’re coming to the transaction with collateral (the equipment) in hand, you may be able to shape the terms of your sale-leaseback agreement. You should be able to work with your financing partner to get payment amounts, financing rates, and lease terms that comfortably meet your needs.

What Are the Restrictions and Requirements for a Sale-Leaseback?

You do need to meet two primary conditions to qualify for a sale-leaseback. Those conditions are:

What Happens After the Lease Term?

A sale-leaseback is usually a long-term lease, so you’ll have time to decide what you want to do when the lease ends. At the end of the sale-leaseback term, you’ll have a few options, which will depend on how the transaction was structured to start. If your sale-leaseback is an operating lease where you gave up ownership of the asset, these are the typical end of term options:

If your sale-leaseback was structured as a capital lease, you may own the equipment free and clear at the end of the lease term, with no further obligations.

It’s up to you and your financing partner to decide between these options based on what makes the most sense for your business at that time. As an additional option, you can have your financing partner structure the sale-leaseback to include an early buyout option. This option will let you repurchase the equipment at an agreed-upon fixed price before your lease term ends.

Contact Team Financial Group to Learn About Your Business Financing Options

Have questions about whether you qualify for equipment sale-leaseback financing or any other type of financing? We’re here to help! Call us today at 616-735-2393 or fill out our contact form to talk with a financing expert from Team Financial Group. And if you’re ready to apply for financing, fill out our quick online application and let us do the rest.

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

Sometimes, your business needs to acquire equipment that you know will make money in the long run, but short-term cash flow issues make it tough to pay the costs. In these situations, you may decide to finance the equipment and pay it off on a monthly basis, which will prevent cash flow problems, build your business’ credit, and potentially offer tax benefits. Perhaps you start looking at financing options and find a great-looking deal that offers zero annual percentage rate (APR) and zero down payment. Seems like an easy win, right?

Maybe not. There’s nothing inherently wrong with zero APR and zero down financing deals, but many people equate them to “zero cost” financing, which isn’t true. Financing always comes with a cost, but zero APR and zero down solutions are better at hiding it — which isn’t always a good thing.

What Are Zero Down and Zero APR

When you go to buy equipment, you might see a deal from a captive finance company, which is a company that provides financing directly through the equipment seller. For instance, if you buy Honda equipment, you’ll go through Honda Financial Services. If you purchase from Caterpillar, you could finance through Cat Financial.

To get people to use the in-house captive financial company instead of a bank or an independent financing partner, the captive finance company may offer a special promotion: either zero down, zero APR, or both.

RELATED: Understanding Interest: Variable Vs. Fixed Interest Rates for Equipment Financing

The Hidden Costs of Zero Down and Zero APR

On the face of it, zero down and zero APR seem great: you don’t have to pay any money up front, and with no interest for a set period of time, you can pay more toward the principal. However, remember that there are no free lunches in financing. Companies that provide financing have to make money to stay in business, and the way they do that is by charging fees and interest.

Captive financing companies are no different. But because these companies work directly with the equipment manufacturers, they can set purchase prices and otherwise adjust the terms of the transaction so they can make money without charging interest at first. Often, the result is that you feel like you’re paying less for financing, but you really aren’t.

Some of the ways captive finance companies adjust zero down and zero APR deals to make money include:

Finding Financing That Works for Your Business

Keep in mind, we aren’t trying to say that zero down/zero APR deals are always bad options or that the companies who offer them are doing anything wrong. Zero down and zero APR are just marketing strategies that companies use to sell financing, and like most marketing, you need to take it with a grain of salt.

Instead of going right for the zero down and zero APR deals you see advertised, do a bit of extra homework and evaluate all your financing options. Take as much time as you need to read the fine print on a deal. As always, make sure your business credit score stays strong by paying your bills on time, not borrowing more than you can pay back, and not taking out too many credit lines at once.

In the end, you may find you can get better financing terms and pay less overall than you would if you took a zero APR deal. At Team Financial Group, we always explain the full cost of financing up front, and we’ll work with you to customize a financing option and terms that make the most sense for your business. We’re dedicated to helping our clients grow and thrive by providing efficient and flexible financing options and personalized service.

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

Ready to get started? Applying is easy! Just visit our application page, fill out tour quick online application, and one of our commercial financing experts will get in touch to handle the rest.

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

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