Let’s continue with my series of adding soft cost financing to any equipment financing or equipment leasing deal you engage in. This time we’ll talk about financing delivery and setup, and touch on taxes as well.  

Delivery is pretty straightforward. Most companies who sell equipment won’t pay for delivery. Some will send it via carrier (UPS or freight for larger items and machinery), and others might deliver it themselves for a fee. Either way, the customer typically pays for delivery, which can be a bummer if you have to pay it out of pocket.  

Setup is another story altogether, and could make a big difference in your purchase. Take, for example, complicated machinery, networked computer systems, point of sale systems, etc. – they typically need expert setup. Or even something simple like office furniture – replacing everyone’s desk and chair is a pretty big job. Plus, who removes the old stuff?

There’s also the complication of pricing. Many companies, in an effort to have a lower up-front price, will not include setup in the listed price, choosing to instead make it an option. I’ve seen this happen even on equipment that clearly needs expert setup and calibration, like advanced medical equipment and similar. The seller knows 9 out of 10 buyers require setup, but offering it as an add-on keeps the listed price lower.

This can be a problem if you work with a lender who does not finance soft costs. You think you’re financing everything, but then the added costs of delivery and setup come in. If your lender won’t finance the delivery and setup, you need to pay out of pocket, which sometimes make people wonder “well, why offer financing in the first place if you won’t finance it all?” Why indeed…

Let’s also discuss the ever-popular taxes. Tax is almost never included in any equipment finance deal, right? Well, they would be if you worked with a good equipment finance company – they’ll happily finance the tax as well.

If you work with a good equipment financing company, everything can be financed – delivery, maintenance agreements, taxes, training… you can finance all of the soft costs, and really hit the ground running. Your new equipment will be delivered, setup, your people will be trained on it, you’ll have a maintenance agreement, and you financed the tax as well. That’s a lot of “wins” for one financing deal. Oh, and you can probably take a Section 179 deduction too (you knew I couldn’t leave that out).

We’re 11 months into our “which is the best month to finance equipment” series, which means we’re into November. And yes, it’s a great time to finance equipment. I’ll give you one guess as to why (and it has nothing to do with Thanksgiving, although Turkey, Potatoes, and Gravy never hurt anything).

Yup, it’s our old friend Section 179. It’s a great program no matter what month you finance, but wow, does it take on extra significance now. In fact, it can literally make your year.

If you read here regularly, you already know the particulars, but let’s talk about them anyway: If you finance equipment (leasing too) here in November, you can write off the entire purchase price for this year. Depending on the price of the equipment, that can mean a significant dent in your taxes – you will keep more of your money, which is reflected in your bottom line numbers for the year.

But here’s the real beauty in this – as stated, the numbers will make a big difference for this year, but you won’t start paying for the equipment until next year. That’s nice.

Plus, you get to start next year with new (or new to you) equipment – there are worse ways you can start a year.

There are also plenty of bargains this time of year, as companies look to end the current year on a high note, clear out older inventory, or maybe just succumbed to a post-Thanksgiving food coma. Whatever the reason, they’re out there. And equipment financing companies are there with financing.

Which reminds me of a little known factoid: When the Pilgrims came to the new land and celebrated the first Thanksgiving with the Native Americans, it was actually the first equipment financing deal. See, the Pilgrims needed food and local farming knowledge, and the Native Americans desired the metal tools and weapons the Pilgrims had. So they traded food (i.e. currency) for the hard goods. And I’m sure there were some deferred payments and tax breaks and…

Ok, I’m getting a little carried away here, and my history teacher might argue with me on the specifics of that one, but can dream, right?      

In fact, this situation can be so dire, equipment financing companies like mine have learned to look for signs of trouble when financing or leasing equipment.

Here are a few things we practice:

• Before a deal even commences, we try and make sure the seller services the equipment. And if they don’t, is there an authorized path to service? And how long is the warrantee? These things all matter – we want to avoid something breaking in 91 days, and nobody wanting to pay to have it fixed.

• Obviously, we will also look at the seller in terms of complaints – a seller notorious for selling junk will probably kill a finance deal.

• While it’s true that in many transactions, we pay the seller in advance (after all, the seller is not interested in offering credit themselves), we do make sure the seller has the financial stature to be entrusted with the funds (no risk the seller is desperate for cash and might spend the money and not deliver the equipment). If the seller is financially weak, we require the equipment be received and accepted by the buyer prior to releasing funds to the seller. This means someone physically receives it, opens the box, makes sure it’s not damaged, plugs it in, tests it, etc. When we get the “ok”, then we pay. This protects everybody from a potentially uncomfortable situation.

• Some finance and lease deals are done on timetabled deliverables (such as developed software). The deadlines and such are written into the lease deal, with pre-specified payments at agreed-upon intervals.

The preceding safeguards are not 100% failsafe, of course – nothing is. But they can go a long way in making a finance deal work. No matter which type of finance transaction you are on, acknowledging and adhering to the preceding will make everyone’s life a little easier (and push the deal through faster.)

Ok, let me be honest – the bank probably doesn’t want your first born (especially if he or she is still in the diaper stage – yuck). But, the bank WILL look into cross collateral for your loan. And if you are a small business, that might mean your personal accounts.

That’s right – if you secure an equipment financing loan or an equipment lease through the bank, they will very likely put in a clause that blanket liens all of your assets “now… and hereafter acquired”. This includes personal assets, so your house, your boat, your kid’s college fund – all of those can be technically tied up with your equipment loan. So when it comes time for junior to go to college, he (and you) could be in for a big surprise if the equipment loan you took is still outstanding.

This is called cross collateral, and it’s quite common with the bank. When you take out a loan, all of your personal business and assets can be tied up in the legalese. And since it’s in legalese (and also in 6pt font), you may not really be aware of this. But yea, they get tied up, preventing you from borrowing, selling, or otherwise using these assets without the bank’s specific permission. Now, will they keep junior out of college? Well, we hope the bank isn’t that evil, but then again, why take that risk?

Contrasting this, an equipment financing company (like mine) will file one UCC financing statement on the specific asset we are financing. If your kid’s college fund isn’t on there (and we’re really not interested in that anyway), you are free to do what you wish. In other words, we don’t care about your other assets, and will leave you (and junior) alone. He’s free to go to college and attend all the keg parties he wishes (not that ol’ Fletch would know anything about that, mind you – I studied all throughout college. Indeed I did.)