What I have done in the past, especially if you have a large down payment, is to ask the seller to finance the balance personally with you, and do a short term payoff like 6 months. I was looking a $85k machine, offered $50k cash, and the dealer offered to 0% financing for 6 months on the balance. Look at the dealers standpoint, if you default he gets his machine back, you lose, and he can resell a slightly used machine and still make out. It's a good risk for him. Another opinion I have is that I like to own it outright. Any benefit, extra income, etc. from the machine goes to the bottom line, and not to a lease payment. And, yes, 10.9% is a rip.

For the last 20 years, I operated with a line of credit with my bank. I could bridge shortfalls for payroll or taxes and then pay it back. I could also buy equipment - within reason - with it and pay a reasonable amount back on the low APR loan. Even a minimal interest only payment in a short month.

It required discipline, for sure, but was handy for all sorts of things. Also made it easy to go to auctions and have a note from the bank that you were good for xxx amount of dollars.

I never leased anything. My CPA had a calculator that would tell you whether it was better to lease or borrow. It always came up borrow (if I didn't use the LOC).

The one advantage of a lease is that it does not count against your total indebtedness if you plan to borrow more money down the road.

David,
A Lease with a $1 buyout is basically a loan and does count towards long term debt. Its a "Capital Lease". Operating leases (vehicles, copy machines) are pure expense.

All.
In my message I said I doubted they he was paying 10.9, what I meant is I think the rate is much higher unless the value of that saw is in the 50-60k range
A-

Thanks for the input, all.

The business is relatively new and we don't have much of a credit history. That may be why the rate is so bad.

I think I will try to establish a line of credit with a local bank, as some have suggested, rather than pursue this lease deal.

Banks are a major P.I.A to deal with. If you're business is new they are not going to give you a line of credit. Nor will it be a fast or easy process.

Leases are popular and great because it's basically name, ss#, and sign here to apply and get approved. Under $50k usually doesn't require any documentation either.

I would try to get a loan first, rather than deplete your line of credit. It's always good to have a line of credit available for things that come up unexpectedly,or you just need it for cash flow to get through bigger jobs.

Drew,
Unless you are an ex-con with convictions for fraud and/or theft 50% down is a no risk loan for the lender.

A good used saw should get you by for a few years while you build your business and then you don't have to worry about the debt until you have steady sales.

I would guess you are being put with a leasing company you may not want to do business with.

If you own your home most banks and leasing companies will ask you to sign a personal guarantee that gives them the right to come after everything you own if you don't pay.

Do you have decent personal credit outside of the business?

A-

I generally always defer to all of the old souls in this group with regards to these major business decisions. But I have to say that in my world at least, things may have changed.

I have always run a cash business. Never had a major loan with a local institution or any other with regards to my business. I own everything. Land, buildings, tools and tooling, vehicles. I have periodically flirted with the idea of borrowing money, either for some new machinery, improvements or repairs to the building, a vehicle, etc.. These flirtations have primarily been post financial meltdown.

I can honestly say that 10% in todays world, for a business making its first foray into borrowing and perhaps not putting up the entire operation as collateral, doesnt seem unrealistic. Would I take the offer? No, and I havent for that very reason.

I have contacted my local bank (the bank I use regularly, small local bank, 2 locations) and they are up front with the fact that the lending world has changed drastically. Even if I were to put up my entire operation, I may not get a stellar rate.

I can only guess Im wrong, or I "need to find another bank", but I have to wonder if the relationships many shops built during the free'r times are paying dividends in these less than free times. Those of us trying to build relationships now are having to do so on a far different footing.

I remember the days when I could put my hands on 50k in a flash. Not anymore. And if I can, I am going to pay dearly.

Mark, You are right about times have changed for small business and banks. 15 years ago I went to my bank and said I needed $100K line of credit. I got one w/o so much as a tax statement. When the economy took a dump, I burned through all my available cash keeping my employees. I showed losses for 3 years. Then business turned and I had the opportunity to take several larger contracts. Needed operating $. Hadn't used my line of credit but they canceled it. Wouldn't give me a nickel in spite the fact I could show them a quarter of a million $ in contracts. Haven't tried getting any $ since. Don't need them now. Part of the problem was they could get almost free $ from the Feds and get absolutely safe interest income from it. No reason for them to take any risks with small business. The politicians claimed to be stimulating the economy.

If you do lease, stay FAR FAR AWAY from Balboa Capital. SCM tried to place my lease with them, and when I read the documents they were the most ridiculously predatory terms and language I've ever seen in any contract ever! They had a clause in the personal guarantee that they could change any term and condition at any time without notice and you're bound to it.

Jerry,

They had the same term in my personal guarantee for this deal. The lender is US Financial Services, LLC out of Southfield, MI. Same predatory language throughout the lease. In fact, they were trying to get me to sign a blank amendment form so that they could later fill in any language they wanted and have my original signature on it.

Needless to say, whether I go with a lease or a loan, it won't be with US Financial Services.

Drew,

Hang in there. When you get a chance, come over and lets have a talk.

(Drew's shop is 300yds from mine.)

Mark