Equipment Financing 101
Six tips to ensure that you get paid for that equipment sale
By Shirah Kellman
You're not running a charity operation, that's for sure. You sell equipment, and you expect to get paid for it. The faster that payment, the better you like it.
Your customer's not in the charity business either. He or she needs
what you're selling but all too often is letting a preconceived
notion about paying your bill stand in the way of saying, “I'll
take it; write up the order!”
This story plays out time and time again—one party has something
to sell and the other needs to finance it. It's important for you
to recognize that what you don't know about financing can hurt your
customer.
#1
Sticker Shock Is Alive and Well
Face it, the customer is working with a budget, and so your telling
him that the canopy costs $40,000 or the dispensers will run around
$90,000 may likely trigger panic. Frankly, a “per month”
cost is easier on the ears and typically sounds a little more compatible
with a dealer's budget than does the grand total. The dispensers
may truly cost $90,000, but paying for them for, say, 60 months
at $1,950 per month is going to sound a whole lot better.
If you want the per-month expense worked out in advance of your
sales call—and that's with both loan and lease alternatives—a
commercial lender can easily provide some baseline information to
help.
#2 It's
OK to Advise Your Customer to Skip Some Payments
Wouldn't it help your sales effort if you could comfortably say
to your prospect, “You don't need to pay for these dispensers
right away. You're going to have some downtime during the installation,
so start your loan payments after you've ramped up the business.”
The whole notion of deferring payments may not be on your radar
screen when you're on a sales call, but it should be. Lenders make
such arrangements every day. In fact, lenders can even adjust a
loan or lease payment schedule to take “slow seasons”
into account so that your customer is able to more easily handle
payments when cash flow slacks off at different times of the year.
#3 Ask
Questions During Your Sales Courtship
All equipment buyers are not created equal. A gas station operator
who's been in business even as short as two years with only one
location is likely a better quality borrower than the first-timer.
Experience counts, so inquiries about your buyer's track record,
previous business experience, and so on will let you predict the
degree of difficulty the buyer will have when going to borrow money.
You don't want to invest your sales time—with all the steps
and stages of that typical courtship—in an equipment buyer
who's facing lots of hurdles in financing. Lenders can run credit
reports quickly and easily upon receipt of even the simplest loan
application form; and once you know about your buyer's creditworthiness,
you can comfortably pursue the sale. On the other hand, if you invest
lots of time talking about that new canopy and later learn the operator
can't pass muster with a loan committee or a credit department at
a bank or commercial lender, well, you could be headed for a quickie
divorce.
#4 Everyone
Wants Collateral and What You're Selling Isn't Necessarily It
Conventional wisdom holds that a piece of equipment will be the
collateral for a loan that's financing it. Right. And wrong. The
equipment is not always sufficient collateral for the loan. For
example, a borrower who's seeking funding for a large, startup equipment
purchase—in the $300,000 to $500,000 range, for example—could
be a shaky credit risk. Additional collateral likely will be sought
by the lender, and most often that takes the form of a second lien
on your customer's house or, if he owns it, a lien against the commercial
property itself. This is routine stuff for lenders, but your advance
knowledge of the practice gets you better prepared to make the sale.
#5 Loan
Life Most Often Will Match Equipment Life
Lenders won't offer a six-year loan term on a POS system that has
a predictable five-year useful life. You need to know this when
your customer is going to seek financing only for equipment. If
he's also borrowing at the same time to finance construction or
property, the lender will blend in financing for the short-use piece
of equipment with the multi-year mortgage and provide a long loan
term. But if it's an equipment-only deal, expect a loan term that
mirrors the equipment's lifespan.
#6 Why
Is It Taking So Long?
Equipment sales personnel need only memorize this sequence of words:
application, approval, documentation, funding. It's that documentation
step that most borrowers—and their equipment dealers—overlook.
Getting the deal approved to finance a piece of $75,000 equipment will generally require tax returns, bank statements and a personal financial statement. If your customer has all this handy, that's great—the loan moves along rapidly, and funding can occur in as short as one week. More often, though, the customer puts off the task of rounding up an item such as a tax return, and that simply slows down the process.
To get your sale completed, remind the customer who's intending to borrow that he or she likely will be asked for at least two years' worth of tax returns. You'll be doing your buyer a favor and ensuring that you get paid faster.
The six suggestions above can go a long way in helping you increase
sales by being more mindful of what your customer will encounter
as he considers buying—and borrowing for—that next tank
monitor or canopy. What you don't know truly can impact your
sales.
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