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We totally understand this; Nobody likes to pay interest, and neither do we. This is an emotional hot button for any business person looking to finance equipment or obtain working capital. They think it’s like throwing money in the wind… or doesn’t it? Interest is the rate you pay for using someone else’s money to finance something. So why not pay cash and eliminate the interest? When businessmen say this to me I respond, “If you have unlimited cash or if you have enough resources that making cash payments will not jeopardize your business cash flow then go right ahead”. I never argue that point because it is emotional. But the warning should be clear; Paying cash for something that will cripple your ability to have capital for emergencies, market changes, market opportunities or expansion is not wise. If your market changes and sales drop, it may be difficult to go to your bank to borrow capital; This is not going to be easy as traditional lenders are not risk takers and lending to a down-trending business is “risky”.
Asset financing allows you to maintain your capital and the longevity of your business, while paying interest. Of course the finance payments make sense; It should fit into your monthly budget and the asset should contribute to your profit line in some way or the other. It should make you money or save you money. The third contribution is harder to measure which may be image and goodwill; If you are a custom interior kitchen retailer then investing in a modern showroom for your customers to view your products can be invaluable and give you a high return on your investment but again it is a bit hard to put an exact number. In any case, the finance investment should still be manageable within your budget.
While no one likes paying interest, it should only be viewed as part of your return-on-investment calculation to ensure you’re getting the best use out of your new equipment. How to get the lowest rate? Keep your personal FICO as high as possible and have it repaired by a service if you run into trouble Review your D&B Business Profile and make sure it is accurate Establish a payment plan if any tax liens exist and have it documented and in a place that shows you have taken the right steps to resolve them and finally having your financial statements prepared by a service, bookkeeper or accountant will indicate that you are organized and Take business seriously. In the long run if managed properly, the finance interest you pay will actually pay you back.
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