Business owners and managers want to compare equipment financing companies to their banks and for good reasons; The bank is the first reference point of the company when borrowing money or financing equipment or expansion projects. The bank is the most obvious place to start and a safe place to save your money and use some of their services. But what is not done by the bank well, both historically because of their structure and the tightening of the recent credit market, is offering business financing for capital assets (equipment). But many people are confused when looking for equipment loans because they don’t see the whole picture; This is a case where you definitely want to compare apples with apples to get the best results.
Here are some points for comparison; This is not set in stone but based on years of experience, this trend implements a majority of time.
1) Total Dollars Funded – Banks usually require you to maintain a balance of 20% or 30% of the number of equipment loans in deposits. This means they only finance 70% or 80% of your equipment costs because you have to keep your money in a fixed account during the duration of the loan. Conversely, equipment financing companies will include 100% equipment including all “soft” costs and will only request payment in advance one or two months. No fixed deposits are needed.
2) Software – Banks also usually will not cover “soft” costs such as labor, warranty, consultation and installation which means these costs come out of your pocket. Equipment financing companies will cover 100% of the price of equipment including “soft” costs and several projects can be financed with a “soft” cost of 100% that have never been considered by the Bank.
3) Interest rates – These are the most popular questions in the financial world; What is my rate? If the bank requires a 30% deposit in a fixed account, it automatically raises 5% interest rates to a level of 20%. Now people will argue that you get a deposited money back at the end of the term but it is money that you don’t have access and have opportunity costs associated with it. Equipment Financing companies target their financing levels between 3-5% for cities and 7-9% for commercial financing which is a real level of remaining and not below as bank interest rates can thus independent financial levels are very competitive with “true” bank rates ,
4) Speed of the process – Banks often take weeks to review and approve financial demand while independent financing companies usually only take several days and can work much faster. The financial emission guarantor only reviews business financing while banks have a type of demand that clogs their channels.
The bank also has more level of approval and review to pass while independent financing companies usually only have two, guarantee and credit committees. Even with complicated offers, the company’s financial process is always faster.
5) Guarantees – Banks need, as a standard part of their documentation, pawn blankets on all assets, both personal and business assets are used as collateral for loans. Your business assets, your home, your car, and your boat can all be on the phone when entering a bank transaction. It can also occur with equipment financing companies but if your business operation is a solvent, only your business will be registered as a guarantee and not your personal asset; This is known as the “Corp.” agreement.
6) Monitoring – Bank requires an annual “re-qualifications” of all their meaningful business accounts on the anniversary date of your loan every year, you must submit the financial documents required to ensure the bank that all goes well and no one affects your business. Negatively. Financing companies do not require anything during the loan or financial period during monthly payments performed on time. No one will check your business or police what you do.