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This new equipment loan for the wood chipper will allow the company to expand operations by helping them to take on more contracts.

Huntington Beach, CA A client in the landscaping and tree removal industry came to us for an equipment loan for their growing business. Admittedly, I had never thought about how much a wood chipper would cost or even been curious to price them out in the market. However, for some, they are a critical part of their business.

Specialty equipment loans such as this are not all that easy to find. Most traditional banks look for the following when determining whether or not an equipment loan will be approved:

• Time in Business: As a general rule of thumb, banks like the company that is inquiring about an equipment loan or an equipment lease to be in business for a period of two years. Additionally, the company should be able to show two years of profit on their tax returns for their first two years in business. Enough profit to cover the equipment loan payments after all other expenses have been satisfied. Not an easy hurdle for many companies in business just two years.
• Amount of Down Payment on the Equipment Traditional lenders require 10-25% (more depending on age, useful life and type of equipment) as a down payment when financing an equipment loan. Depending on the size of the equipment purchase, this could be a significant amount of money. Understanding that most companies are cash strapped, coming up with a large down payment for an equipment loan may be impossible.
• Type of Equipment to be Financed If the equipment loan is being requested for a specialty use or for a single use project, obtaining an equipment loan will be difficult. For example, we had an inquiry earlier this year for an equipment loan for flight simulation equipment. Not the type of equipment used to simulate airplane flights, but for the 4-D experience (4th being scents) for the interactive rides like Soaring at California Adventure, part of Disneyland. This equipment was to be placed in a new venue with an experienced operator in the space. We were unsuccessful in obtaining an equipment loan or equipment lease for this project. The primary reason being, if the venue failed to generate the sales in the projections and had to be shut down, there would be a great expense in re-capturing the equipment and selling it elsewhere. This scenario would almost certainly result in a loss for the equipment lender. Scenarios like this one are better fit for equity where the investor has a big appetite for risk and is willing to gamble on the reward in the future.
• Owner(s) Experience Does the owner have experience in the industry? If an equipment loan for business is being requested, the owner must have experience in that industry. This is true for other types of asset based loans as well. For example, a business owner that was once a developer of single family homes making a switch to office buildings would need to hire experienced staff for that type of development for the asset based lender to be satisfied and feel secure in their loan decision.
• Outside Collateral depending on the size of the equipment loan and/or use, lenders will want to see a personal financial statement on the owner(s). Outside collateral is sometimes required if the equipment lender is being asked to take on some risk beyond what a typical equipment loan carries. For example, we are in discussions with a packaging company with costly front end equipment needs. The company is a start up, however, the owners have come together to form this new entity after years of experience at a large conglomerate in the industry. The experience is there, no question. However, experience is not a sure recipe for success. The equipment loan will need to be supported by assets outside the business until the company can stand on its own and prove itself as a player in the space. This is what I like to call the “execution risk period.” Can the company execute the plan it has laid out? All owners at this stage will say “yes” to that question. By placing outside collateral on the line as a secondary source of repayment, they are standing behind this statement and not simply saying they will. A huge difference!

These are just some of the points to be considered and each equipment loan or equipment lease request carries its own list of variables and risk to be assessed. If your business could benefit from an equipment loan or an equipment lease to facilitate the growth of your company, we would like to speak with you! Call us to obtain a consultation on equipment finance rates and requirements when shopping for equipment for your business.

To Your Success!

Patrick Zazueta
Equipment Finance Quotes
714-719-8966