Financing equipment.

[bikermutt07]

1 hour ago, MADMAX22 said:

I thought it was the other way around, most people thought they would make less money, work harder, but not have to deal with a bunch of money hungry greedy A-holes telling them to cut corners and screw people over to get more money. 

Most people aren't as smart as you.

[MADMAX22]

35 minutes ago, bikermutt07 said:

Most people aren't as smart as you.

Man I hope not or else were all screwed 

[bruce johnson]

A differing point of view from the flip side. This is coming from a guy who was happy as a clam at high tide with a LTO on a sewing machine. A long time ago in a galaxy far far away new sewing machines used to cost twice as much as they do now. Feet and accessories were not a gimme deal either, and a wise man named Art gave me the advice to buy every foot and plate you think you'll need. At the same time get all the other ones you don't know you need yet when you buy your machine because they don't get cheaper afterwards. I called the friendly folks at Ferdco, who I had bought a used machine from previously and set up a new Pro 2000 with the accessories on a $6300+ LTO through their arranged lease company. Some people know my story, but due to some medical debt then I personally couldn't have qualified to finance a pack of needles. As a business with books showing income, I qualified for LTO easily. Fast forward, for 5 years I got to deduct the full annual cost of the lease against my business income. Two basket stamped belts a month paid for the machine. At the end I paid $1, did the happy dance, and own it. If I had financed it I could have only deducted the interest and first five years of depreciation during that same time with a regular loan. Another factor - insurance. It was also a lot easier and cost less to get specific coverage insurance on the machine through the lease company than a rider on my own insurance. As the tax advisor in a small business development/management program explained to us - businesses generally lease, people generally finance. 

[OLDNSLOW]

10 hours ago, bruce johnson said:

A differing point of view from the flip side. This is coming from a guy who was happy as a clam at high tide with a LTO on a sewing machine. A long time ago in a galaxy far far away new sewing machines used to cost twice as much as they do now. Feet and accessories were not a gimme deal either, and a wise man named Art gave me the advice to buy every foot and plate you think you'll need. At the same time get all the other ones you don't know you need yet when you buy your machine because they don't get cheaper afterwards. I called the friendly folks at Ferdco, who I had bought a used machine from previously and set up a new Pro 2000 with the accessories on a $6300+ LTO through their arranged lease company. Some people know my story, but due to some medical debt then I personally couldn't have qualified to finance a pack of needles. As a business with books showing income, I qualified for LTO easily. Fast forward, for 5 years I got to deduct the full annual cost of the lease against my business income. Two basket stamped belts a month paid for the machine. At the end I paid $1, did the happy dance, and own it. If I had financed it I could have only deducted the interest and first five years of depreciation during that same time with a regular loan. Another factor - insurance. It was also a lot easier and cost less to get specific coverage insurance on the machine through the lease company than a rider on my own insurance. As the tax advisor in a small business development/management program explained to us - businesses generally lease, people generally finance. 

Interesting concept Bruce, even some of the large trucking companies that I use to work for had a sister company that owned everything or most everything and they in turn would lease it to the sister trucking company.  And of course the reason behind that is that everything leased can be written off, so that at the end of their accounting year it would all be written off.  I experienced the same thing as you with a previous business however I didn't lease anything I had bought outright but could only write off depreciation, so in the long run it isn't as bad as it seems if you don't have all the money to buy outright a LTO isn't as bad as it seems and even if you can afford to buy outright, if you lease you then always have the cash for that rainy day when it might be needed for a potential slow time.

[Northmount]

If you are taking an LTO, there is no need to pay out early.  Better to take the tax write-off and keep the cash you have in hand to keep your business going.  Being able to write-off leasing costs is only beneficial if your business is making enough money to use the write-off.  If you are just a small part-time business, hardly making it pay for itself, there is no benefit to LTO.

Get a good positive cash-flow if you really want to be in business.

Tom

[Northwind]

On 1/26/2017 at 9:03 AM, northmount said:

If you are just a small part-time business, hardly making it pay for itself, there is no benefit to LTO.

Well, that's us for sure. 

 

 

Great advice in this thread, thanks all.

[OLDNSLOW]

a lot of truth in what Northwind says, however, if you are doing any projecting in subsequent years and growth is considerable, or you want the growth and the money spent now could be used for advertising what then.  If you have used all your cash now on a machine, and you wish you would have hung on to some for advertising it would be to late as it went all on the machine.  One option you could look at is a larger down payment on an LTO so that you keep your monthly low and still have some cash to advertise with or buy other needed start up items, leather, dyes, thread, and so on, just more things to toss around and think about.  

[JLSleather]

What size payment you can / will make and for how long is really "the' question.  

• Personally, I would put $3k items on a card at 0% to pay it off over 6 months (ish) no interest (plus the purchase protection comes with the card).
• If instead we were talking $30k, that would be a finance consideration (at least, around here it would be).

 

[Northwind]

22 hours ago, JLSleather said:

 

• Personally, I would put $3k items on a card at 0% to pay it off over 6 months (ish) no interest (plus the purchase protection comes with the card).

 

That's a really good idea. Our business doesn't currently have the credit history to get a 0% credit card, and we are trying really hard to keep the business and our personal finances separate.

We're talking with our bank it looks like that's the option to go, CPA suggested that as well. We did get one other option, a private investor has come forward and offered to match or beat the bank's rate.

[Northwind]

So just to close this topic. We decided that a line of credit was the best option for us. This way we have it if at any time we need some extra cash. We can pay it off as fast or as slow as we need.