How to get your financing approved
Michael Lockwood, President of TEQlease Capital, wrote an article for Up and Running Blog that was published today titled “5 tips to getting small business financing “. We are including an excerpt from that article below.
It’s no secret that small businesses have had a hard time getting financing approval for nearly four years. But according to the latest Wells Fargo/Gallup Small Index –a quarterly survey of small business owners nationwide – small business owners are now more optimistic about getting credit than they have been since July 2008. According to the report, 28% of U.S. small businesses plan to increase their capital expenditures in 2012, the highest rate it has been in four years. And perhaps most importantly, 24% of small businesses have already started increasing their capital expenditures for 2012.
With optimism for gaining financing spreading, the question for many is how to best approach lenders to maximize the chances of getting a credit approval. Here are five keys for small businesses to get approved.
- Demonstrate that your business generates steady cash flow. Cash is still king and is also a key predictor of a business’ health and prospects for the future. By being able to demonstrate you have ample and/or steady cash flow, you are ensuring to potential financers that you have plenty of money to pay creditors, employees and others on time.
- Maintain a manageable debt load. Debt load is the amount of debt that is carried on your balance sheet. You need to be able to demonstrate you can not only handle your current debt load but also the additional debt repayment your proposed financing will cause. If you want to incur the debt for expanding your business be prepared to demonstrate why this additional debt will be beneficial.
- Sustain a positive payment history. One of the most important factors for any financer to weigh is a business’ payment history. A financer needs to see that a business has a record of paying down debt, and on time.
- Prove business judgment. Potential lenders want to be assured that you anticipate potential challenges and have a plan in place as to how to address these challenges. Furthermore, lenders are also interested to see that you have the management in place necessary to overcome any obstacles that might come your way
- And of course, shop around for financing. Don’t assume your bank or the vendor will offer the best terms. Compare rates, lease terms, fees and options and use only established financing providers.
If you have any questions, please contact us.
5 Tips for Replacing and Financing Technology Equipment
This week Michael Lockwood, President of TEQlease Capital, wrote an article for Up and Running Blog titled “10 Things to Consider before Replacing Business Equipment“. We are including an excerpt from that article below. You can read the entire article at the link referenced above.
With the end of the first quarter in sight and with economic indicators continuing to look positive, many businesses may finally be ready to pull the trigger and replace their worn business technology equipment. Regardless of whether you are looking to move your business computing to the Cloud or to upgrade your computers, servers, smart phones or any technology equipment, before taking the plunge we recommend that business owners follow the tips below.
- Carefully research the technology you are considering. Make sure to invest the time into reading reviews of the equipment you are considering from analysts and professional reviewers such as CNET, PC Magazine, Small Business Computing, eWeek and Consumer Reports.
- Remember the cheapest solution may not be the best fit. If you are planning on keeping your technology for three years or more, make sure you opt for the “best solution” for your needs. Determine what it will be worth in 3 to 5 years.
- Choose your equipment vendor wisely. With all the easy comparison shopping that is available online make sure to compare costs and warranties across multiple vendors. No one wants to pay a high cost and neither does your financier.
- Understand Section 179 benefits. Section 179 allows businesses to deduct the cost of qualifying businesses equipment placed in service in 2012 up to $125,000. In 2013, the deduction will drop significantly to just $25,000 unless Congress acts.
- Carefully investigate your financing options. To learn more about equipment leasing and its benefits, you can read our post “Eight Equipment Leasing Tips” or contact us .
Your Tax Deductions for 2011: A Visual Guide
H&R Block is sharing a useful visual guide to help taxpayers make sure they are accounting for their tax deductions for 2011. If you are looking for additional information on 2011 deductions, you can also read our post: “Eight Overlooked Tax Deductions.”
Click image to enlarge
Source: H&R Block
What Every Business Should Know About Earnest Money Payments in Lease Transactions
This week I wrote a post for Up and Running Blog on “7 Things Businesses Need to Know About Earnest Money Payments in Lease Transactions” In the post, I wrote about pitfalls businesses should be aware of regarding earnest money payments.
Here are four highlights from that post.
- An earnest money payment is sometimes required by an equipment financing company (lessor) from a lessee equal to a fixed amount or one month’s rent as a refundable application fee. The earnest money payment can be called an application fee, deposit, due diligence fee, etc.
- On receipt of a signed lease proposal and the earnest money payment, the financing company (lessor) works with the lessee to gather all the required and requested financial and equipment information, writes an internal credit request memorandum, and submits the lease transaction to the credit department for approval. This information is submitted along with the signed lease proposal, the payment, and any application fee.
- If the lessor approves the lease transaction, the earnest money payment is applied to the first or last rental payment due under the lease. If the lessor declines the lease transaction, the earnest money payment is refunded.
- If specifically agreed in the lease proposal, regardless of whether a lease is approved or declined, a small portion of the earnest payment will be retained as an application or processing fee. Remember not all lessors require an earnest money payment. Be sure to understand any lease proposal you sign.
If you have any questions regarding leasing or earnest money payments, please contact us.
All Eyes on Detroit and U.S. Auto Industry
With candidates campaigning in Michigan all eyes are on Detroit and the U.S. auto industry. What is important for us in the asset-based business lease finance business is how Detroit’s fortunes impact credit markets and bank liquidity. While it is still a tough task for many businesses to access capital, consumers are finding access to auto loans much easier. Consumer auto financing is in effect leading the charge on increasing credit and liquidity.
Experian Automotive announced that the automotive loan market showed continued improvement, with interest rates for new and used vehicle loans reaching the lowest levels since 2008. In Q4 2011, average credit scores for new and used vehicle loans also dropped, the percentage of loans to customers with nonprime, subprime or deep subprime credit scores increased, and lenders increased their willingness to make loans between six and seven years long.
Here are some highlights for Q4 2011 in auto finance.
Consumers continued to do a better job of repaying loans in Q4 2011, as loan delinquencies fell. The 30-day delinquency rate fell 6.57 percent from Q4 2010 to Q4 2011 (2.98 percent to 2.79 percent). The 60-day delinquency rate fell 9.51 percent.
Another positive sign for the lending market is that the overall dollar volume of loans at risk dropped to $18.5 billion, a $1.862 billion drop from Q4 2010. Average interest rates for new vehicle loans fell to 4.52 percent. Average rates for used vehicle loans fell to 8.68 percent. Average credit scores for new vehicle loans dropped six points to 767. Average credit scores for used vehicle loans dropped nine points to 679. New vehicle loans to nonprime, subprime and deep subprime customers increased by 13.8 percent.
Overall, more encouraging signs that our economy is indeed on the mend.
Considering Leasing for Your Capital Expenditures?
Key Differences Between Most Popular Leases
Over the next 12 months the percentage of U.S. small businesses that plan on increasing their capital spending is 28% according to the Wells Fargo/Gallup Small Business Index. That’s the highest rate reported in four years.
If you are looking into increasing your capital spending and considering leasing, the first thing to understand is the three most common types of leases: Fair Market Value Lease; $1 Purchase Option Lease; and 10% Purchase Option Lease.
A Fair Market Value (FMV) Lease is one of the most common leases that businesses select in part because of its flexibility. Businesses often select a Fair Market Value lease if the equipment they are acquiring, such as technology equipment, rapidly loses its value once it is placed into operation.
Fair Market Value (FMV) Lease:
- Offers the lowest monthly payments. An FMV lease is ideal for businesses that want the lowest possible payments and are unsure if they want to acquire the equipment at the end of the lease.
- Provides tax incentives. Businesses may be able to deduct the monthly lease payments as an operating expense deduction.
- Provides the greatest flexibility at lease end. At the end of a FMV lease a business can decide to return the equipment, continue to pay for and use the equipment per your agreement with the lease finance company, purchase the equipment or upgrade it with newer equipment.
A $1 Purchase Option Lease is another of the most common leases that businesses use to acquire equipment today. Each type of lease is useful, depending on the type of equipment and the type of anticipated use. A $1 Purchase Option Lease is often used by businesses or schools when they know they will still be using the equipment for an extended period after the end of the lease term.
$1 Purchase Option Lease:
- Provides businesses the ability to purchase the equipment for a $1 at the end of the lease term.
- Monthly payments are higher than a Fair Market Value lease because the lessee is now financing 100% of the equipment cost.
- Provides additional financial benefits that may include depreciation and interest expense benefits for tax purposes.
The 10% Purchase Option Lease is often selected by businesses who want to keep their options open to purchase the leased equipment at the end of the lease. This lease is most appropriate for businesses that aren’t ready to make a purchase decision at the beginning of their lease.
10% Purchase Option Lease:
1. The lessee usually may purchase the equipment at the end of the lease at a fixed price equal to 10% of the original price.
2. The monthly lease payment will be lower than the $1 Purchase Option Lease but may be higher than the Fair Market Value Lease.
3. Provides additional financial benefits that may include depreciation and interest expense benefits for tax purposes.
Not sure which type is best for your business? Please contact us and we will walk through the options with you.
How to Avoid Customer Backlash over Price Hikes
2011 was certainly a water shed year for customers taking to social media and other channels to vent their frustration over price hikes. Backlash from angry customers forced Verizon, Bank of America and Netflix to reverse their planned price hikes. We wrote about price hike push back from customers in our post “The Most Annoying Fees of 2011.”
However, with business picking up in many sectors, Rafi Muhammed writes in his article for the Harvard Business Review, “Don’t Let Customers Freak Out Over Price Hikes”, “chances are that your company will consider a price increase this year.” Rafi is a pricing strategy consultant and author of The 1% Windfall: How Successful Companies Use Price to Profit and Grow.
According to Rafi, a CFO advised him, “The key is not to let a price hike become emotional to customers, because that’s when they become irrational and ultimately leave.” In order to avoid the backlash that Verizon, Bank of America and Netflix faced from their customers, Rafi recommends businesses follow the five tips below.
- Employ Bedside Manners. Make sure to explain to your customers why you are raising prices.
- Offer Choices. According to Rafi, customers don’t like to be “cornered” and are more agreeable if there is an “option to save money.”
- Keep Your Word. Again, customers will be more agreeable if you leave their existing deal intact and only raise prices “to new purchases and renewals.”
- Emphasize Value. If you are offering a good deal even with the price increase, demonstrate to your customers how it is a good deal.
- Everyone Else is Doing It. Let your customers know that competitors are also raising prices but again, show how your prices are a better deal.
Hopefully, by following these tips, when it comes time to increase your prices you will not be met with angry customers.
Frequent-Flier Beware: The IRS May Come Calling
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Last month thousands of Citibank customers received “1099-Misc” forms informing them “that miles they received for opening accounts last year (2011) produced taxable income.”
The 1099-Misc forms were met by surprise and furor by many of the recipients. The Wall Street Journal reported :
“The tax issue was only hinted at in the offer,” says Keith Sipos, a retired music teacher in San Diego who received a 1099 with $750 of income for 30,000 miles. “When I asked to have the miles rescinded, Citibank said I should have asked by the end of 2011. But I didn’t know about the tax until I got the form.”
Unfortunately for many of the 1099 recipients Smart Money reported that according to analysts, “the actual trips booked with the miles can be worth less than the amount of income reported by the credit card company.”
Are your frequent-flier miles taxable? Here’s a brief run down on what types of frequent-flier miles are taxable according to the Wall Street Journal article “Frequent-Flier Tax Traps.”
Taxable
- Miles awarded as prizes.
- Miles awarded for opening an account, such as a bank account.
- Miles awarded for putting money into a mutual fund.
Non Taxable
- Miles awarded by the airline for flying with them.
- Miles awarded for credit card use.
- Miles awarded for business travel.
Bottom line, consumers should concentrate their efforts on accruing frequent-flier miles through credit card purchases or through traveling and steer clear of mileage rewards by opening new accounts.
What is a 10% Purchase Option Lease?
A 10% Purchase Option Lease, sometimes referred to as a finance lease, is often selected by businesses who want to keep their options open to purchase the leased equipment at the end of the lease. This lease is most appropriate for businesses that aren’t ready to make a purchase decision at the beginning of their lease.
Here are three things to know about a 10% Purchase Option Lease:
1. The lessee usually may purchase the equipment at the end of the lease at a fixed price equal to 10% of the original price.
2. The monthly lease payment will be lower than the $1 Purchase Option Lease but may be higher than the Fair Market Value Lease.
3. Provides additional financial benefits that may include depreciation and interest expense benefits for tax purposes.
Not sure which type is best for your business? Please contact us and we will walk through the options with you.
What is a $1 Purchase Option Lease?
A $1 Purchase Option Lease is one of the two most common leases that businesses use to acquire equipment today. The other is a Fair Market Value Lease . Each type of lease is useful, depending on the type of equipment and the type of anticipated use. A $1 Purchase Option Lease is often used by businesses or schools when they know they will still be using the equipment for an extended period after the end of the lease term.
Here are three things to know about a $1 Purchase Option Lease:
- Provides businesses the ability to purchase the equipment for a $1 at the end of the lease term.
- Monthly payments are higher than a Fair Market Value lease because the lessee is now financing 100% of the equipment cost.
- Provides additional financial benefits that may include depreciation and interest expense benefits for tax purposes.
Not sure which type is best for your business? Please contact us and we will walk through the options with you.
