Private Seller Equipment Financing: Pros, Cons and How-To
Buying equipment from a private seller can save you *big* when compared to buying from a dealer... but there are some things to watch out for -...
28 min read
Rob Misheloff Mar 14, 2023 11:46:06 AM
Equipment financing for a startup can be challenging and there's not much good information available on the internet.
Today's episode covers the challenges - and opportunities - available for startup businesses to acquire equipment.
Please welcome two equipment finance experts, Jenn and Bobby.
They're here to explain how startups can acquire the necessary equipment they need to operate and grow their businesses.
Jenn and Bobby have extensive experience in the finance industry and have helped numerous startups overcome the challenges of equipment financing.
In this episode, they will share their knowledge and insights on the different types of equipment financing options available to startups, the pros and cons of each option, and tips for how to navigate the process successfully.
So, whether you are a startup founder or just interested in learning more about equipment finance, stay tuned for an informative and engaging conversation.
CLICK HERE TO GET A QUOTE FOR STARTUP EQUIPMENT FINANCING
Jenn 00;00;06;05 - 00;00;16;03
Hello and welcome back to the Smarter Business Finance Podcast. Season two Episode six. My name is Jennifer Casey, and I'm here with.
Bobby 00;00;16;18 - 00;00;18;13
Bobby Jackson Smarter Finance.
Jenn 00;00;18;21 - 00;00;41;08
And we're excited to talk about startup businesses and give you guys some tips and tricks and some insights on what you need in order to get your business up and running. Do you remember when you were 18 years old and you were ready to get a car? Well, I mean, I didn't finance a car at 18, but I know that there's people that do finance cars at 18 or maybe even got your first credit card.
Bobby 00;00;41;27 - 00;01;06;18
I was one of those people who financed the car at 18, unfortunately. So in the beginning of my time trying to finance a vehicle, getting my first job at a golf course when I was a freshman in college, I went into finance for some reason, instead of looking to save up and buy a car. So I got my butt-kicked going into some of these companies, realizing that I didn't have the credit to qualify for financing my first car.
Bobby 00;01;06;18 - 00;01;30;24
So you know what you do if you're young, you call your mom up and you say, like, I need a cosigner. So my first car I wasn't qualified for, but I was able to get it because my my mother cosigned for it. It was a Ford Focus at that time. And so knowing, you know, if you're young and you're 18 years old, you're fresh on the block, No one wants to accept you.
Bobby 00;01;31;09 - 00;01;36;04
You need a cosigner or you better have some money for a down payment and take a higher rate. Really?
Jenn 00;01;36;13 - 00;01;40;21
Yeah. It's funny. I actually drove a Ford Focus for quite some time when I was younger too.
Bobby 00;01;40;28 - 00;01;48;15
Would you look at that? Yeah. I feel like Ford Focus is. Is everybody a startup car? Yes. I mean, if you don't know what to begin with, go with the Ford.
Jenn 00;01;48;24 - 00;02;08;18
Yeah. Yeah. There you go. My first car was a beat up old Nissan Maxima, and I think it had 300,000 miles on it. So when you're 18 years old and you're walking into a dealership and you're trying to get a vehicle, and they had said, okay, well, who do you have to cosign? But you still have to supply information that you're going to make the payment.
Jenn 00;02;08;18 - 00;02;15;24
Right. And even though you got someone to say, you know, here's my credit, how did you do that? So what did they ask for?
Bobby 00;02;15;25 - 00;02;34;11
That's the thing. So when you're going in as a 18 year old, you have no credit established, no credit history. You just turned 18, Right. And you're looking to establish that. Lenders look at that and they look at your credit and they say, well, this person doesn't have any assurance that we can think for sure this person can pay back this loan that they're trying to finance.
Bobby 00;02;34;11 - 00;02;50;24
Right. So they need a couple other things to make sure that you can actually show them that they can trust you and that you can actually repay that loan. So they're asking things like, okay, what do you have as a down payment looking for 20% down? Also, they want to make sure you have some income coming in, paystubs.
Bobby 00;02;50;25 - 00;03;07;08
Paycheck stubs, bank statements, sometimes even going back to like six months. So these are the type of things that you need to show and say, hey, I know I'm new to the credit game and the credit industry, but I make money. I have some income even though I'm young and I want to make sure that you can see that I can repay this loan.
Bobby 00;03;07;12 - 00;03;17;13
There's all types of things. So when you look at that, going into financing as an eight year old can be the same as going into financing as a startup company or a startup business, right?
Jenn 00;03;17;13 - 00;03;44;07
We have no business credit to go off of. Exactly. We don't have any history really. Just really someone's personal credit, which it's kind of funny because when it comes down to financing a small business owner, it's not just the personal credit and it's not necessarily just even the score, right? Sometimes people say, Oh, I have a 755 scale, but they have no established history and they have a no, they don't have any comparables.
Jenn 00;03;44;07 - 00;03;56;22
Right. Right. So one of the biggest things is not only just having comparable so what's a comparable that we would look at as a as a finance company for something that would make sense, that would would be would be similar to something that we would finance.
Bobby 00;03;57;06 - 00;04;17;02
Well, a comparable trade line is going to be important. A good comparable, of course, would be like a car loan. When you look at a car loan, that's like basically equipment use and get from point A to point B and you have to do it for work or whatever personal use. But that will allow us to see what you finance in the past to determine what you can finance in the future.
Bobby 00;04;17;05 - 00;04;35;18
Right. So if you finance a car like a Ford Focus when you're 80 years old and you did that for at least 12 months to 24 months, that can be a good comparable trade line that lenders are looking at. Say, okay, he paid this for this amount of time. We can trust him for also paying this loan. Maybe add a little bit more.
Bobby 00;04;35;27 - 00;04;48;12
50% of what you're trying to finance can be good when you're looking at it. So if you financed that Ford Focus for $15,000, you may be able to finance equipment for $30,000 or $45,000.
Jenn 00;04;48;13 - 00;05;04;15
Right. Yeah, I know you make a good point. I think about just my first time that I got a first my first credit card. Right. So I remember I had had a family member who said, okay, well, in order to build your credit, you need to have credit. But if you don't have any credit, no one will give you credit.
Jenn 00;05;04;15 - 00;05;21;06
And it's it's just this game, like the chicken or the egg. What came first? So for me, I went down to Old Navy and got an Old Navy credit card for I mean, I'm probably going to age myself to say this, but I think my credit limit at that time was like $100. And that was a lot of clothes.
Jenn 00;05;21;10 - 00;05;40;28
$100. Yeah, that's $100. And then as you progressed, I was able to get a little bit more, a little bit more with a good pay history. And it really is similar to that in regards to businesses because the first time that you're coming in, especially as a startup, if you don't have any comparable credit or if your comparable credit is a lot lower, they're only going to give you so much.
Jenn 00;05;40;28 - 00;05;57;14
So one of the things that we talk about is max exposure, right? So max exposure is something where if a small business owner is looking out to take funding, we might say, well, based on the fact that you’re a startup, typically the max exposure for a startup is what, 45.
Bobby 00;05;57;19 - 00;06;21;12
45,000, 50,000, if they have really good credit, you're looking at 75 and stretching it to 100. So another thing on that, it's really funny when you say, you know, I have good credit, but they don't really have an established credit. So some people come in and say, I'm a 755 go, but they have four trade lines. So at that time the lenders are looking okay.
Bobby 00;06;21;12 - 00;06;46;24
You may say you have this certain FICO, but what have you financed in the past? Right. So we talk about comparable trade lines. That comparable trade line is going to let the lender know, okay, he has this vehicle while managing paying off this loan. Right. So that's going to help them build that trust. Right. And as we continue to talk lenders, they look at startup businesses as risky in general because what are the statistics?
Bobby 00;06;46;24 - 00;06;55;20
I believe it's nine out of ten every nine out of ten startups fail, right? So that means one out of the ten startups who actually make it right.
Jenn 00;06;55;20 - 00;06;56;01
Bobby 00;06;56;01 - 00;07;10;26
And then it and then at five years, 50% of startups fail, right? And then at ten years it goes to 70%. Right? So lenders also knowing about that failure rate with startups, they're going to consider high risk, high risk.
Jenn 00;07;11;05 - 00;07;27;22
High risk. It's funny that when we were talking about credit before, I was just thinking about the point of, you know, just because we're saying that we want to see a comparable credit or we want to see credit history or credit depth, are we saying that we want someone to come in with a lot of credit cards or a lot of debt?
Jenn 00;07;27;23 - 00;07;29;08
Right. No, No. Right.
Bobby 00;07;29;08 - 00;07;29;22
Jenn 00;07;29;24 - 00;07;42;07
We want to see that they are not leveraged. The biggest thing for what lenders look at is not just credit. They want to see that someone has access to cash, right? Yeah.
Bobby 00;07;42;08 - 00;07;42;26
Jenn 00;07;42;26 - 00;08;03;20
Liquid cash. Right. So sometimes we ask for proof of cash. Now, there's a few different ways that we can do this. We want to see either checking accounts. Obviously, savings would be secondary, of course, but sometimes clients will send us their 401k or money market accounts. And is that something that we can it's going to be helpful in the deal or not?
Bobby 00;08;03;21 - 00;08;27;05
Not necessarily, because access to those funds can be varied and determined. So depending on, we can get access to that funds and how long that those funds are available. Right. Because they're not only asking for one statement or one month, the statement too, asking for 90 days. Right. So they have to make sure this is not just one off shot that you have this money, because in the future you're going to have to be paying this for two, three, four or five years.
Bobby 00;08;27;10 - 00;08;46;27
Right. So just because you have that at this moment doesn't mean that you can sustain that for a long time. Right. You know, so there's all those things we look at, Right? So we talk about three things that are very important, which is going to be credit, of course, in cash, capital and time in business. So if one of those things isn't strong, at least the other two have to be strong.
Jenn 00;08;46;28 - 00;08;47;09
Bobby 00;08;47;16 - 00;08;59;17
Right. So if you don't have strong time in business being a startup, they're going to be heavily scrutinizing your credit and looking at your cash capital. Right. And those two things will have to be strong for you to secure financing or even have a shot.
Jenn 00;08;59;23 - 00;09;20;11
Right. It I find that so interesting because sometimes people will run a business under one name and then they will change the business name. So one of the things I think about is what is a startup, right? What is a startup? I have been, let's say, running a catering business and the catering business has been for friends and family.
Jenn 00;09;20;11 - 00;09;36;04
And I don't necessarily make enough to file a full tax return, but I know that I've been running this business. We have people that come in that say that they've been running a business for several years course, but we have no proof of it, right? So one of the biggest things that we need to see is industry experience, right?
Jenn 00;09;36;04 - 00;09;52;08
We want to see that they've been doing this, but we have to prove it's provable industry experience. I just can't have a letter from your auntie telling me that your food is really good or someone who you did meal prep services for saying that you know that you did this for six months and they paid you 100 bucks a month.
Jenn 00;09;52;20 - 00;09;54;15
You actually have to have tangible items.
Bobby 00;09;54;15 - 00;10;11;01
Exactly. And then we talk about tax returns because someone can say, oh, I've been a sole proprietorship for three or four years. I'm technically not a startup. And so how do we justify that? They say we have to provide some tax returns. We have people that say, Oh, I've been running for three years, but I haven't file taxes yet.
Bobby 00;10;11;13 - 00;10;36;06
Oh, your startup, because we're going to have to go up that filing date. So what do we have as tangible to show that you're not a startup and you've been in that industry for a long time. Right. But of course, as you say, startup, we're looking at industry experience as one of the main things that we need to show that we can trust that they're going to run their business because they have that industry experience so they can transfer over to running and operating their own business.
Jenn 00;10;36;06 - 00;10;56;22
I of course. So now we've kind of gone over some good points. I just kind of want to summarize it. So we need comparable credit, something that they finance typically a vehicle loan or installment loans. something that's secured. We want to see that they have cash flow. We want to see that they have actual depth to their credit, maybe other things that they've made payments on.
Jenn 00;10;57;07 - 00;11;12;22
We want to see industry experience. What else would be something that we would need in order to get from a client to prove that or to get this ready to for a startup, we need to know what their actual business plan is or even what equipment they're looking to purchase. Right.
Bobby 00;11;13;07 - 00;11;38;06
Because the equipment can determine if the lender is going to want to take a chance on that. Right. Because really, it's it's a chance for the lender then taking a chance because one question that we can kind of talk about is the fact is it hard for a startup to get financing or not? It's very difficult to get financing as a startup, right, simply because you have no understanding if this is going to be able to be successful for you in a long term future.
Bobby 00;11;38;06 - 00;11;38;15
Jenn 00;11;38;15 - 00;11;44;08
Right. We can also look at if you're thinking about industries, obviously restaurants are the.
Bobby 00;11;44;08 - 00;11;45;02
Jenn 00;11;45;02 - 00;12;10;13
Hardest, hardest very, very high risk. But it's different if someone comes in and they're just trying to do a one off. Hey, I'm just I'm I'm opening up Jen's pizza pizza parlor versus, hey, I'm actually going to be a part of this franchise. And I have been a manager at this franchise and I've run several locations. And the franchise is here's the franchise plan and there's 20 other locations.
Jenn 00;12;10;20 - 00;12;29;11
That's completely different. Right? So a lot of it to a scenario, the story behind it, you know, if they're able to show that they've been a part of something bigger, that they've run that before and had the experience, that is also super helpful versus they were just doing this for six months. And again, you know, a one off situation with the type of business that they're setting up.
Jenn 00;12;29;20 - 00;12;32;03
And so high risk industries would be what restaurant.
Bobby 00;12;32;03 - 00;12;45;27
Restaurants, trucking, trucking, if it's over the road trucking especially because that's the risk being over the road. And if you don't know how to operate that type of truck or that type of equipment, no experience, it breaks down, it needs maintenance, you're going to fail.
Jenn 00;12;45;29 - 00;12;54;19
Right. And you'll need extra cash in order for that. Exactly. One of the biggest things is small business owners in the first two years of the of them having their businesses not having enough cash.
Bobby 00;12;54;20 - 00;12;55;08
Jenn 00;12;55;09 - 00;13;18;11
So they have to make sure that they're preparing themselves, tucking away money, you know, when they're coming forward to a lender to say, I'm ready to move forward, I'm ready to start up this business, they have to show that they can back themselves. And that's actually even something that we ask them. We go through a questionnaire and we say if something was to happen, if something was to break, if you needed to replace it, if you if your employee quit tomorrow, how would you run this?
Jenn 00;13;18;19 - 00;13;28;20
What is your game plan? What is your action plan? How are you going to be prepared right. Because being prepared is the biggest thing when you're running a business in the first two years because you don't know what's going to come at you.
Bobby 00;13;28;23 - 00;13;50;22
Yeah. What's your plan for generating revenue? Right. I believe that because most businesses don't generate revenue, actual revenue until about the fourth year of their business. So that's the commerce statistics. Of course, some industries are more successful. For others, I believe that dump trucks have like a 89% success rate. So that can be big business for somebody to get a good return on investment.
Bobby 00;13;50;29 - 00;14;10;02
But we're looking across the board. A lot of people aren't generating revenue beginning. They're putting in revenue investing, investing, investing with the hope that their business will succeed and generate revenue. So if they're not prepared with cash reserves and their business plan isn’t tight, or if they have something backing them, that can be them setting themselves up for failure.
Bobby 00;14;10;04 - 00;14;34;07
Right? Because lenders also with the industry experience, do you have the capable knowledge of your industry to understand how this business supposed to run and perform? Have you done that research and understood what you're getting into because everybody's so optimistic with the American dream, right? But banks look at it completely differently. I don't care about your optimism. I care about the actual numbers, what you can actually do.
Jenn 00;14;34;12 - 00;14;56;25
I know it's it's definitely not anything set in stone, but I always say, you know, in in the in the world of our of our legal system. Right. You're innocent until proven guilty. When it's the lending world, it can be like you're guilty until proven innocent. Exactly. We have to get through so much red tape and prove and a lot of the times the clients get really frustrated.
Jenn 00;14;56;25 - 00;15;18;08
So we have to let them know, like, you know, you have to be patient and you have to be able to be easy to work with, the easy to get information because the harder that you make it and your if you're not as open about your history, your background, or what the scenario is, the less information that we're able to to let the lender know and the less comfortable they are with the situation.
Bobby 00;15;18;09 - 00;15;18;26
Jenn 00;15;18;27 - 00;15;33;13
But, you know, you have to think of it as well. I would feel the same way. You're asking for money from me, right? So if you're asking money for me, if a family member says, hey, I want money from you, I'm going to say why, What is it going to be used for? How much do you need? And what are you going to pay me back?
Jenn 00;15;33;14 - 00;15;50;25
Right. What's your plan to pay me back? Exactly. You're treating it as as you would any type of financial transaction. And hopefully, you know, I don't know how deep people's pockets are to be lending out to their family members, but there are some people that do that. And I promise you, if you ask that family member for money, they're going to ask you the same questions over.
Bobby 00;15;50;25 - 00;16;09;10
Now I'm just thinking about what it takes to ask you for money. Now, how am I to get prepared actually, for the money I got to go into it. That's that's a really good thing to think about. I think that with me and you, right. We want to help our clients be able to be set up for success.
Bobby 00;16;09;10 - 00;16;29;22
And it's another thing to where in this industry they don't have a lot of resources where they can kind of gain this type of knowledge to understand what they need to be prepared for going into it. So I think really honing down on what they need to be qualified for and what they need to actually meet the qualifications of the lenders is good knowledge for them to have.
Bobby 00;16;30;01 - 00;16;46;11
Like we talked about this entire time, explaining to them the importance of their credit, because if they don't have the means of credit to establish it now, Right. If they can't get it now, we could go back and say, Hey, work on this and work on this so that you can be set up for qualifications later.
Jenn 00;16;46;11 - 00;16;47;06
Right, right, right.
Bobby 00;16;47;06 - 00;17;07;04
Giving them tidbits. For instance, they have a comparable trade line. Also, homeownership is another thing in the startup industry that can actually bring them over the edge. And that's a question we should ask. Maybe that doesn't show up in their credit history, but we say, do you have home ownership? Can you provide proof of that that can sometimes push them over the edge to show that they can be qualified?
Jenn 00;17;07;04 - 00;17;10;27
Right. Wait, wait, Bobby, you're asking me if I'm a homeowner? Does that mean that you're going to take my home?
Bobby 00;17;11;25 - 00;17;12;18
Of course not.
Jenn 00;17;12;18 - 00;17;25;08
Right. It's one of the things that people do. Ask if your home is not you're not cosigning your house to this deal. Exactly. But it shows that you're responsible adults, that you're able to have a home in order to, you know, just live your life VS. renting.
Bobby 00;17;25;09 - 00;17;25;24
Jenn 00;17;25;24 - 00;17;54;21
So let's talk about what industries are a little bit easier to get approved. I know that we talked about obviously, restaurants aren't the easiest high risk for trucking. Sleeper trucks or long haul trucks. But let's talk about medical. Medical is an industry that is fairly easy to get approved. And most of the time, when it comes to a startup medical, though, the biggest thing that our lenders want to see is that there's a doctor onsite or there's a course there, Right.
Jenn 00;17;55;00 - 00;18;15;13
Not this medi spa stuff with, let's say you and I want to open up a medi spa. What do we know about anything about medical? Exactly right. But that happens all the time with these lasers and cryotherapy, all types of diseases, freezing of fat. And the lenders look at that as kind of being a little hokey, you know, whether you believe in it or not, it it's to each their own with that.
Jenn 00;18;15;13 - 00;18;26;04
But lenders want to see is there an actual physician that's using that equipment. Many times we have people that are investors that want to break into the medical world, Right. Is that easy to get approved?
Bobby 00;18;26;25 - 00;18;27;29
Jenn 00;18;27;29 - 00;18;30;13
Right. How? But if I want to own a dentist office.
Bobby 00;18;31;15 - 00;18;32;06
Are you a dentist?
Jenn 00;18;32;09 - 00;18;35;21
Right. Exactly right. But if I've been a business owner. Yeah.
Bobby 00;18;36;03 - 00;18;43;21
I just bought this business. Yeah, I just. I invested into it. I had $100,000 that pay for the building. Why can I get finance? I owned it now.
Jenn 00;18;43;21 - 00;18;44;04
Bobby 00;18;44;05 - 00;19;00;18
So we see those things, right? What's nice, though, is that for a doctor who has a start up, a lot of times as soon as they get out of medical school, that license that they have, we can use as time and business that can be something different from their LLC that they may establish or their corporation that they may have established.
Bobby 00;19;00;18 - 00;19;04;29
That can give us a little bit more leeway so that we can have some different programs for them.
Jenn 00;19;05;00 - 00;19;22;07
Hey, you make a great point. So a few things. I just want to touch on some things that will help prove time in business. Even if someone is still considered a startup and they're under two years or under three years, medical license would be one, maybe even a contractor's license for construction. Yeah, chiropractors, they have a license as well.
Jenn 00;19;22;17 - 00;19;30;20
So there's definitely a few different ways where we can prove that someone's been practicing this trait of theirs and be able to use that as time in business, right? That's huge.
Bobby 00;19;30;20 - 00;19;55;28
And we talk about industries like medical is great and we talk about yellow iron or construction industries, another great industry for getting approvals because we talk about licenses. When you think of contracting in the construction industry plus the actual equipment itself, it retains its value for a very long time. So it can be operating for way longer than, let's say a sleeper truck can be operating with it's maintenance and it's re-sellable
Bobby 00;19;55;28 - 00;20;11;00
And those things last a really long time. So that equipment is a little bit easier to get finance right now versus we talk about long haul and local. That's another thing, long haul, more risky. You're going all over the country versus locally in your state. We also know where the equipment is, Right.
Jenn 00;20;11;00 - 00;20;26;04
And you've got your sleeping in your bed every night. You're going home to your family versus, you know, you're out on the road for long stints of time. And that can be very stressful for people. And most of the time or some of the times that those business owners don't want to continue at that point. It can be very exhausting.
Bobby 00;20;26;05 - 00;20;26;25
Jenn 00;20;27;05 - 00;20;32;13
I do want to talk about the cost of a startup “Rates”
Bobby 00;20;32;19 - 00;20;33;26
We have to talk about it, right?
Jenn 00;20;34;05 - 00;20;50;27
Yeah. So when it comes to the cost of a startup versus the cost of an established business coming in and getting a loan, right? Have you had people come in and say, I am looking for a 6% rate and I am a startup?
Bobby 00;20;51;22 - 00;21;20;09
Yeah, they're thinking they can get under 10% or single digit rates like that, but they have to know the expectations for a startup, right? I believe everything we've mentioned could give people an expectation of what the lenders are looking at if they want to finance a startup. So the startups have to know that even if you have like the best credit without that industry experience and those type of things that we need time in business, we're still not going to be seeing the best type of rate for a startup.
Bobby 00;21;20;09 - 00;21;35;08
So those are expectations. We have to know. So we we have to talk about like minimum cycles and things like that that we can work with as a startup and have an expectation of the type of rate that we can see. Right? Do you have any examples?
Jenn 00;21;35;10 - 00;21;58;24
For FICOS? Yeah, I would say in the six hundreds, low 600 and again, everything's a moving target. Things are changing in our industry constantly. But to say that everyone can come in with, with, with the same FICO and get approved would be misinformation. Right? When it comes down to it, it's not just about the score, it's about the credit history, the length of it.
Jenn 00;21;59;03 - 00;22;18;26
Have you had credit for two years? Have you had credit for ten years? Have you had credit for 25 years like you had mentioned before? Are you a homeowner? You know, are you leveraged? Are you coming in with $40,000 in credit card debt or are you coming in with $40,000 available in credit card debt? Right. So a 620 FICO could be different for you.
Jenn 00;22;18;26 - 00;22;26;13
It could be different for me depending upon someone's history. So there's so many different factors that come into play in regards to what someone's FICO is, so.
Bobby 00;22;26;13 - 00;22;33;21
Many different moving parts you talk about. And it's not just going to be that credit or that FICO. It's going to be all of it coming together to get a.
Jenn 00;22;33;22 - 00;22;34;09
Bobby 00;22;34;09 - 00;22;58;28
Whole picture of it, because they can have all these things that line up. Let's say they have a medium FICO, but they have a really good comparable trade line. And then they have homeownership and they have industry experience. And they just so happened to be someone who filed 1099 as an owner operator, then they would fit in this small, little narrow box where some people had three of the four traits or two of the four traits, but you had all four, so you fit right in the box for that lender, right?
Bobby 00;22;58;28 - 00;23;00;10
Lenders financing program.
Jenn 00;23;00;10 - 00;23;19;20
Right. Now, keep in mind, we work with well over 30 different lenders, banks, you name it. So we have a ton of access to funding. One of the coolest things about our company is that we aren't just a direct lender, which means we don't just sell our one product, right? That's like going to a supermarket that only sold one food brand of product.
Jenn 00;23;19;29 - 00;23;26;18
We are the supermarket that carries tons of different opportunities for people. So do we have them all, though? Can we finance everyone?
Bobby 00;23;26;25 - 00;23;27;25
No, of course not.
Jenn 00;23;27;25 - 00;23;44;26
There is subprime lending out there, so we're not saying that we can finance everybody. There are some lenders out there that will take clients that are in the four hundreds that are in the five hundreds. Keep in mind, though, with that risk, that risk goes up, that rate goes up, the cost of funding goes up because things are going to default more.
Jenn 00;23;45;04 - 00;23;52;29
So it's all in correlation to how clients in the past have made payments is how they're approving transactions moving forward.
Bobby 00;23;53;02 - 00;24;11;18
Right. So in that, like you said, goes back into expectations, going into financing, of course, we can have a program where we say we like to work with those 600. We have a gray area specialty, let's say, even A to D the F credit. A lot of times no one, no one's going to approve you, but there are programs like that.
Bobby 00;24;11;18 - 00;24;31;05
So we can have a program to even service you if you have a lower credit score. But at that time, with that program, again, you had to have that expectation. Maybe I'm going to have like a higher down payment upwards of 30 to 40% and maybe that that rate is going to be up there because where the lenders are actually buying the risk from the client.
Bobby 00;24;31;10 - 00;24;35;28
And so because of that risk, there has to be some type of skin in the game on both parties.
Jenn 00;24;35;28 - 00;24;41;19
Right. Right. So now, would you say that all of our clients are subprime and we only work with clients with bad credit?
Bobby 00;24;42;01 - 00;24;43;14
Of course. Of course, not.
Jenn 00;24;43;15 - 00;25;02;24
A lot of people think that because they think they can just go down to their bank and a lot of banks don't want to buy deep in startup businesses. Maybe they'll take your home loan, they'll take your child's school loans right? Maybe they'll do a vehicle for you. But lending to a small business owner is something that banks sometimes don't want to go directly to.
Jenn 00;25;02;24 - 00;25;15;15
Exactly. And sometimes those banks that we work with or lenders that we work with, that they only work directly with us in that business format of lending to small businesses. And they don't do that directly. Why is that not crazy?
Bobby 00;25;15;15 - 00;25;17;02
Yeah, it's it's crazy.
Jenn 00;25;17;03 - 00;25;33;01
They don't have the customer service team to support it, right? They don't have a sales team to facilitate the transaction from start to finish. And when it comes down to it, there's a reason why we are specialists and what we do. I mean, there's dealers that will go sign up with with different lenders or equipment sellers and signed up with with different equipment lenders.
Jenn 00;25;33;01 - 00;25;43;03
And we will get things financed faster, quicker and better deals for our clients versus what people are getting directly right. And it's because of the information that we're able to gather.
Bobby 00;25;43;15 - 00;26;04;16
Real options, having variety working with over 100 different credit portfolios, and we have to be straightforward about it. When it comes to a to A-plus credit, Yeah, anybody can knock that out of the park, but when you're going a little bit down B, C, or even D credit, you have to be motivated so that you can have different programs that can service needs of many different clients across the board.
Bobby 00;26;04;25 - 00;26;25;07
And that's why a lot of people come to us. We had we have some people that they have A-plus credit, but because of the type of equipment they have, their bank doesn't want to finance that piece of equipment. So they would come to us and say, Hey, is there a program for this specific piece of equipment and we can find something that works simply based off the client and some of the equipment itself?
Jenn 00;26;25;23 - 00;26;50;18
So just a basic breakdown of what someone needs in order to apply for a startup business. Number one, we need to see a credit application. And number two, we need to see a quote on the equipment that they're looking to purchase. At least three months of bank statement showing some type of cash flow, a credit history that showing that they have some type of comparable, of course, and then industry experience, something that shows that they've been doing this and they know how to run this business.
Jenn 00;26;51;00 - 00;26;55;10
Anything else that you would add for tips and tricks to bring to the table?
Bobby 00;26;55;13 - 00;27;16;05
I think we've pretty much covered it. All right. Just be prepared to answer questions. And I would say every startup should have a business plan like we talked about earlier, having a business plan, knowing what you're getting into and knowing what you have to do to make sure that business is successful will help you know how you can secure financing in the end as well.
Jenn 00;27;16;12 - 00;27;18;07
Love it, love it. So be prepared.
Bobby 00;27;18;17 - 00;27;19;04
Jenn 00;27;19;10 - 00;27;42;27
So I wanted to touch briefly on an honest conversation that I have with my clients, especially when they're a startup. Is does this make sense for you? Does this payment make sense for you? There's a lot of costs that come into play with starting a business. I know myself, I've I've had my own business before and I was not prepared in regards to all the things that I needed to have, not only the responsibilities but the cost of doing business.
Jenn 00;27;43;07 - 00;28;00;04
You have insurance, you might need permits for different things. Those things get renewed on a regular basis. You have to pay fees to the secretary of State. There's so many things that come into play so when we have conversations with our clients, I have to say one of the things that we have to be completely honest with is does this payment make sense for you?
Jenn 00;28;00;04 - 00;28;21;23
Are you going to have enough revenue? Because if your revenue expected revenue was $5,000 and your payment $7000, how are we going to do this? And I understand the whole high risk, high reward totally. But does it make better sense if your payment is maybe closer to 4000 when you talked about maybe getting less equipment and a little bit more conservative?
Jenn 00;28;21;23 - 00;28;38;26
Right. Getting the bare minimum, maybe getting an older piece of equipment, maybe getting something that's not as expensive, dropping down that payment. So that way your revenue is a little bit more. And, you know, if you're really concerned about the cost of funds in that sense, maybe going with a shorter term. So these are open conversations that we have with our clients.
Jenn 00;28;38;26 - 00;28;48;04
So I always say is be prepared to have that conversation. You know, what looks what feels more comfortable for you? Exactly. We'll give more options than less options.
Bobby 00;28;48;07 - 00;28;48;18
Jenn 00;28;48;19 - 00;28;57;09
Whether it's a higher down payment, a lower down payment. But what is comfortable for you on a monthly basis in order for this business to thrive? Yeah, and that's it. That's big.
Bobby 00;28;57;15 - 00;29;13;19
And we have to find some. Yeah. Finding some way to work around it and going back to the high risk, high reward if, if we think about it, businesses or just high risk, high reward like we talked about starting a business versus the statistics and failure rates. So they know going into it they have a chance to fail.
Bobby 00;29;13;19 - 00;29;28;02
So that means we have to be savvy about it. Right? Right. There's going to be smarter ways and savvy ways to maintain your business. So if the payment makes sense, we got to go with what makes sense. You know, they say make it, makes it smarter. You got to be smarter.
Jenn 00;29;28;02 - 00;29;29;27
About how to do things smarter.
Bobby 00;29;29;27 - 00;29;46;22
Smarter. Exactly. So we got to make sense of it. If if if you have a payment. Right, you're going to be making 10-K a month in revenue and your payment is 2500. Regardless of you're saying you're taking your risk with the rates, look at the revenue that you're going to be making that's going to produce for your business.
Bobby 00;29;46;22 - 00;30;00;20
So is this going to be something that's going to be successful for your business and then it's going to be a fraction of what you can pay versus the revenue you can make? Right. So you may say, oh, I don't know about that rate. Well, you're a start up. Will you be making money? Will this help your business succeed?
Bobby 00;30;00;20 - 00;30;04;14
Will this take you places? If it makes sense. You got to do it makes sense.
Jenn 00;30;04;14 - 00;30;09;29
Yeah, exactly. I love it. I love it. Was there anything else that you wanted to add to this right now?
Bobby 00;30;09;29 - 00;30;38;25
Well, I do want to add, for instance, at smarter we are very passionate about helping small businesses grow. And I think that in this industry, everybody is bent on making a sale out of you. But startups run America. The equipment that we finance is like the bloodstream of our country and so if we care about those clients and give them necessary resources, information so they can know going into it, how can I get this finance or what will be successful.
Bobby 00;30;38;25 - 00;30;45;22
for our business, I think that we can make more of an impact and help a lot of our clients achieve their dreams and their success.
Jenn 00;30;45;23 - 00;31;08;12
Right? Right now, I think that's huge. I do think that's the difference in regards it not to be cheesy, but about our company is that, Well, it's true. We do care about it. It's not about it's not about making a dollar. It's about helping someone. And I will say when I have clients that call me and they are they're sending me pictures of their equipment with their logo on it, and they're so proud.
Jenn 00;31;08;12 - 00;31;28;23
That makes my month makes my year when people are that excited. So and that you're right, when people are that passionate about running their small businesses I love it. If we've left out anything and you guys want to comment below and let us know something that we need to cover or maybe questions that you have in regards to getting your business up and running, go ahead and comment below and let us know.
Jenn 00;31;29;10 - 00;31;50;20
I also just wanted to say thank you for all the small businesses that are out there that have come to us and allowed us to be a part of getting their business up and running. I know that I have had tons of success stories as well as you and many account managers at our company that we get phone calls from our clients that say that they've had an amazing first six months or an amazing year or two years, and we've grown with them and we've been with them for years.
Jenn 00;31;50;20 - 00;31;58;11
So that's what it's about, is locking arms and and growing. So thank you so much for your time today. Again, my name's Jennifer Casey, and this is.
Bobby 00;31;58;15 - 00;31;59;15
Jenn 00;31;59;15 - 00;32;02;26
And we're here for the Smarter Business Finance podcast. Have a great day.
Bobby 00;32;03;03 - 00;32;05;16
Have a good one.
Rob 00;32;10;09 - 00;32;35;03
Thanks for watching or listening. If you're listening through a podcast app, we would love it if you would be so kind as to leave a review if you are watching this on YouTube. It would mean the world to us if you left a comment or gave us a big thumbs up. And lastly, if you're looking at us on the website, if you would, let us know.
Rob 00;32;35;14 - 00;32;48;03
An episode that's of interest to you. That would be fantastic.
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