October '21

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G R A P H I C S - P R O. C O M 2 0 2 1 O C T O B E R G R A P H I C S P R O 1 1 3 should do that, but newer businesses, "even if they could put it on a credit card, they may want to finance with us and build up their business credit," he adds. TRADITIONAL LOAN Colling says he encourages clients to pur- sue a business line of credit via a bank or a government-backed loan, like an SBA loan, if they already are working with a local bank and can secure great rates. Typically, traditional bank loans offer single-digit interest rates, even for newer businesses. They also offer longer term loans, meaning a company could spread out its payments over five to 15 years. "The biggest challenge is the speed of the application approval process," he says. It can take five or six months to get approval on a loan and many times the loans come with "strings attached," like a larger down payment. A $100,000 piece of equipment could require 10-20% down because banks want to limit their risks, he adds. "Bank financing is less about credit … The asset itself is the larger factor. They want to minimize risk. If someone defaults on a loan with a house, they sell it and break even. With equipment, that piece may be worth 60 cents on the dollar, so it is not great collateral for traditional lend- ing models," Colling says. Troy Putnam, Geneva Capital, says a home equity line of credit also can be used to purchase equipment but "usually you want to leave those funds available for other short-term opportunities that might come up." EQUIPMENT LEASE FINANCING The fourth solution is called alternative financing or commercial use financing. Equipment leases still exist but most customers want to own their equipment outright. Companies like Ascentium of- fer equipment financing agreements that offer a fixed payment over a two- to five- year time frame, like a bank loan, but the difference is the customer owns the equipment from day one. After the cus- tomer makes their last payment, the lien is released. For established businesses, an equipment finance agreement is nearly identical to a traditional bank loan with rates between 5% and 8%, but no money is due at sign- ing. During the pandemic, Ascentium implemented a deferral model that allows customers to defer payment for up to six months so their new equipment can help them start generating revenue and profit. After that deferral, the two- to five-year agreement begins with a competitive inter- est rate, Colling says. Geneva Capital offers two different programs for equipment financing, a true lease or tax lease and a capital lease. A tax lease is designed to keep monthly pay- ments lower because there is a fair market value purchase option at the end of the lease term, such as 10% of the original equipment price. For a $10,000 piece of equipment, the purchase option at the end would be $1,000. The other benefit of that option, he says, is that it gives the buyer the ability to expense and deduct their full monthly payments over the course of the term, which is typically 12-60 months. If

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