After you’ve made the choice to purchase new equipment, there are several options to consider when it comes to the actual payment process as well. Options we will discuss in this article include cash purchase, bank loan, third–party financing, and borrowing from a family member or friend. It’s important to consider your business’s financial situation and needs, as well as each option’s advantages and disadvantages. 

Cash Purchase 

 Cash is great, and so is not paying a lender interest over time (one advantage of paying cash).  As soon as the cash changes hands, you own the equipment free and clear, all the while lowering your monthly operating costs. While those are good points, they are not the only considerations. 

 When you are ready to add a new automatic press and are thinking of paying for it with cash, you will want to make sure using that payment method doesn’t negatively affect your business operations. There are always going to be operating costs – marketing, building lease, consumables, employees, insurance, taxes, and more.  Prior to using your company’s cash, make sure you have a good understanding of your current operating costs, and perhaps most importantly, make your best guess at what future costs might be as well. Every screen printing business is different so there aren’t too many more specifics we can really offer other than the obvious – Make sure you have enough cash set aside (after the purchase) to cover your operating costs. Here is an example to illustrate the point:

Your business has operating costs of $10K per month. You have $60K saved up and now want to purchase an auto for $50K. 

  • If you use $50K of the cash reserves, you will reduce from 6 months to only 1 month the ability to keep your business going, should the unexpected happen.  
  • If you were to finance the equipment for a monthly payment of $1K, you would make your total operating cost $11K a month while leaving your $60K in the bank. This payment option would also keep your almost 6 months of operating expenses available.  

Bank Loan 

The bank is a great way to finance a press and potentially the cheapest access to money you have. Most small businesses turn to their bank when money is needed, and understandably so. Spending a little time getting to know who is holding your money and building a relationship with them is not a bad idea. They typically hold your checking and savings accounts and other assets your business has. For this reason, they can be (or should be) able to offer the cheapest financing. However, there are still things to consider: 

 We have seen the transition away from small “handshake” banks, and most credit decisions are now passed on to one main or larger underwriting firm. These decision makers don’t know or understand you, your business, or the equipment you are purchasing. Because of this new way of handling loan applications, banks are not always able to offer you the best rate and terms on your money anymore. Banks can also have very stringent approval guidelines, meaning you need good credit, your company financials will need to be in order, and you are not in a time crunch to get the process completed. 

 Using a bank credit line may also be a possibility for your business, but you will want to be careful when it comes to doing so for financing your new auto. This can be a fast and easy approach, but it can come with some strings. A credit line usually has a variable interest rate, gets reviewed with some regularity, and can be reduced at the bank’s discretion.  Your credit line is access to cash, so keep in mind the same thought process we mentioned above with a cash purchase. 

Third-Party Financing 

A third-party financing company is intended to provide small businesses with purchasing power. They aim to be quick, easy, and offer a wide range of programs to companies, from start-ups to the well-established. They only put a lien on the equipment they finance and typically can provide an approval without the need for detailed financial records. When it comes to financing through a third party, here are some things you should consider: 

Interest rates can be good, but not necessarily better than your bank. This is not to say, though, that they are not competitive, and third-party financing companies often offer other advantages that may make a slighter higher interest rate worth it for your business. Understanding your rate and payments over time are important in making the right financial decision. 

 Third party companies don’t have to follow the same rules or regulations as banks in relation to loan approval criteria. Just because the bank says no doesn’t mean a third-party financing company won’t say yes. Again, understanding these differences and how it impacts your borrowing is important. 

Borrowing from Family / Friends 

No doubt a grueling decision, but because of the many variables involved, let’s have a little fun with this one! 

Now may be the time to have a drink or dinner with that rich aunt, uncle, or even cousin. You may also want to visit your grandmother that you haven’t seen in a while, and let her know how well the business is doing (or about the great idea you have for starting your own business). When it comes to asking for cash from a relative, it may be awfully awkward but can also be rather rewarding.  

A nice family-favorite restaurant, a home-cooked dinner for grandma, or meeting your financially savvy aunt at her favorite martini bar, drinks are often a good way to start. If you go this route, just keep in mind that many deals related to money and financing have been made between drinks and the meal.  A little social lubricant – for you and your potential next investor – gives you some liquid courage and your potential lender just enough of a buzz to offer financial promises or commitments that are hard to back away from once dinner sobers them up. Your grandmother likely has no idea how to run an amortization schedule and probably doesn’t know what APR is, right?! You can be the best grandchild by paying her back 2% over the next 30 years, and that’s a rate no bank can touch! 

Ok, so we went a bit silly with that, but seriously, if you happen to have someone in your life willing to invest in your business, be grateful but cautious. 

You have options to consider, as well as their advantages and disadvantages, when it comes to paying for the new equipment you have decided to add to your screen printing business. Taking a bit of time to work through each and how they could impact your particular business is an important step in the process that we encourage you to go through.