business equipment financing - Rule of thumb:That decision about

That decision about what the mode of financing for the new equipment will require quiet a lot of help from your accountant. The accountant will have to carry out a somewhat complicated financial analysis of the tax status of the business along with cash flow and the internal rate of return. You can also do it on your own by using some of the tools available online. The key concern in determining the finance alternative is the utilization rate of the equipment in question.

If the utilization of the machine is expected to be for more than 75 percent of the time and this machine is also proposed to be used for a long period of time then a conventional loan could be the right choice provided it can work in unison with your tax, bonding capacity and cash flow situation. But a loan is certainly not the right choice in case you plan to use the machine just for three to four years and after that it is going to serve as junk lying in your store.

If the equipment utilization is expected to be between 60 to 75 percent then alternatives like rental or lease should be considered. This is generally true for certain specialty equipment which normally gets used on few working days. In fact we would like to stress one thing out here that if the utilization is very high it makes sense get equipment on lease, however, the decision would mainly rest upon the financials of the small business.

For equipment which can generate no more than 50 percent utilization rental is the best way to get the equipment. Rental is also a good option if the machine is to be used for a very short duration continuously, say for instance that in a year you require a certain machine just for three months or so then rental will serve the purpose.

Sources of leases:

A fast catching up trend that the manufacturers of the equipments are offering so as to promote the purchase of their equipments is in-house financing and leasing, and this is known as captive financing. The manufacturer gets the equipment financed normally through their chosen dealers.

As for the manufacturers of the equipments the benefit of this setup, apart from increased sales, is that good relations with the dealers and the remarketing network get them a higher resale price. Most often the dealers would be willing to buy back the equipment from the manufacturer and accordingly the manufacturer is able to pass on the benefit to the customer in the form of lower monthly payments.

The OEM based program allows the small business to enjoy a uniform rate throughout the nation, especially so for the companies which are operating in more than one state. With these programs the small business is able to get to the same rate from the manufacturer irrespective of the location. Normally you would find that the independent finance companies which are not related to any manufacturer are more positively inclined to the option of conversion of lease to loan and providing lease for used equipment.

Qualifying for a lease:

As is true for any kind of dealings with the banks or the financial institutions, a well presented case will always get good results. Here is a small list of documents and information that you must carry with you for the meeting.

? Referral identity if any.

? The social security number.

? Bank contact information.

? Trade references.

? The credit information sheet of the business.

The small business which has been into operation for less than three years may also be required to discuss out their experience and provide additional references.

An important thing to remember is that even if you have bad credit the same must be acknowledged and no efforts should be made to hide it. As more often than not a lease gets granted based on the willingness of a person to pay back the money and may not really call for any financial information. But that is true only for nominal amounts, as with larger amounts the financial statement is a must.

You need to do some good amount of preparation before you proceed further for the meeting and must be well able to explain the motivation behind lease or the loan. And if your explanations are convincing the financing for the equipment will be much easier.

A startup business or a small business will need to have a strong enough business plan to convince the financer at the discussions table. The business plan must contain everything about to what you plan to do how you will do it and when you are going to do it.

Deciding on the leasing company:

The foremost concern about the financing company should be the stability and the commitment that goes with it in the industry. And by this we mean that if the manufacturing industry has gone through a decline in the past the financing company should have maintained balanced relations all through the industry. A good finance company will stand by the industry during the good times as well as the bad times.

The second most important consideration should be the size of the finance company. Which would entail understanding their ability to grow so that the company can continue to finance your projects as your small business grows over the years.

Where lease is the mode of finance, the finance companys experience and knowledge is highly important. And unless the company has a broad range of experience accompanied by good information regarding the equipments you should not proceed any further with the finance company.

Lastly the finance company should have a sound track record which can be determined from some of the online sources apart from the existing customers and the competitors of the finance company. The reputation of the company speaks about the integrity and the fair dealing that it can offer along with timely financial and non-financial services as per the requirement of the small business