Having trouble with financing new machine...

[super95awd]

I'm having some trouble getting financing for a machine (New Haas VF-2). it's mainly because I'm only 24 and have about as much credit history as I possibly can, but not long enough apparently. I have also only been in business for 2.5 years. I have plenty of cash to put down and should soon have enough to buy the machine outright, but would rather get the credit boost from financing it so I don't run into these issues down the road. Would also like this thing on my floor ASAP, so I'd rather not wait for the extra cash. I have been
approved by a machinery financing outfit but with an outrageous interest rate. I have an equipment loan out with my bank, but they will not finance me for this machine. Any tips from people
that have been in this situation?

Thanks in advance!

[TarHeelTom]

No tips for you.

But I'm kinda in the loan business. I used to close 30 to 60 loans per month. Now it's more like 5 loans per month.

The banks are running scared to death right now.

M advise would be to hang tight until you can pay cash, or perhaps even at least make a 80% down payment, then try again.

There's also tons of used equipment for sale out there right now. Just heard of a Mazak near me which sold for $1000. I'm also hearing of machines sitting outside of plants in the rain, for lack of buyers.

Tom

[flyinchips]

Don't give up based upon one bank. Different banks have different policies and different loan officers. Try to find one that is independent. They are likely to be more flexible than one of the biggies.

Another shot would be talking to a leasing company. Arrange the lease so you have a fixed buy out at the end of the lease. They may be more interested in your business. I know it's work, but if you have the desire, you can get it done.

[harryn]

There are a couple of ways to look at this:

Bank's View
- Machine shops fail regularly
- There are lots of used machines on the market
- We don't know how to sell used equipment
- Why loan money to people when we can just loan it to the govt at zero risk
- If we are going to loan to people, we want loan shark interest rates and their left arm as collateral

Common View
- This isn't hard
- People get loans all the time to buy equipment
- Banks are just being difficult
- Banks are getting the money for nearly zero interest rate - WTH is going on ?

Historical Business 101
- The machine you want is an ASSET
- ASSETS = equity = investment financing
- Loans are not investments, they are DEBT
- Debt financing is for materials and work in progress (WIP)
- DEBT financing is not for ASSETS

Using debt to buy equipment is similar to borrowing money to invest in the stock market - it is a bad idea.

The reason that people think of Debt for Assets is that banks tricked people into thinking this way. It is the main reason that so many countries are in deep finanical straits.

On the positive side - use this to your advantage. Sell equity in your machine shop as a way to raise this equity capital. It won't be that easy, but it won't be any harder than getting loans from the bank, and the terms will be a lot more attractive. Honestly, it will be easier to get people to invest that have a vested interest in your success. examples - really good customers, equipment and material suppliers, family. You might have to pay a dividend on the stock they buy - sort of like interest on a loan, but usually a lot lower. Consider my Dad - he gets less than 2% on most of his dividend investments. Similar to all retired people.

If you haven't done so - consider to set up your business as a "C" Corporation. Get someone to value your business for you if you don't know how to do it - it isn't that hard, but it is a rather cold process to do on your own business.

I know - its a bit radical of thinking, but consider that every large corporation in the world has done the same thing. You will find few examples of other ways to grow a small company into a larger one.

Good luck

Harry

[DANTEATER]

look up M.F.R. believe that stands for machinery finance resources. we refer a lot of our customers to them in the event they want to finance/lease a new machine tool that i have sold. see what they tell you, a second opinion couldn't hurt.

[peter.blais]

I've just been through this, twice. We financed because our business could pay the loan even if the machine just sat there, and we figured (correctly) we could make a lot more money, with our money, then the cost to finance.

Anyways, I second the advise to "shop around"... We did this right in the worst of it, ~2009, and again this year. The first time, Wells Fargo approved us at a decent rate, after quite a bit of f'in around. The second time, with 2 years of never a late payment, and more then enough cash in the checking to outright buy the machine, they would not do it. I have no idea what was up with that? We ended up moving over to bank of Utah, and they gladly wrote us the loan.

So, keep plugging at it, there are a TON of lenders out there, even in this economy they still have to loan money to make money.

We didn't put down an especially large pile of money in either case, and the first time around we were only a ~3 year old business, the first 18 months of which was just tiny.

The big IF these days, especially if you own your house, is if you want to personally guarantee it. It seems like most banks these days don't even want to touch it if you won't sign personally.

[txcncman]

Have you tried the finance companies that cater to business, such as GE Capital, Quick Turn Financial, etc?

[super95awd]

Surprisingly enough, I went back to my bank, told them I'd pay off another equipment loan I had with them and put a healthy down payment on the new machine. They went for it at a very reasonable interest rate. Thank God. I was getting tired of the financing company games.