The Leasing GroupThe Leasing Group

by Bob Callander

Buying, Borrowing and Leasing

Which is best?

#2 – Bank Loans

 

When considering business equipment financing, your bank is often the first and preferred “go to” solution.  You know your banker.  You trust your banker to be truthful and fair.  Your credit history is good.  You and your bank are business partners with a long and mutually beneficial relationship.

The use of bank financing is an obvious way to pay for new equipment without burning your pile of operating cash.  But is it always the right solution for your company’s future?

First consider the following questions:

  1. What is your “global” borrowing capacity?  Does your bank also finance your building, your home, personal vehicles, and your kid’s education?  How will adding one more loan affect your entire borrowing relationship?  Given other obligations, can your bank make a quick decision, or will your cumulative loan balances slow the process, requiring lengthy bank evaluation at multiple decision levels?
  2. What about loan covenants and collateral attachments?  Will your bank require all business assets to be pledged or ask you to maintain specific cash deposits?  How about cash flow coverage ratios and debt ratios?  Will these covenants restrict growth during the loan term?
  3. What about your loan’s interest rate?  It might look reasonable at first glance, but are there fees attached?  Can you payoff early without penalty?  Are there additional charges applied to late payments?  Is the interest rate fixed for the full loan term or is it adjustable or floating, tied to an index such as the Federal Reserve lending rate?

A bank loan can be a good option when financing equipment purchases, but not always the best.  Just make sure you understand the loan process, read the loan documents, and keep options open should your financial condition change during the loan period.

Bob
About Bob
Buying, Borrowing and Leasing