It’s a business that is absolutely essential for some industries, yet the popularity of capital equipment financing means that it’s also one that is surrounded by countless myths and misconceptions. The lenders might tell you one thing, and other companies involved in the trade another, but dissecting the truth can be difficult at the best of times.
As is the case with a lot of finance-related businesses, many of these myths can actually end up costing you money. Bearing this in mind, we have taken some of the most popular ones that don this industry and listed them below. Hopefully, by the end of the guide, you’ll be in a much stronger position to negotiate with your equipment lender of choice.
“You need more than one element of collateral”
As you have probably gathered by now, one of the key points about capital equipment financing is the collateral. Without this, the lender doesn’t have any form of protection, so it’s a pretty essential element.
However, this is the only element. In other words, you don’t need to offer additional collateral. Sure, there might be some cases where you don’t have sufficient funds to put down a significant down payment, and in these instances the lender might seek more than one element of collateral.
In most cases it’s just not needed though. The main aim for lenders is to make it as easy as possible for themselves, and adding extra collateral completely goes against this principle.
“TTL is off the agenda”
If you’ve considered capital equipment financing in the past, you may have come across this myth. A lot of banks like to say that they don’t consider financing TTL agreements. In plain English terms, this refers to the financing of tax, title and licensing.
The banks don’t like this option for the simple reason; it surrounds soft costs. In other words, they aren’t going to get returns from it and in some ways, it puts them in negative equity.
At the same time, not all lenders are like this. As such, don’t treat this myth as gospel – go around and obtain quotes as chances are you will find one that will be able to finance everything from the top down.
“You need to always buy new equipment”
Again, this is one of those myths that might be true with some lenders – but it’s by no means the norm. In other words, some lenders will be really opposed about providing you the money to purchase used equipment, as it’s going to be harder for them to turn a profit if you default on the loan. At the same time, any older models (even if brand new) can sometimes be thought about in the same regard.
However, sometimes your business will NEED these older pieces of equipment. Sometimes your first choice lender won’t be able to assist in this regard, but you will most probably be able to find a company that will and this is always worth considering.