Use these guidelines to help ensure you’re getting the most benefit out of your payment plans
Getting enough funds together to afford all the equipment and trucks you need to start or grow your business can be nearly impossible without a little help. That’s where financing comes into play. In fact, a recent study found that 78 percent of businesses used financing to acquire equipment.
Financing is clearly not a secret, but what some people might not know are the traits that make a payment plan great. From before the lease begins to after it’s over, there are a few things that can set a plan apart from the rest.
1. Flexibility at the Start
When reviewing a potential lender’s website look for a thing called flexible financing. A lease created specifically to fit the needs of your unique business is the foundation for greatness when it comes to financing equipment. Every business, even within the same industry, has its own set of needs. Flexible financing gives you more options than a traditional lease. With a lender willing to be flexible about terms, you’ll be able to start the plan off on the right foot. To find out more about a lender’s flexibility, ask about nontraditional plans like no money down, buy now/pay later, and startup financing. Best of all, see if they’re willing to tailor a plan to fit your exact needs.
2. Affordable Payments and Term Length
While it might be tempting to go for the absolute lowest monthly payment possible, it isn’t always the best choice. Super low payments tend to go hand in hand with a long plan. This isn’t necessarily a bad thing, but it may not be the best deal for you.
On the other end of the spectrum, a short payment plan with high monthly payments can push your budget too far. Just like Goldilocks, you need to find the payment and term length that’s just right. Start by considering these three things:
Time in business — Startups will most likely need to find a plan with a lower payment and longer term length because of the lack of revenue and credit history. Businesses that have been around for a few years have more leeway.
Type of plan — Consider what kind of plan you need. If it diverges from the traditional pay-the-exact-same-amount-each-month plan, make sure you consider your long-term growth when coming up with your monthly budget.
Cost and type of equipment — If you’re financing a relatively lower-price piece of equipment or the value will depreciate quickly, a long-term length isn’t ideal.
3. End-of-Lease Payment
A good equipment financing plan will outline exactly what happens at the end of the lease and will be tailored to help your business. There is no one perfect way to end a lease, but there are a few common ways you should know about.
Lease-to-own — With lease-to-own, you have ownership of the equipment at the end. This may call for a larger payment at the end or simply end with a $1 buyout. It all depends on the terms of your lease. A good financing consultant will help you figure out the best option for you and your business.
Equipment financing agreement — An EFA is similar to lease-to-own in that you keep the equipment, but it differs in that you receive ownership of the truck or equipment in the beginning and are making payments each month to repay the cost. With this plan, the last payment is typically the same as all the others.
Terminal rental adjustment clause — A TRAC lease program is structured specifically for vehicles or trailers used commercially at least 50 percent of the time. At the end of the agreement, you have three options: purchase at a percentage of the price, upgrade/replace the equipment, or turn it in for cash. This structure allows for maximum end-of-agreement flexibility.
It’s important to note that no matter how you choose to end your payment plan, it should be planned before signing the agreement.
4. Easy Payment Methods
You’re constantly swamped with work, so the last thing you want is to have to carve out time to pay for your equipment in some convoluted way. These days, even mailing in a check can be difficult, and you don’t want to miss a payment because you ran out of stamps and the post office was closed. Keep an eye out for the ability to make automatic electronic payments. The payment will be directly debited each month from whatever account you choose. No more relying on the mailman.
5. Great Customer Service
Last but not least, a great plan should come with great customer service. From application to end-of-lease, you should expect top-notch service. Your consultant should be easy to get a hold of and be prepared to answer any questions you may have about the process.
After you sign on the dotted line, you shouldn’t be left on your own. You’ll want to maintain the relationship with your lender to make future deals even easier. Sign up for their mailing list and stay in touch. Your lender should make it easy for you to do this via email or phone. As a general rule, a company with good service will work to get you a great plan.
About the author: Ryan Driscoll is a business development consultant at Beacon Funding, a leading equipment financing company. Ryan has been in finance for over 16 years, and 12 of those years have been dedicated to commercial vehicle leasing. For more information, contact Driscoll at 347/532-7878 or RDriscoll@beaconfunding.com.