Turf Magazine - June, 2009
In Your Own Words: Financing Tips
Perry, Mich.: “Looking to build up my fleet, but poor credit is killing me (former partner problem). Anyone have any tips or know of a good financing company that will help?”
Mobile, Ala.: “First, financing is not a good idea. It increases your overhead and, in a slow period, can wipe your business out. Second, with poor credit, your interest rate will be so high (assuming someone will lend to you) that now you’re paying a double premium for your equipment.
“There are companies out there that, with a big enough down payment, tax returns and something else they can attach (home equity, equity in your truck, etc.) will loan money to a dead man, but it comes at great cost. These are also the same companies that, once you’re 10 days late on a payment, will repo your equipment and your secondary security, often with huge fees for redemption. Get by with what you have, save your money and pay cash. Debt load is what kills most LCOs in the first place.”
Perry, Mich.: “Thanks for the info. I’m just trying to figure out a way to expand. I’ve picked up a lot of new contracts and more in line, but I need to grow faster, but you make a good point, thanks.”
Jackson, N.J.: “Sorry, but it bothers me when people say financing is evil. It is only evil for people with poor or no business skills. It is absolutely nessesary if you want to have an expanding and growing business. Try going to a local bank and asking for an SBA loan. The government is backing the loan and you might be able to plead your case. SBA loan rates are very low 5 to 6 percent.”
Northern Illinois: “All cash here, baby. I hate having to ask for money from a bank.”
Mobile, Ala.: “Total B.S. I own over $200,000 in lawn and landscaping equipment, and that doesn’t include the eight trucks. I own a 15,000-square-foot commercial building and 2 acres of commercial property. I don’t owe anyone a dime and have never bought anything other than the real estate (paid cash for the building) on a note. I owe nothing. Everything is paid for, including the real estate. There are four other large LCO/landscape contractors in the two counties we operate in. Not one of them finances equipment. The guys financing equipment are trying to buy their way into success on credit. It isn’t happening.
“Debt load kills most small businesses, it’s a known fact and has been for decades. The companies that survive are the ones with a good cash position, not the ones with debt. You want to grow your business, then drive a beater truck, buy used equipment and buy only what is absolutely required to do the job. Not what you want, but what you actually need. Put 25 percent of your income away for equipment upgrades, and upgrade as your cash and workload will allow. Do not go into debt based upon your projections or even what you currently have accountwise. The accounts can change hands quickly, but your debt won’t.
“Everyone wants everything right now, and that’s the reason the damned economy is wrecked. People buying on credit things that they don’t need, but want, and are not willing to save for them. The gotta-have-it-now folks are fast becoming the ones that have lost everything.”
Tulsa, Okla.: “The Bible says that the borrower is a slave to the lender. I don’t want to be a slave. I will wait on purchases until I have the money. I wish I had known this 20 years ago.”
Evansville, Ind.: “I have a buddy with a degree in horticulture who was designing for one of the top three landscape companies in the area. Went out on his own three years ago, hit the ground running, picked up some big contracts and started buying (on borrowed money) three trucks, enclosed trailer, dump trailer, Dingo, etc. I kept saying, ‘Grow slow and strong, rent what you need to get the job done until you can buy one.’
“Fast forward to today. Working at Home Depot and landscaping three days a week to help pay the bills. Borrow short term, i.e., 30 to 60 days. Look at your P&L every day, and know where you stand and budget for new equipment.”
Baker City, Ore.: “I do have to agree with most that is said, but this year I have rented three pieces of equipment. Here’s how they went. Tiller—burned through oil so fast seized the engine in six hours. Walk-behind edger—bad belt and had to run to the store and buy a blade for it. Rider mower—drive belt kept slipping off, took it back, they replaced the belt, started mowing and the blades were put on upside down. Needless to say, I am not renting anything anymore. I have what I need for summer and planning on my fall and winter equipment now.”
New Albany, Ohio: “That’s the best word used so far: budget. Get your budget straight and in line. Everyone has different views on this topic. Figure out your budget and pay cash. Keep your bank loans for your house and shop, but if someone is offering zero percent on a loan for a truck or piece of equipment, then jump on it. But wait, you said your credit sucks. Well then, you better start saving now, and way more than 25 percent.”
Bloomington, Ind.: “I agree. Cash or short-term loans are the only way to go, and when I mean short, I’m saying under six months and then you pay it off. Loans can be good if you know you can pay it off in a short period of time.
Lancaster, N.Y.: “Just because you finance something over time doesn’t mean you need to take that long to pay it off. Say you buy something and finance it over three years, just pay it off as fast as you can. Sometimes you need to keep some cash around you can’t tie it all up either. And remember, your business credit score is just as important, too. The higher your score, the better insurance rates you get to. Also, if you do need to get a loan some day, banks don’t want to hear you paid cash for everything, they want to see repayment history.”
“In Your Own Words” is contributed from the lawn care and landscape forum at www.lawnsite.com. Visit them, and join in the discussions.