Financing options for your NPE purchase
Picture it -- NPE is almost over, and you've talked the sales rep down as low as he'll go. This is the time to buy. How will you pay for your purchase?If you did your legwork before going to NPE, you ...
Picture it — NPE is almost over, and you’ve talked the sales rep down as low as he’ll go. This is the time to buy. How will you pay for your purchase?
If you did your legwork before going to NPE, you should have a couple of options in place. The traditional methods to finance a capital equipment purchase include leasing, line of credit, or an equity loan.
The Toronto Dominion bank, for example, offers lines of credit for equipment purchases to allow you to act quickly when an opportunity arises; fixed or floating business loans; and leasing programs.
When evaluating these financing options, think about more than just the interest rate and the monthly payment, says Tejal Mehta, of The CIT Group (Toronto), a financing company. “If you did a lease versus loan analysis, including the tax implications, the lease is often more beneficial.”
In addition, “a lease is often more creatively structured, with the possibility of deferred or irregular payments, and the ability to finance the purchase 100 percent,” he explains.
One difference between a lease from CIT Group and a bank loan is the assessment of creditworthiness. A leasing company such as CIT Group examines the company’s management and financial structure. Equity is not an issue because the leased piece of equipment acts as collateral for the debt.
A bank loan, or line of credit, is likely to consider the assets and liabilities of your business, looking for equity to balance the debt, says Mehta. A bank may also be unwilling to finance 100 percent of the purchase cost.
There some constraints on a lease as well. Mehta says CIT Group has a minimum transaction threshold of about $70,000, and leases run 24 to 72 months. Most leases on equipment are of the capital lease variety, which are generally amortized over a five year period for the full value of the machine.
For a purchase at NPE, CIT Group can do business in either Canadian or U.S. funds, but you would have to arrange pre-approval for credit before leaving for Chicago.