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 -...
27 min read
Rob Misheloff Jan 31, 2023 8:44:51 AM
What are equipment finance rates?
How are they calculated?
Do they even matter?
Robert Jackson and Jennifer Casey break it down in this episode.
You can listen, watch or read...
To get an idea of what your costs would be, you can visit our rates page...
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Jenn 00;00;06;14 - 00;00;12;14
Hey, guys. And welcome back to the Smarter Business Finance Podcast. My name is Jennifer Casey.
Jackson 00;00;12;22 - 00;00;14;01
My name is Robert Jackson.
Jenn 00;00;14;03 - 00;00;31;27
And this is episode three. On the cost of actually financing equipment, what does that look like? So let's kick it off with an easy conversation that we all have had a little bit of experience with during COVID 19 shutdowns is food delivery service. Have you ever ordered from DoorDash?
Jackson 00;00;32;29 - 00;00;34;14
Me? Yeah. No.
Jenn 00;00;35;08 - 00;01;01;11
Have you ever ordered from GrubHub? No, nothing. You've never had a delivery service? No. Perfect. Let's end the podcast here. This is so much easier. Maybe we'll get some audience help for this. Okay, well, let me tell you. Okay, Because I have ordered from DoorDash and it is out of control. Expensive, but it's the service that comes into it, Right?
Jenn 00;01;01;11 - 00;01;18;14
If you're going to go pick up a pizza, you know, you can go pick up a pizza. But if you get a delivery service of that, there's a service fee, there's taxes, there's the driver fee, there's all sorts of different things. So a $20 pizza ends up being a $40 pizza or even actually, Rob and I were talking about this the other day.
Jenn 00;01;18;14 - 00;01;32;20
He was saying how he ordered Chinese food for delivery and it was like 30 or 40 bucks. And I ended up being an $80 meal for the three of them to have Chinese food because there's all these other fees that are in it. Are you going to say no? Do I not want a delivery service to come and bring it?
Jenn 00;01;32;24 - 00;01;37;23
I don't know. You might need you might have no time to be able to get that food right.
Jackson 00;01;37;25 - 00;01;39;19
You need the results, which is the food.
Jenn 00;01;39;24 - 00;01;59;00
You need the food. Do you have time to make it for yourself? Maybe not, but it's the cost of doing business, right? So if you've ever actually ordered from DoorDash, I'd like to know the craziest fees that anyone has actually paid for from GrubHub or any of these delivery services. What you actually got and what you paid for.
Jenn 00;01;59;00 - 00;02;14;23
If you want to comment below during COVID or really any time for that matter, for what delivery charges you had paid, would love to hear that. Someone told me the other day that they actually paid a delivery fee of $150 for alcohol to be delivered to them because they wanted it that bad. So I would love to hear about that.
Jenn 00;02;14;23 - 00;02;36;02
So comment below. But another thing that we can talk about for maybe you have a little bit more experience with since we’re in Las Vegas is going out to a nice restaurant, going out and having bottle service when you know that that bottle of champagne is only $50. But that tab is what? Well, $1500?
Jackson 00;02;36;15 - 00;02;55;12
Maybe more. I mean, with the nightclubs in particular in Las Vegas, they have what's known as an LET tax, which is a live entertainment tax. So on top of the sales tax, you're paying an additional 10% tax. So a bottle of gray goose at a club in Las Vegas is going to cost you anywhere from $750 to $850.
Jackson 00;02;55;13 - 00;03;00;06
Right. You can go to Albertsons and purchase the exact same bottle for 60 to 80.
Jenn 00;03;00;06 - 00;03;00;15
Jackson 00;03;01;09 - 00;03;18;09
So people. But these clubs and these tables are constantly sold out. There's never a table that isn't sold out. Right. Why is that? Right. And the reason is, is people want to have a good time. They pay for experience. They pay for the results, they pay for the time, they pay for what they're getting. So they feel like they're getting value for the money that they're spending.
Jackson 00;03;18;20 - 00;03;34;16
So for them, they don't feel it's. I mean, that yeah, it's it's a little absurd, let's be honest. It really is. But people still pay because that's the price you pay for what you get. And you'll pay a price for everything you do and everything you don't do. Right.
Jenn 00;03;34;27 - 00;03;51;06
So I know it's definitely an extreme example, but I think about, okay, let's say you're going to go to the supermarket and buy a bottle of gray goose as a supermarket, have the same overhead than that nightclub has in order to make a drink. Well, first of all, they're not even making you a drink. But what goes into that?
Jenn 00;03;51;22 - 00;04;13;13
It's the they both have a location, right? They both have employees. Right. But does Albertson's have a full lighting system, a DJ booth, cocktail waitresses? Do they have all of these other experiences that come into play when you're going to that nightclub? It's an experience maybe for you. You're celebrating something or or an anniversary or a birthday party, right?
Jenn 00;04;13;13 - 00;04;31;22
So you have all these other things that come into play, but you go in to feel that feeling of importance and to have an experience with something. It's a lot different of the experience of buying a bottle and take it home and maybe making yourself a cocktail at your house. Cost of doing business cost of an experience. Let's talk about perception versus reality.
Jenn 00;04;31;22 - 00;04;57;19
So when a client calls in and they say that they are expecting to pay 3%, 6%, and they believe that they should qualify for that and they have whatever business scenario that they have, maybe they're only been in business for two years. 600 plus FICO No comps, whatever it is. Why is that? That they believe that they're getting a 6% rate or a 3% rate?
Jackson 00;04;58;23 - 00;05;21;08
Generally, people are accustomed to consumer financing and not business or commercial financing or commercial leasing. So you can go on bankrate.com, you can go on any dozen websites, go on Bank of America, Wells Fargo, and you'll see rates posted all over the place. It doesn't necessarily mean that you’ll qualify because you have to read the fine print. Now, the difference between what you pay and what you get is what matters.
Jenn 00;05;22;07 - 00;05;44;02
That's what really matters, because the value for what your dollar that you're spending is going to take you further than what the rate or the payment is. So when you're expecting a 6% rate and you don't get a 6% rate, you have to explain why that is. And the reason that it's that way is because commercial financing and leasing is just a different it's just structured differently.
Jackson 00;05;44;02 - 00;06;09;28
There's different values. There's risk assessment, there's risk tolerances that are that are factored in that just aren't there with consumer financing. So most people are accustomed to loans where they have an APR, which is amortized on a daily rate, where you have your principal and your interest. Well, with the APR type of loans, if you're not familiar with this, most of the interest is front loaded, so you're gonna be paying up to 88% of your payment from the first payment is going towards interest.
Jackson 00;06;09;28 - 00;06;39;18
Now if you pay an extra, it will go towards the principal. But I’ll use buying a home for an example, I purchased a home in August and on the contract I got a 5.2 APR, but it has T.I.P. which is total interest paid, which was 107. If I didn't pay anything extra, if I just took it the whole 30 years, just the minimum, I'd be paying 107% in interest on a $250,000 loan.
Jackson 00;06;40;24 - 00;06;49;00
Mm hmm. So that 5.25% rate is not really I mean, it is, but it isn't.
Jenn 00;06;49;07 - 00;06;49;17
Jackson 00;06;49;25 - 00;07;15;15
And you'll notice that the principal balance doesn't really go down. So with the type of agreements that we have, they're not structured as an APR. They have something called a finance cost, which is similar, but it's a little different. So you need to talk to someone who's smart, someone's who's got experience, someone who's deft enough to understand it and convey that to a new business owner.
Jackson 00;07;15;16 - 00;07;35;15
They're going to be a little unfamiliar with it. So it's important that you kind of nurture them and guide them along the way and and don't don't force them into something that they're not comfortable with. But this type of product is used by pretty much everybody. Wells Fargo, CIT, they all use this product. So it's not it's not something that's new.
Jackson 00;07;35;15 - 00;07;38;21
It's been around for years and years and years. It's not going anywhere.
Jenn 00;07;39;15 - 00;08;10;02
Let's talk about the payment versus the rate, because many times people do call in. And I think that the level set that we have to do is explain to them that rate aside, it's the payment that they're qualifying for. Right. So there's also hundreds of ways to calculate rate. We could calculate it so it's like you're saying on a monthly basis, on a bi monthly basis, on an annual basis, on the full length of the term.
Jenn 00;08;10;02 - 00;08;32;11
I know myself, if I was to take my monthly mortgage and multiply that out amongst the years that I'm paying on it. To me, I don't even know if that's 107%. It's probably in my brain of several hundreds of percentages that I'm paying on top of that I remember vividly. Yeah, but at the end of the day, in my mind, does it make sense for that payment for the scenario?
Jackson 00;08;32;13 - 00;08;41;18
Because I could the payment was affordable. I didn't care that I was paying 107% total interest paid because it was a home and the payment was affordable.
Jenn 00;08;41;21 - 00;08;43;06
Jackson 00;08;43;20 - 00;08;58;02
And I get use out of it. So if you're getting I often tell people this, I say money comes and goes, but mostly just goes. But your time doesn't. Everybody has the same 24 hours in a day, so you decide how you're going to use it and what you're going to do with it.
Jenn 00;08;59;24 - 00;09;26;15
I find it really interesting. One of the points that you always bring up is not only necessarily the cost of of of moving forward, but the cost of not moving forward. If someone is so hellbent on the payment itself or the rate or the cost of funds, and they are they're at the point where they're frustrated because they thought they were going to qualify for something different, when in reality, if they don't make this purchase, they're losing money.
Jenn 00;09;26;17 - 00;09;31;03
That's a great opportunity. I just would like for you to elaborate. I know that you get into that a little bit more.
Jackson 00;09;31;04 - 00;09;47;24
I use it. I use it quite a bit. I use consequence. What are the ramifications to your business if you elect not to do this? What is it going to cost you to do nothing. If you say no to this proposal, what's your next step? What's a good next step then? And just ask and leave it up to them.
Jenn 00;09;47;27 - 00;10;11;28
Right. I find it interesting. I was going to say the other day, you had given me a scenario about a client who was talking about what their payment was. And you had said, okay, let's talk about how much money you're going to make. So you had said you're going to generate $10,000 for an easy number on a monthly basis, 120,000, and obviously on an annual basis, and we're going to give you a 60 month term.
Jenn 00;10;12;10 - 00;10;35;22
So let's look at how much you're making over those five years and you're asking the lender to give you a, what, a 6% rate when you're coming in and they're taking a risk. You're taking a risk as well. But they're taking a risk on you when they know that your profit is that, again, it's different than a consumer loan where it's a vehicle that they're going to drive to and from work.
Jenn 00;10;35;22 - 00;10;58;29
They're going to do things personally, but it's not an investment. There's less of a turnover with consumer vehicles versus commercial lending, right? There's more repossessions in lending. There's a higher risk in lending when it comes to consumer versus commercial. So at the end of the day, there's a cost of doing business. It costs more to actually finance something commercially than it does consumer, right?
Jackson 00;10;59;04 - 00;11;21;16
When when a customer calls in and they tell me that they would like to buy a particular piece of equipment and it's going to generate 10 to $15000 a month in top line revenue. Well, if you take that term and you take it out for four or five years, if you did $10,000 for 12 months, $120,000 a year times five, it's going to be over a half a million dollars, probably $650,000.
Jackson 00;11;22;01 - 00;11;36;27
So you're going to make $650,000 over five years. And the bank wants to make 17. Seems like a fair trade off to me, don't you think?
Jenn 00;11;37;21 - 00;12;05;04
But it's interesting because there are people that still can't wrap their head around it. I always think to, you know, it's so easy to pick apart the cost of something when all that you have is numbers, but you don't know the cost of making that shirt. That shirt was there first. They have to source the the actual material that goes in the shirt and then the thread that goes into it.
Jenn 00;12;05;04 - 00;12;24;10
And then there's actually a person tha t sits there and then embroiders the machine. That machine itself cost something, the lights that light up the room, that the embroidered machine is in it all. There's a cost of doing business. It's so easy to say, Oh, well, you know, the cost of that shirt is $65. I'm going to be purchasing that for $65.
Jenn 00;12;24;16 - 00;12;46;19
But is it worth that when you're looking at numbers? Yeah, there's a cost of doing business in that bank or in that private lending facility. There are lights to be put on, there's computers, there's an accounting department, there's a customer service department, there's a repo department, there's people that come and clean the bathrooms. There is so much that goes into that business just as any businesses.
Jenn 00;12;46;19 - 00;13;11;10
So there's a cost of doing business. So sometimes people take offense to the fact that what they qualify for, but there's that qualification comes with a lot more cost of actually doing business. Another thing I find really interesting, and I won't call out any specific vendors, but I do know industry wise, if you're negotiating with some of these vendors to buy equipment, if you say you're paying cash, you actually get a cheaper price versus you saying that you're going to finance.
Jenn 00;13;11;10 - 00;13;25;15
And I don't mean their internal financing, I mean any financing. We just had a scenario the other day where one of our reps had gotten an invoice. The client had actually called and said, Hey, I don't know what this financing is that you put on your I don't want any of this financing. I just want to pay cash.
Jenn 00;13;25;28 - 00;13;51;08
And it was a $200,000 invoice that all of a sudden got a 30% discount, a 30% discount. So I find it interesting that sometimes people think that they're getting a 0% with some of these vendors or a 2% or a 6%. But there is a cost of doing business. They're building in another way. And it's not that they're being shady about it, they're just building it another way in order to make their overhead, in order to pay their bills.
Jenn 00;13;51;08 - 00;13;53;27
Right. So just another scenario about that.
Jackson 00;13;54;01 - 00;14;15;28
If you're a business owner, cash is king, you want to retain as much cash as you can. I mean, Apple's got $90 billion in cash and Facebook probably has similar amounts, but they don't purchase any of their assets with their cash. They borrow money for it. And why is that? Because they can get tax deductions. They're using other people's money and they can keep their cash.
Jackson 00;14;16;09 - 00;14;38;09
So for me, when I encounter someone that's going to pay cash for equipment, they're probably just doing it for the speed of the transaction just to get it done right away, because it can be done same day or they don't qualify for it. Those are the two scenarios I typically encounter when somebody wants to pay cash, right? Because I find it foolish, quite frankly, too.
Jackson 00;14;39;03 - 00;15;02;12
I recently bought a car a couple of months ago. I could have paid cash for it. I could've wrote a check for it, but I didn't. I went to my bank. My credit union got me approved. And there we go. I still have all my money. It's the same. It's the same situation. Because for a business owner having cash and cash flow is the lifeblood of sustaining and keeping you in business.
Jackson 00;15;02;12 - 00;15;18;00
If you run out of money, you're not in business anymore. It doesn't matter, right? So I often tell people this when you when you purchase equipment and it's affordable and it's something you can do, treat the equipment like you would treat an employee or a new employee.
Jenn 00;15;18;02 - 00;15;18;17
I love this.
Jackson 00;15;19;00 - 00;15;35;00
So you pay for it as it pays you. You know, the equipment isn't a new employee. So you just got this new employee that's going to be profitable and value is going to give you years of service, but you don't pay your employee two or three years salary in advance, do you? Would you pay my salary four or five years in advance?
Jenn 00;15;35;01 - 00;15;35;18
I think Rob and Chet would be mad at me.
Jackson 00;15;35;24 - 00;15;57;05
No. I think they would be very, very mad at you, but they pay me as I earn. So the equipment should be no different. There's a lot of benefits to equipment financing that that people don't really see, I guess, because they don't fully understand it. So from the position that we're in, we're more or less advisors and advocates.
Jackson 00;15;57;05 - 00;16;03;29
We work for them. We don't work for well, technically we work for Smarter Equipment Finance.
Jackson 00;16;04;23 - 00;16;25;27
But in essence. Right, right. But in essence, I only get paid if the customer has a smile. So if I make him happy and he understands the product and he understands the process and he understands this because he's going to go with us. Right? Our company's got a great reputation. And the reputation is because we have two mantras.
Jackson 00;16;25;27 - 00;16;48;15
I guess first one is don't lie ever. If you're caught lying, you're fired. So we won't lie. We just won't. We'll tell you exactly what it is because there's no reason to hide it. Right. And number two is just be on time and do your job. Have a good attitude. Don't put people down. Don't don't denigrate others. Don't belittle others, Don't don't besmirch.
Jackson 00;16;48;15 - 00;17;02;09
Don't do anything like that. Just hold yourself with a certain degree of integrity. And when I was hired, that was what was told to me. So I've lived by those tenants and here I am most five years later, and I'm not going anywhere.
Jenn 00;17;02;09 - 00;17;18;17
Yeah, Yeah, I love it. I love it. Well, let's get back to a little bit of in regards to the cost of doing business. And one of the things that I know that we get asked on a regular basis and sometimes people cringe when it gets asked of them is four letter word that starts with R.
Jackson 00;17;18;26 - 00;17;21;07
What's my rate?
Jenn 00;17;21;07 - 00;17;24;03
What is my Rate? Every wants to know what their rate is.
Jackson 00;17;24;03 - 00;17;46;15
And they're not really interested in the rates. So much interested in the payment because my rate on the home that I bought, it's the total interest paid is 107%. If they had told me that, I would have said, No, no, I'm not going to do this. That's outrageous. But they said, no, your payments, $2400 a month. Oh, okay.
Jackson 00;17;47;10 - 00;17;48;02
That I can do.
Jenn 00;17;49;25 - 00;17;50;05
Jackson 00;17;50;14 - 00;18;19;16
So it's the way that these agreements are structured. We can format it any way you want. We can do a we can do a lease and we can do something called an EFA an equipment finance agreement, which I often tell people is is is an agreement that's kind of a bridge between a lease and a loan. It provides certain tax savings that you can get with a lease, but it provides you the option to pay it off early, own it from day one so you don't have to worry about anybody taking taking it from you.
Jackson 00;18;19;25 - 00;18;39;13
You have 60 payments, you make the 60 payments, you 48 payments, you make those 48 payments, it's yours. You can pay it off early. I tell people you want to pay it off, really double up your payments. But just as the business owner is purchasing the equipment to make money, the institution that's loaning the money needs to make money as well.
Jackson 00;18;39;13 - 00;18;59;00
So it can supply future funds to other business owners just like that. So they have to secure their cashflow in order to be able to lend money to others that are doing the same thing that he is. We're not UNICEF. We don't work for free. They're not UNICEF. They don't work for free. Nobody works for free. Nobody gets up in the morning and says, I'm going to go do charity work.
Jackson 00;18;59;00 - 00;19;06;16
Maybe around Christmas time or someone's birthday. I don't know. But on a day to day basis, everybody has a goal to make money.
Jenn 00;19;06;23 - 00;19;25;12
What do you do with those clients that are so hung up on the rate like they are? They're the person that they thought they were going to get a 6% and on. And I mean, let's even just put it out there. What is even what does the rate start at? I mean for our type of lending, I would even say depending upon what the client qualifies for 6% and it can go up from there.
Jenn 00;19;25;27 - 00;19;40;10
I mean, I've seen double digits. Sometimes I can think of even startups where it's even on top of that. And then we dance around the idea of like, you know, are we even allowed to talk about the different types of rates that there are? One of the things that you had said before is the different rate that you had on there.
Jenn 00;19;40;18 - 00;20;02;25
You know, there's a reason why we don't necessarily call our program and equipment finance agreement having a rate to it, because there's a lot of different rates that could be connected to it. So in all reality, it's an equipment finance agreement. What actually was merged from equipment leasing, which used to have some sort of balloon payment or buyout in the end.
Jenn 00;20;03;11 - 00;20;23;05
And again, you're talking about the liability of it. The liability switched from the lender. Now to the client. Right. And then also now the lender doesn't have the liability, but they also don't have that balloon payment in the end. So with that being said, what would you say to that client who is so hung up on the rate, the rate rate rate and they can't get over it?
Jenn 00;20;23;13 - 00;20;26;24
Have you had instances of that?
Jackson 00;20;28;02 - 00;20;51;27
Not necessarily. I mean, it comes up more or less with people who already have an approval and they're just shopping to compare it. So recently I had a doctor call me that. I do some financing for medical equipment. I have some medical vendors that send me deals. And he was already approved at his local credit union. He had a 6.5% rate.
Jackson 00;20;51;27 - 00;21;12;03
It was an amortized credit line. It was just, you know, a traditional loan. And I told him to take it. And he was a bit taken aback by that. And he said, why? And I explained to him that I'm not in the business of of you know, they don't pay me well enough to talk badly about my competition.
Jackson 00;21;12;03 - 00;21;35;19
They just don't. So if you've got an offer that's legitimate in and it's something that's that's that's going to work for you and I'm not able to beat it because I don't think that I could, then I'm not going. Then I'm going to tell him to take it, because honesty always prevails. I've had dozens of times where I've been honest with business owners about transactions, and months later they'll call me back because of that and do a deal with me.
Jackson 00;21;35;20 - 00;21;58;17
Right. I'm actually doing a a deal right now for a customer. It's our fourth transaction, believe it or not. And it all started two and a half years ago with a conversation similar to what we're having now. Very well-qualified. Been in business for a very long time. He was unfamiliar with equipment financing. He had traditionally just, you know, used whatever financing offer the vendor had or just paid cash when he needed it.
Jackson 00;21;59;17 - 00;22;09;10
But because of my honesty and my candor and explaining it to him in detail, he was so impressed with it that he called me back and we were able to get him a street sweeper and a snowplow.
Jenn 00;22;09;17 - 00;22;24;11
The biggest success that we have is when people call back and, you know, or they send us a picture of their logo on their equipment or a picture of them in front of their equipment or jobs that they've completed, you know, small business owners are the backbone of our country.
Jackson 00;22;24;12 - 00;22;24;26
Jenn 00;22;25;01 - 00;22;45;27
And you almost feel like, at least for me, I've run my business just in this industry as Jennifer Inc. So to have success for myself is I know and when they have success in their business and I get excited for that. So I absolutely love that there's a lot of lies out there in advertisements. I'm sure that you've heard of them are some of our clients have heard them.
Jenn 00;22;47;00 - 00;23;03;03
If you even Google just financing in general, I believe someone had called in the other day and they said, Oh, well, I can just get truck financing. It's $99 a month. I'm like, And how much is that truck? Are financing it for the time that you would finance a home, right?
Jackson 00;23;03;14 - 00;23;06;08
Is it a 30 year loan? Mm hmm.
Jenn 00;23;06;08 - 00;23;09;13
And is that trucking going to be around in 30 years, Right? Probably not.
Jackson 00;23;09;14 - 00;23;09;25
Jenn 00;23;11;00 - 00;23;16;07
But yeah. What are some of the things that you're hearing that lies in our industries that are being advertised?
Jackson 00;23;16;07 - 00;23;50;12
Well, I often tell people that rates are marketing. That's what it is. It's to get you to call. It's to get you to come in. It's to get you to be engaged, because every individual is going to be different because somebody who has an established business for 15 years has a 730 credit score and is buying a collateral that's retained its value, is often going to get a better rate than somebody who's got two years, 630 credit score, and he's trying to buy a 15 year old dump truck because the type of agreement that we offer is self-collateralized generally when you do credit based options.
Jackson 00;23;50;21 - 00;24;12;27
So it's similar to buying a car so you don't have to pledge collateral. There's no blanket leins that are put on your business. So the kind of lies that are out there is it's a case by case basis. Everybody is different. Just like if you were to walk into a crowded theater and look around, you're not going to find one individual that looks exactly like everybody else.
Jackson 00;24;12;27 - 00;24;24;25
So it's impossible to say that everyone's going to get a 3.99% rate. It's just impossible. It doesn't exist. Some people might, but it's a very, very, very small margin.
Jenn 00;24;25;00 - 00;24;46;27
Yeah, I find it interesting too, where we'll talk to different vendors and dealers and they'll say, Can you send me your rates? Or even with clients, like what are your rates? And it's not necessarily what our rates are. We have access to all sorts of different rates. It's really what they qualify for. Correct. So let's talk about maybe a few different things that come into play when a client is getting an approval.
Jenn 00;24;46;27 - 00;25;11;27
Because if someone is trying to get a 2022 pickup truck or a dump truck, is it different than a 1987 excavator? Probably. If someone has a 600 FICO versus a 750 FICO, is there a difference in that? There's also a difference in if someone's a homeowner, if they finance similar equipment in the past, how long they've been in business for, if they were a sole proprietor versus if they were a corporation, Why?
Jenn 00;25;11;27 - 00;25;34;08
Because they actually have commercial credit that has been set up. So that probably I would say 20 to 25 different factors that come into play when someone's actually getting approved for equipment. Sometimes it's just on them, their personal credit, sometimes it's on the business, sometimes it's on them and the business, sometimes on their bank statements as well as the equipment itself.
Jenn 00;25;34;25 - 00;25;56;02
Is it software? Is it hardware? Is something that tangible? Is it something that's not going to be worth anything in three years or is it something that's going to hold its value five, six, seven years down the line? Right. Those are all different factors that come into play. So one of the things that I know that we do as a company is we trying to educate people and let them know, hey, this is the scenario why you're getting approved for this.
Jenn 00;25;56;02 - 00;26;26;22
We want you to know and this isn't something to beat someone up about. Hey, you have a 625 go and you're buying old equipment. We're saying, hey, that's what the scenario is. It would be different if you had a 150 more points on your credit score or if you your history was longer or this or that. And I know that we really try to empower our reps to or I should say, empower our account managers to educate our clients on why they're getting that right instead of them feeling like they have no place to turn.
Jenn 00;26;27;00 - 00;26;40;09
This is why you got this. But here's how you can grow from here, right? If you're looking at your next piece of equipment. Now, you've had the first one for 12 months. You and I talk about this on a regular basis. Building business credit. It's a lot different when someone comes back the second time around.
Jackson 00;26;41;22 - 00;27;01;11
They qualify for because we can service any type of credit. We can go from A to D and anywhere in between. So there's really no scenario we cannot service. It's just a matter of conveying our message enough to where the customer can understand it. And, and it's kind of lift where you stand, you know, there's no reason to tear anybody down or anything like that.
Jackson 00;27;01;11 - 00;27;09;26
But if we can educate and kind of uplift, the customers and help them understand what it is and why it is they're more likely to do business with you.
Jenn 00;27;09;26 - 00;27;10;05
Jackson 00;27;10;23 - 00;27;20;08
People like us, they say nice things about us and there's a reason for it. And the reason is, is because we try we try really hard to earn your business, but we're not going to beg you for it.
Jenn 00;27;20;08 - 00;27;20;26
Jackson 00;27;21;04 - 00;27;36;02
We're just not. We're not that's that's we're not in a position we're not that way. It's you know, if you want to help, we're willing to help. But if you don't want our help, I'll pin a $20 bill on your collar and pat on the back and wish you good luck. So, I mean, I don't know what to say.
Jenn 00;27;36;16 - 00;27;46;14
I find it interesting, too. One of the first things that we teach our account managers to say is, have you gone to your local bank? Clients are completely shocked. They're like, Are you seriously telling me to go to my bank? Yeah.
Jackson 00;27;46;15 - 00;27;47;15
Jenn 00;27;47;17 - 00;28;10;03
Absolutely. See if you can get approved there. Yeah. Because versus you coming back and saying, Hey, I was actually expecting this. I'm going to go to my bank. You know, let's just before you start the process of this, maybe you should see if you can get some financing because at the end of the day, if you can go direct to the bank that you have your mortgage with or you have your business checking account with, they already have interest in you, maybe they would want that type of funding.
Jenn 00;28;10;03 - 00;28;26;05
And there's also clients that say, Yes, I already went to my local bank, I'm at max exposure, I can't get any additional funding from them or I've already paid things off with them, but they just don't want to give me any other funding for this job or this or this or what have you. So, you know, they don't want put all their eggs in one basket.
Jenn 00;28;26;05 - 00;28;42;19
And that's something that we have on a regular basis. Does that mean that the next bank that approves them is secondary or subprime? No, it's just less of a risk for the first bank to actually give them funding when the second bank comes back. So I always find that pretty interesting. They're a little shocked.
Jackson 00;28;42;19 - 00;28;45;29
I'm sure they are indeed. But yeah.
Jenn 00;28;46;18 - 00;29;11;17
Okay. So let's talk about why APR’s are not used in our industry. Why why have has it gravitated to us using a simple interest? All of our competitors use it. It's kind of the norm in the industry to use simple interest, not to use APR. APR is not quoted on any of our loan documents. They haven't before. When the industry used to be really leaning towards leasing.
Jenn 00;29;11;17 - 00;29;29;20
Now that it is leaning towards more of an EFA an equipment finance agreement or a loan or a hybrid of a loan, whatever you want to call it, there's still there's really not rates that are put on our paperwork. So if you were to actually pop in your numbers at your approved four into an APR calculator, what does that rate look like as people do?
Jenn 00;29;29;20 - 00;29;47;00
They want to know for some weird reason. They want to know why is that? How is it similar to their home loan or even their their vehicle loan? I mean, if they were to compare to their credit card, it would definitely be lower than that, or at least I would think it would. But typically it ranges from what, anywhere from seven.
Jackson 00;29;47;00 - 00;30;20;24
To 20%, right. So it's there's a there's a cost, it's a finance cost. And that finance cost is going to be X amount of dollars depending on what your borrowing depends are, what your your your your rate is, how long you're buying, all those things are going to come into consideration. So if you're interested in saving money on the financing cost, I would highly recommend going the shortest term possible because you'll pay off the equipment sooner and you'll have less in total finance cost paid.
Jenn 00;30;21;01 - 00;30;43;07
Absolutely. It's something that I always advise my clients to if I see that they are someone that they don't carry a lot of debt, they don't like to have a lot of debt. They don't have revolving credit cards that they like that people rack up from time to time, because that seems to be the norm in America. A lot of people have credit card debt and a lot of people have credit card debt with these crazy rates of 25 to 29%.
Jenn 00;30;43;07 - 00;30;56;21
But then they're coming in and they're asking why they're all, you know, why am I getting this rate on this? Well, unfortunately, Mr. Customer, you're you have $40,000 in credit card debt. But if it is someone who doesn't have that and they like to live very.
Jackson 00;30;57;09 - 00;30;58;07
Live below their means.
Jenn 00;30;58;07 - 00;31;19;16
Right! They live very conservative in regards to their finances. I completely agree. Do it 24 months. Do it 36 months. Doesn't make sense for you to have a higher payment and pay that off quicker. Are you going to generate enough revenue on this piece of equipment in order for you to make the funds for that? And I think our clients respect that conversation more than anything.
Jackson 00;31;19;16 - 00;31;43;27
They do. And another thing I can also point out is that they're buying equipment to make money. That's the purpose of it. So why wouldn't you take the profits of the revenue from the money that's being made with the equipment and apply it towards other factors in your life, like your home, your personal vehicles, your credit cards that you can actually pay off and save on financing cost, because those are APRs they are.
Jackson 00;31;44;04 - 00;32;03;04
And that does allow you to do it because it's an annual percentage rate where you have different breakdown of principal and interest and people understand that they like that. They respect it. They understand because you have to shift their thinking. You have to get them thinking off the rate and payment and what the value of the equipment is going to bring.
Jackson 00;32;03;04 - 00;32;30;08
Because if someone's buying an excavator for their construction business, there's a reason for it, cause they're going to build homes. I was doing a deal for a guy out in Missouri that was buying two pieces of equipment. Over the next ten months, he was going to make a $1.2 million. He did not care what his payment was because he's going to make $1.2 million building 30 homes in Missouri because the value of the equipment exceeded whatever the cost was.
Jenn 00;32;30;09 - 00;32;48;24
Absolutely. Yeah. Yeah. Or you're coaching that client again, if they're so hung up on the cost of funds that they're paying. Okay, well, this is what it is for now. But if you can pay down a credit card, if you have additional cash flow, whatever it is, here's how to make the scenario better for you so that the cost of funds will be less.
Jenn 00;32;49;15 - 00;33;08;07
Plus, in conjunction with that, take a 24 month term and then on the next transaction, let this transaction be the deal that builds that business credit for you. So that way you can have, you know, 12 months of a comparable credit for your next deal. So we want you guys to comment below. Let us know your thoughts. Have you financed equipment before?
Jenn 00;33;08;07 - 00;33;27;13
Have you worked with Smarter business finance? Do you have any questions? Have we covered all the things that you want to know about doing business commercially and in regards to building business credit, whatever it is that's on your mind, go ahead and comment below. Throw us a like and let us know the next topic for possibly next season. Thank you so much again.
Jenn 00;33;27;13 - 00;33;28;17
My name's Jennifer Casey.
Jackson 00;33;28;17 - 00;33;29;00
I'm Robert Jackson
Jenn 00;33;29;00 - 00;33;34;27
And this is Smart Business Finance Podcast Season two Episode three. Bye!
Rob 00;33;41;16 - 00;34;19;10
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 an episode that's of interest to you, that would be fantastic.
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