Wednesday, September 12, 2012

Hey Finance Guy, the Grinder Guy has a few questions…


            I am always asked about financing and to be honest, as a Salesman, keeping one person as your key go to guy, is difficult to do at best. If they are that on their game, they follow up, get the best product for the customer and are generally a personable person, they usually don’t last long in that position. Their superiors recognize their performance and off they go to greener pastures.
            We found a good company and great guy last year and we’ve been working him hard. They have been a general pleasure to work with and the customers seemed pleased also. So we spent a few minutes with Mark Combs and Gary Bagwill of Snider Leasing of Sacramento, CA and asked them the questions I generally get asked that are never the same with Financial Institutions, but with this information, you can get a jump start on your financing and maybe some ideas to think about.

Q – What should a customer get together prior to calling for financing? Financial statements, tax returns?

A – Requirements for financial information will vary from one lender to another, and is often influenced by the amount of the request to be financed and the credit strength of the Applicant. To use a standard rule of thumb, however, most lenders will be looking for the following:
-           A Credit Application; 2 years Profit & Loss Statements on the business and the principals of the company, (depending on whether or not the company is publicly or privately held); If the year-end of the business is more than 6 months old, an interim Profit & Loss and Balance Sheet will likely be desired; If the business financial statements are unaudited, corresponding Federal Tax Returns for the same 2 year period will likely be required; if the business is closely held, Federal Tax Returns on all principals will also likely be required.

Q – What are good rules of thumb for maximum finance amounts based on income levels?

A – The term of the financing will vary by lender, the type of equipment being financed, the age and useful life of the equipment and the financial and credit strength of the Applicants. Typical terms usually range for 24 months to 60 months. Weaker credits, weaker financial strength, etc. will typically only be considered for the shorter terms. Stronger Applicants can in some scenarios get terms of up to 84 months.

Q – What is an operating lease?

A – There are primarily 2 types of leases. Finance Leases and Operating Leases. There are even often variances of these which are interpreted differently from Lender to Lender but typically an Operating Lease if more oriented toward a structure that is considered “Off Balance Sheet” financing and does not typically lead to ownership of the equipment at the end of the contract. It is also subject to specific accounting and IRS requirements and guidelines and the payments are typically referred to as “Rental Payments” and are tax deductible. The Lender/Lessor takes the depreciation, not the Applicants. An Operating Lease is often more beneficial to Applicants looking for lower payments than traditional financing, unique tax advantages, (such as no Alternative Minimum Tax consequences) and better addresses the obsolescence factor regarding the equipment, since ownership may not be the desired goal at the end of the contract.

Q - Why is leasing better than purchasing or not?

A – There are advantages and disadvantages to both traditional financing and leasing. These will be established by the circumstances of the Applicant as outlined above. In addition to the advantages listed above, typically a lease will offer less initial capital expenditure than traditional financing and, in some cases, more flexible terms and structures. Traditional financing may offer the benefit of a more accelerated write-off under some circumstances, depending upon applicable IRS guidelines and opportunities. A lease may be less impacted by IRS regulations and consequences than traditional financing by virtue of nature/qualifications and a Rental Contract, as referenced above.

            So for your next purchase, or lease, get some options that may benefit your tax position rather than just comparing rates because when it comes down to the end of the year, we don’t care how much interest we paid, we care how much money we made. You can contact Mark Combs at 800-377-8812 or www.sniderleasing.com for more information.

            Also, 2012 is going by quickly. Your accelerated depreciation amount is at 50% this year and you still have your Section 179 Expensing for used equipment. You can get more detailed information at http://www.depreciationbonus.org .

            Questions, Comments, grinderguy@askthegrinderguy.com .

Dave Whitelaw
www.askthegrinderguy.com

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