Masonry Magazine April 2003 Page. 36
Financial Strategies
If you do this a couple of times, building up your credit rating, when you go to a non-bank lender, the fact that you have $100,000 plus of short term investments, even tied up in collateral, is going to assist in making your balance sheet more attractive to an equipment lender. This strategy is especially useful, even on lower amounts for newer businesses without a solid credit history. Taking $20,000, $50,000 or whatever you can afford will help.
Summarizing, we dealt with improving your profitability, enhancing the balance sheet by getting accrual statements done in addition to your tax return, and putting spare cash into higher return bond funds in tax exempt bonds, generating a small profit in addition to the cost of money and enhancing your credit rating with an improved current ratio and a history of on time payments on bank loans.
In addition, we brought the real estate purchase into focus using a lease with the business to finance a personal mortgage allowing you to take more money out of the business tax-free during the 20-year depreciation period.
Purchasing Equipment
NOW WE ARE READY to buy equipment. Many banks have leasing companies, so if you aren't dealing with them find one in your area that does have leasing. The reason for this is that if you let the bank have the depreciation on the equipment during the first few years they may have a sweetheart interest rate on their lease and do 100 percent financing on the equipment you want. SBA guaranteed bank loans may only do 75 percent of equipment cost so that's the difference.
That means, generally, your down payment on the lease is two months lease payments up front, as compared to 25 percent of cost for a loan. Right now a good lease such as this would be at prime or even under prime where the bank gets the depreciation. Thus all of the bank leasing income from various sources might be impacted by a significant first year depreciation on the equipment you financed, allowing them to shelter other income and increasing their after tax return.
However, they will likely use another trick to finance you by adding all the interest on the entire term of the lease to the front end and making the payments divide into the total of all the interest plus the purchase costs. This may not be attractive because the payoff will often have an early pre-payment penalty. So if you financed something for seven years and you wanted to pay off in five, you might have paid interest based on six years. Therefore, whenever you are negotiating equipment loans make sure you get an early cancellation clause in you favor.
In addition, you can figure out the actual interest rate by taking the annual buy out of the lease amount and comparing it to the amount outstanding based on 100 percent of the pay.
CONCRETE, MASONRY
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6' Handle Standard
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Constructed from lightweight durable aluminum, it features a swivel head for head for easy use in difficult areas and corners. It has a durable 6-foot powder coated handle. The scraper uses a standard 7" rubbing disc as an abrasive pad. The disc holder is engineered for quick and easy disc changes.
FOR MORE INFORMATION CONTACT: SLIP INDUSTRIES, 115 W. STIEGEL ST. MANHEIM, PA 17545 7LIP
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✓ Did Your Competitor Read This?
Direct
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6301 Chelton Avenue, Harrisburg, PA 17112
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www.masoncontractors.com
34 Masonry
April 2003