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Equipment Financing

Published By Credit Suite at October 30th, 2015

What is Equipment Financing?equipment financing Credit Suite2 - Equipment Financing

You can easily get the equipment you need for your business.  One of the best and smartest ways to get the equipment you need is by using equipment financing.

You can deduct the interest you pay on the lease. And you will not need a large down payment to get approval.

This is one of the reasons over 80% of U.S. businesses use equipment lease financing to get equipment for their businesses.

Why Should You Use Equipment Financing to Get Business Capital?

Using equipment financing, you can improve your business cash flow and increase capital.

You can keep your normal cash flow, and leave your money in the bank. So, you can avoid major out of pocket expenses incurred by buying the equipment up front. And you can benefit from multiple tax advantages.

Equipment leasing is one of the most common types of business funding available today.

When leasing machinery, you will find most leasing options offer you fixed-rate funding.  This means your interest rate and payments will stay the same from month to month during the term of your lease.

What About Other Choices for a Business?

Whether you need office machinery or large commercial machines used for manufacturing, equipment financing is a perfect option for you and your business.

You can also use this form of financing if you are starting a new business which needs equipment to operate.

So, there is typically no down payment required on equipment leasing loans.  The lender will collect 1 to 2 of your monthly payments upon approval.

This amount of money you need is usually equal to 3 to 7% of the total equipment cost.

You will have low monthly payments available. And the financing company can tailor your payments to fit your company’s individual needs.

You can also include taxes and other charges such as installation charges into your new equipment lease.

And What About Business Credit versus Equipment Financing?

With better cash flow, you’ll be better able to keep up with credit payments. This means a better PAYDEX score and more.

Business Credit Building

Small business credit is credit in a company’s name. It doesn’t connect to an owner’s consumer credit, not even when the owner is a sole proprietor and the solitary employee of the business.

As a result, a business owner’s business and personal credit scores can be very different.

The Benefits

Since company credit is independent from personal, it helps to safeguard a business owner’s personal assets, in case of a lawsuit or business bankruptcy.

Also, with two separate credit scores, a small business owner can get two separate cards from the same vendor. This effectively doubles purchasing power.

Another advantage is that even start-ups can do this. Going to a bank for a business loan can be a recipe for disappointment. But building small business credit, when done right, is a plan for success.

Consumer credit scores are dependent on payments but also various other factors like credit utilization percentages.

But for business credit, the scores truly merely hinge on if a company pays its bills punctually.

The Process

Growing company credit is a process. It does not happen without effort. A small business must proactively work to build small business credit.

However, it can be done readily and quickly, and it is much quicker than developing consumer credit scores.

Merchants are a big aspect of this process.

Undertaking the steps out of order results in repetitive denials. No one can start at the top with company credit. For example, you can’t start with retail or cash credit from your bank. If you do, you’ll get a rejection 100% of the time.

Small Business Fundability

A small business has to be fundable to lending institutions and merchants.

Due to this fact, a company needs a professional-looking web site and e-mail address. And it needs to have website hosting from a supplier like GoDaddy.

Also, business telephone and fax numbers must have a listing on 411. You can do that here: http://www.listyourself.net.

Additionally, the company phone number should be toll-free (800 exchange or similar).

A business also needs a bank account devoted purely to it, and it needs to have every one of the licenses essential for running.

Licenses

These licenses all must be in the perfect, correct name of the company. And they need to have the same business address and phone numbers.

So bear in mind, that this means not just state licenses, but possibly also city licenses.

Working with the IRS

Visit the Internal Revenue Service web site and get an EIN for the business. They’re free. Pick a business entity like corporation, LLC, etc.

A business may get started as a sole proprietor. But they absolutely need to switch to a form of corporation or an LLC.

This is to diminish risk. And it will maximize tax benefits.

A business entity matters when it concerns taxes and liability in case of a lawsuit. A sole proprietorship means the entrepreneur is it when it comes to liability and tax obligations. Nobody else is responsible.

The best thing to do is to incorporate. You should only look at a DBA as an interim step on the way to incorporation.

Instigating the Business Credit Reporting Process

Begin at the D&B website and get a totally free D-U-N-S number. A D-U-N-S number is how D&B gets a small business into their system, to produce a PAYDEX score. If there is no D-U-N-S number, then there is no record and no PAYDEX score.

Once in D&B’s system, search Equifax and Experian’s sites for the company. You can do this at www.creditsuite.com/reports. If there is a record with them, check it for accuracy and completeness. If there are no records with them, go to the next step in the process.

By doing this, Experian and Equifax have activity to report on.

Starter Vendor Credit

First you need to establish tradelines that report. Then you’ll have an established credit profile, and you’ll get a business credit score.

And with an established business credit profile and score you can begin to get credit for numerous purposes, and from all sorts of places.

These sorts of accounts often tend to be for things bought all the time, like marketing materials, shipping boxes, outdoor work wear, ink and toner, and office furniture.

But to start with, what is trade credit? These trade lines are credit issuers who give you starter credit when you have none now. Terms are commonly Net 30, rather than revolving.

Therefore, if you get an approval for $1,000 in vendor credit and use all of it, you need to pay that money back in a set term, like within 30 days on a Net 30 account.

Details

Net 30 accounts have to be paid in full within 30 days. 60 accounts have to be paid completely within 60 days. Compared to revolving accounts, you have a set time when you must pay back what you borrowed or the credit you made use of.

To launch your business credit profile the right way, you should get approval for vendor accounts that report to the business credit reporting bureaus. Once that’s done, you can then make use of the credit.

Then pay back what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.

Vendor Credit – It Helps

Not every vendor can help in the same way true starter credit can. These are vendors that grant approval with marginal effort. You also need them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.

As you get starter credit, you can also start to get credit from retailers. This is to continue to validate you are dependable and pay promptly. Here are some stellar choices from us: https://www.creditsuite.com/blog/5-vendor-accounts-that-build-your-business-credit/

Uline

Uline is a true starter vendor. You can find them online at www.uline.com. They sell shipping, packing, and industrial supplies, and they report to Dun & Bradstreet and Experian. You MUST have a D-U-N-S number and an EIN before starting with them. They will ask for your business bank information. Your business address must be uniform everywhere. You need for an order to be $50 or more before they’ll report it. Your first few orders might need to be prepaid initially so your company can get approval for Net 30 terms.

  • How to apply with them:
  • Add an item to your shopping cart
  • Go to checkout
  • Select to Open an Account
  • Select to be invoiced
Quill

Quill is another true starter vendor. You can find them online at www.quill.com. They sell office, packaging, and cleaning supplies. And they also sell toner, office furniture, and even shipping and school supplies. They report to Dun and Bradstreet every quarter.

To apply, you MUST have a D&B PAYDEX score. If not given a Net 30 they will ask you to do prepaid orders of $100.00. Normally any prepaid order won’t report but you would need them to have given you a Net 30 account. Net 30 accounts require $50.00 purchase to report.

New business or businesses with no credit history may need to prepay purchases until Net 30 approval. Terms are Net 30.

  • Here’s how to qualify:
  • Your business entity must be in good standing with the applicable Secretary of State
  • You must have an EIN and a D-U-N-S number
  • Business address (it has to match everywhere)
  • Business license (if applicable)
  • A corporate bank account

Apply online or over the phone.

Grainger Industrial Supply

Grainger Industrial Supply is likewise a true starter vendor. You can find them online at www.grainger.com. They sell hardware, power tools, pumps and more. They also do fleet maintenance. And they report to D&B. You need a business license, EIN, and a D-U-N-S number.

  • To qualify, you need the following:
  • A business license (if applicable)
  • An EIN number
  • A company address matching everywhere
  • A company bank account
  • A D-U-N-S number from Dun & Bradstreet

Your business entity must be in good standing with the applicable Secretary of State. If your business does not have established credit, they will require additional documents. So, these are items like accounts payable, income statement, balance sheets, and the like.

Apply online or over the phone.

Accounts That Do Not Report

Non-reporting trade accounts can also be helpful. While you do want trade accounts to report to a minimum of one of the CRAs, a trade account which does not report can also be of some worth.

You can always ask non-reporting accounts for trade references. Plus, credit accounts of any sort should help you to better even out business expenses, thus making budgeting easier.

Store Credit

Store credit comes from a variety of retail companies.

You must use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use the small business’s EIN on these credit applications.

Fleet Credit

Fleet credit is from businesses where you can purchase fuel, and fix and maintain vehicles. You must use your SSN and date of birth on these applications for verification purposes. For credit checks and guarantees, make certain to apply using the small business’s EIN.

Cash Credit

These are companies like Visa and MasterCard. You must use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use your EIN instead.

These are commonly MasterCard credit cards.

Monitor Your Business Credit

Know what is happening with your credit. Make certain it is being reported and attend to any errors ASAP. Get in the practice of checking credit reports. Dig into the particulars, not just the scores.

We can help you monitor business credit at Experian and D&B for 90% less than it would cost you at the CRAs.

At Equifax, you can monitor your account at: www.equifax.com/business/business-credit-monitor-small-business.

A Word about Building Business Credit

Always use credit smartly! Don’t borrow beyond what you can pay off. Keep track of balances and deadlines for payments. Paying in a timely manner and in full does more to increase business credit scores than pretty much anything else.

Growing small business credit pays off. Good business credit scores help a business get loans. Your credit issuer knows the business can pay its financial obligations. They recognize the company is for real.

The small business’s EIN links to high scores and lending institutions won’t feel the need to ask for a personal guarantee.

Takeaways for Equipment Financing and Business Credit

Business credit is an asset which can help your small business for years to come. Learn more here and get started toward establishing small business credit.

Equipment Financing: The Upshot

Equipment loans are perfect for any business owner looking to purchase equipment. If that is you, then you can be a great position to take advantage of this type of funding.

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