Compound Profit Blog

For small business, especially during the early stages of formation or launching, leasing equipment necessary for optimal functioning is often the only available option. However, leasing equipment may actually be a smarter option then obtaining a loan for the purchase of equipment for many businesses, regardless of individual circumstance.

When examining and managing financial statements, a monthly lease payment is considered a monthly expense, while a loan payment is considered a debt. While the overall impact on financial liquidity and available capital may be the same, the way that financial institutions and economic reports evaluate a debt and an expense are extremely different. For a company seeking new investors or further lines of credit, an improved net worth is a tremendous advantage.

Further, a monthly expense such as a lease can have an immediate impact on current year taxes, while equipment depreciation is handled in a different manner. Leasing equipment is almost always going to offer the greatest immediate tax relief of all available equipment options.

For the most part, leasing companies will also have less stringent financial requirements then the average loan department of most banks, especially during the current credit crunch. This makes it easier for start-up business or those with a less established history of credit to obtain a lease agreement than it is to obtain a loan at a desirable rate. Leasing companies may also offer an agreement that does not require a down payment, or one that includes the cost of monthly maintenance. Both options provide increased liquidity and capital availability then a loan related option.

Leasing equipment has the added benefit of not investing company long-term company assets into equipment that may be outdated before the completion of the loan agreement. This is an especially real concern in technology driven sectors. Leasing allows a company to react to advances or changes in the equipment field with a greater level of fluidity.

Though the cost of leasing equipment is more expensive over the life of the equipment, depending on the individual financial situation, and the overall strategic vision of the company, leasing equipment might be the superior option for small business owners.

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Everyone knows that equipment leasing offers several important benefits to any company, starting with easier access to funding, financing which also covers the costs associated with installation and maintenance, perpetual access to new technology, tax savings, and so on.

What very few people realize, though, is the fact that equipment leasing comes in different flavors, and that some of the leasing options will work better that others for a particular company. So how do you choose the proper lease for your business?

First of all, make sure that you’ve got a clear, easy to understand lease contract. What are your obligations? What are the leasing company’s obligations? You want to make sure that these obligations are stipulated clearly in the leasing contract.

Then, make sure to compare at least a few offers; you will want to look at the cost per month, possible upgrades / replacements for equipment that becomes obsolete, renewal terms, customer training, etc.

Make sure to check what happens with the maintenance part of the contract; most companies will have a separate contract for it, but you will definitely need to find out what happens if the leased equipment gets damaged. How much time will they need in order to fix or replace it? If you’ve leased a car you can probably use the bus for a few days, but if you’ve leased a critical piece of equipment which prevents the entire production line from doing its job, you will want to have the fastest response time from the service team.

What happens when a new equipment model is released? Will they upgrade the existing equipment right away, or will you have to wait until the old contract expires? These are just some of the important things that must be taken into account when you are considering equipment leasing.

It’s sad, but true: many contracts include hidden fees these days, forcing you to pay for training and other services you might not be aware of. It’s clear that with complex equipments, you will need to get some of your employees trained after all, but make sure that all these costs are detailed in the contract.

Another aspect: don’t assume that the equipment you’re leasing includes everything that’s needed in order to run properly. As an example, if you have leased a PC, it might not include Windows, Microsoft Office, etc, forcing you to buy them separately or to use free software that might not be compatible with the standard applications.

Compound Profit offers honest equipment leasing services with fast approvals – even for startups! Contact us for more information.

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If you plan to open up a new business, you have to be prepared to invest some money into it. And while some of the business ideas can be set up for the initial run using only a few hundred of dollars, most of them will require you to invest tens of thousands of dollars into the needed equipment. Sadly, since most aspiring entrepreneurs don’t have that kind of money at their disposal, this marks the end of their entrepreneurial dreams.

If this sounds like your story, you should definitely consider equipment leasing. Through equipment leasing, you will be able to buy the needed equipment and use it without having to support the upfront costs. In addition to this, you will also void the risks of assuming ownership; this means that if a particular equipment piece loses its value because of the technological advance, you can easily lease a new piece that offers greater productivity, reduces costs or is more environmental friendly, while saving a lot of money. Other benefits arise from having the possibility of overcoming the limits set on your company’s budget and enjoying several tax benefits.

Few people realize that through equipment leasing, they are actually conserving their company’s working capital, thus being able to grow it faster and allow it to be prepared for any unexpected events. Also, since the lease intervals are usually bigger than the ones used for the bank loans, the payment terms offer greater advantages. And one more thing: the leasing terms can be negotiated on a “per case” basis – that’s something you won’t be able to find so easy in the “real” lending world.

Many business owners are already using all these advantages, choosing to get the needed equipment for their companies through equipment leasing. And while most people think that leasing the equipment is an appropriate solution for big companies, the size of the company doesn’t really matter. In fact, small businesses can get a greater return on investment out of equipment leasing most of the time, because this gives them the ability of using modern technology, software, etc that would otherwise be inaccessible, in order to obtain greater and greater profits.

Let’s take a real world example: a self-employed graphic designer who could either lease the latest and greatest version of Adobe Photoshop or work with a much cheaper alternative, which doesn’t have all the needed tools and has trouble importing and / or exporting the various file formats, etc. Another example: a construction company won’t be able to get bigger contracts because it can’t afford to purchase a more expensive piece of equipment, and thus misses the chance to expand its activity.

With equipment leasing, your company can grow naturally, without being limited by its working capital and funds. Contact us and let’s set up an equipment leasing strategy that will accelerate your company’s growth.

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ProntoLease is Compound Profit’s “micro ticket lease” financing option and can be used for products that cost from a few hundreds of dollars to tens of thousands of dollars. It’s the perfect financing option for business owners that want to increase their sales and profit by providing a quick financing alternative to their customers.

ProntoLease is a great choice for end-users that have a less than perfect credit score or for the ones that don’t have any credit; nevertheless, it is a perfect match even for the end-users that have a perfect credit score and are looking for a financing option that’s suited for small value products and / or are aware of the potential tax benefits that arise from using this financing option.

As an example, many small businesses that are in the “signs and vehicle wrap” market use our micro ticket leasing product, because it’s a financing option that increases their sales in an area where, because of the small profits, no other financing company is interested in. The advantages for the “signs and vehicle wraps“ business owners are obvious:

- You benefit directly by having access to a financing option from a company that has a greater approval rate than any other leasing company on the market;

- You can attract clients that can’t afford to use cash, credit cards or bank loans to acquire their signs and wraps. In fact, ProntoLease works fine even if your clients have poor credit or have just started their business;

- The approval process can take as little as 24 hours;

- Get the chance to up sell new clients and cross sell existing clients, giving them an alternative that eliminates their existing budget restrictions;

- ProntoLease pays your vendors half of the money up front, motivating them to more forward much more quickly with your orders.

We think that the most important benefit for the business owner, though, is the partnership that forms between his / her company and Compound Profit. Our success depends on your success, so we will offer you the best financing options in the industry, making sure that they are tailored for your specific needs. ProntoLease is just one of our many business financing solutions, so contact us today.

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As I meet business owners at networking or social events within the Washington DC Metro area and tell them about what we do, the first thing I state is that Compound Profit is an “Alternative Business Financing” solution provider to the small business community. The first question that usually follows is… ”What is Alternative Business Financing?”

So what is Alternative Business Financing? In today’s tight economical times when traditional banking institutions have stopped lending money to small businesses and have slashed lines of credit by 30-50%, the small business owners must look at “Alternative Business Financing” solutions or tools to stabilize and grow their business. That answer makes sense but usually does not make the proverbial “light bulb” go off. So these are examples of Alternative Financing Solutions that are available to the small business owner to help them grow and expand their business:

• Accounts Receivables Financing – Factoring, as it is most commonly referred to, is the practice of selling a company’s customer invoices (B2B invoices) to an authorized 3rd party (otherwise known as the Factor) and they will advance your company up to 90% of the invoice amount, collect the money from your customers, and then refund you the remaining 10% minus their processing fee. Unlike banks or other lending institutions, these companies do not lend based on your credit, but focus mostly on your customers' credit worthiness and / or strength in repayment. This is a great way for businesses to better manage their cash flow, purchase needed inventory, or cover operating expenses. There is no need to wait more than 30 days to be paid by your customers when you could take that capital and generate even more revenue for your business in only a few days. Our Smart Capital Advance program is an example of this type of solution.
• Friends & Family - If a bank is not willing to give you a loan, sometimes friends and family are more than willing to provide you the initial seed money or working capital for your business. Usually, friends and family can be the best source of financing because they know you well, and understand the social consequences of you failing to repay their investment.  However, sometimes it is best to keep business and personal relationships separate; otherwise, you risk to ruin those personal relationships. If you do move forward with getting financing from friends and family, make sure that you get all agreements in writing, even if your family members insist that it isn’t necessary.
• Purchase Order Factoring / Financing – Similar to Accounts Receivables Financing, Purchase Order Financing is the advance of funds to a company, based on the amount of the purchase order, so that the company can fulfill the purchase order. Purchase Order Financing is a solution that enables small businesses to go after and fulfill large orders. When used correctly, this can enable you to grow your company quickly. As opposed to bank financing, purchase order funding does not rely on your business credit profile, but rather on the financial strength of your customers. In other words, if you sell products to large companies or to government entities, purchase order funding can be a great way to finance those sales. To qualify for purchase order financing, your company must sell products. An ideal candidate for this type of financing would be a product reseller or distributor who is buying products from a supplier and then shipping the products to the client. Purchase Order Factoring is one of our core solution offerings as well.
• Angel Investors - Angel investors are private parties, and sometimes businesses, that invest their own funds into selected businesses. The angel investor becomes, in essence, a stockholder in your company, and is as concerned about your business' success as you. Each investor establishes his own guidelines, application methods and standards.  Angel Investors do require a fair amount of documentation (i.e. business plan, sales forecasts, sales and marketing plan) before they will invest any funds. In addition to that, the business owner must be willing to give some equity in the business to the angel investor.
• Merchant Cash Advance - Merchant Cash Advance programs grew from accounts receivable financing solutions. Merchant Cash Advance is a financing solution based upon the merchant’s future credit card sales. Specifically, the lender purchases a portion of the business' future credit card sales at a discount, the rate of which is generally based on the business' sales volume and history. In order to receive a cash advance, a business must be operating for a minimum of three to six months and must process a minimum amount of credit card sales (around $3,000 a month). Many lenders provide a short online application that can be reviewed within 24 hours. After approval, most lenders can send the money within a week. The merchant will receive all the money, while the lender collects a fixed daily percentage of the business' credit card sales until the debt is paid in full. Our Merchant Card program is an offshoot of Merchant Cash Advance programs within the industry.
• Peer-to-Peer Lending - With peer-to-peer (P2P) lending, the financial transaction occurs directly between individuals or "peers" without any involvement of a traditional lending institution. Companies such as Prosper.com monitor an online marketplace where borrowers post their loan requests and are connected with lenders who "bid" on the chance to finance the loan. P2P business loans are usually limited to $25,000, and if you default on your P2P loan payment it can negatively affect your business credit profile.
• Equipment Leasing – Leasing vs. Purchasing is a question that small businesses ask themselves every time they need equipment. Leasing offers many benefits over actually purchasing the equipment. For example, leasing does not require large down payments of cash, which can be put to better use inside the business to pay for current operating expenses. In addition, some leases allow customers to expense 100% of each monthly payment, thus resulting in a real tax benefit to the customer. We offer many types of leases: Small Ticket Leasing, Commercial Leases, and Municipal Leases but this is a discussion for another day.

These are just some examples of alternative financing solutions that are available to small business owners. By using these alternative sources of capital, many business owners will be able to grow their business to a point that they do become creditworthy in the eyes of their financial institutions. Compound Profit is the #1 Brand in Alternative Financing and we have a variety of solutions to help small businesses grow and expand their business.

Anuj Mehta, Regional Director/Principal Advisor

Phone: 877-386-3716 ext. 221

Fax: 877-490-4224

http://www.cprofitdc.com

amehta@cprofit.com

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Business lending solutions – who can help?

I have heard the question asked lately “when will banks start lending to small businesses again like they used to”.  The answer I hear from many recognized experts on the subject is “probably never.”

Now before you cringe, stop and think about this for a minute.  During the bull markets of the 80s and 90s, when our economy was supposedly sound, money was relatively cheap and easy.  And while some may have seen these as the “glory days”, in truth it did nothing more than mask some bad decisions and practices by both borrowers and lenders.

We saw people pour money into the stock market without any thought as to the instruments they were buying.  The thought process was their money would continue to grow at ten to twenty per cent a year and their retirement strategy was built on this myth.

We all know how would be non qualified buyers actually obtained mortgages for homes they could not afford, putting nothing down and paying interest only.  How’s that working for us?

So it is easy to point at the banks today and say “see what you did”.  But the fact is there is plenty of blame to go around.  Just like an uneducated decision in personal investments for many had catastrophic outcomes, so too did the borrowing practices of many businesses.

Loans came easy and the more money one “needed” for their business the more they would get.  Business growing through the roof?  Take on more debt to pay for the inventory.  Your fleet of trucks not as shiny as they used to be?  Take out a loan and buy some more. Money was cheap and money was easy.

But were those the good old days?  Not at all! Today the business person must be calculating and intelligent about how he or she finances the business.  With banks lending practices significantly altered, the popularity of alternative financing is booming and financial instruments long overlooked are moving into the forefront.

Take AR factoring for example.  Often viewed as a tool for less successful or desperate businesses, now thriving companies are leveraging their invoices for growth.  By selling their receivables to a reputable third party for a discount, these businesses now have cash in hand to invest back into their business without taking on additional debt or selling a part of their business.  Born out of necessity, this practice is proving to be a far better alternative to high growth companies.

Leasing and micro-leasing is also becoming more and more prevalent. Businesses, in order to survive, are looking to protect their cash reserves.  By leasing equipment, signage, or any asset they can they are able to take full advantage of available third party money to grow their business.  Even if the rates are higher, if an investment in an asset shows a positive return (say a new truck) the prudent owner is leasing that product.  As long as the return on the investment is greater than the cost of the lease, it is a wise choice.

Of course positioning yourself properly is always the most important way to secure the financing you need.  Know your numbers, have your house in order, and be able to articulate your needs.  As a start up, try to keep six to eight thousand dollars in your account for six consecutive months to give lenders the confidence you can repay your debt. 

The bottom line is funders, as investors, do not want risk.  They want a guaranteed return on their money.  The better job you can do to assure them their investment in you is safe, the better you will be at attracting the financing you need for your business.

Alex Cherlin is a Cash Flow Expert with Compound Profit of Virginia. Contact him - acherlin@cprofit.com - for more information.

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Can’t Get Approved for Commercial Financing?  You do have options…

Business Owners, regardless of whether their sales have grown or taken a downward slide, have been hit by the increasingly stringent underwriting policies of most banks and other lenders.  Creditors have found it difficult to approve businesses for credit amidst new and stricter banking regulations.  Even businesses that are financially stable, with good credit, and a long-term track record are finding their credit limits lowered and difficult stipulations added to other loan requests.

Business owners often do not realize they have options outside the traditional lending sources.  Compound Profit offers commercial financing options.  If you need equipment, we can finance most types of equipment, even for start-up companies.  If you need cash flow, we offer programs that can provide the cash you’ve been looking for…. and often without going into debt!  If you need short-term funding to acquire products from your supplier, we can help you with purchase order financing. If you need to purchase or refinance commercial real estate, we can help you with that too.  

We have access to a multitude of lenders in each of these areas of lending and we have the ability to match your needs with a lender who can approve your request.  Whether you have been declined due to credit challenges or just because you are too new in business, we will work to get you approved.

Compound Profit is a business funding and advisory corporation, assisting small and mid-sized business owners in need of working capital and equipment financing.  We have an experienced team of consultants located throughout the United States.  Working with the business owner, we create solutions to overcome their obstacles.  Consultations are free, as are the financing proposals. 

If you are a business owner who has been struggling with cash flow, or who feels hindered by tightened lending policies, there are other options.  Compound Profit can show you those options.

Debbie Browning, Compound Profit Advisor

Phone: 877-386-3716  ext 219

Fax: 888-719-6219

dbrowning@cprofit.com

http://www.cprofit.com

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Episode 2: Municipal Lease Financing - questions and answers

Questions and Answers

Municipal Lease Financing can take several forms depending on state and local laws.  They come in widely varying amounts, ranging from a few thousand dollars to several million.  And they are usually short term, from three to eight years.

From a strict legal standpoint, a municipal lease is not really a "lease".  The equipment is not rented and used for a time and then returned to the owner, but actually is bought by the municipality and paid for over time.  The municipality owns the equipment, subject to a lien.

The municipality only borrows the money used to acquire it.  The principal and the tax-free interest on the remaining balance are then repaid periodically, usually in equal amounts over a fixed period of time.  Payments are made in advance or arrears, often on a monthly basis, but sometimes quarterly, semi-annually or annually.

State and local governments use municipal leases to acquire everything from cars, trucks and emergency vehicles to computers, other office equipment and even buildings.  Virtually any piece of equipment that is needed by a municipality can be purchased using a municipal lease.

What is a Municipal Lease / Purchase Agreement? A Tax-Exempt Municipal Lease / Purchase Agreement is essentially an installment sale contract that fully amortizes during the term of the Agreement. There is no balloon payment or purchase option at the end. The Lessee owns it from day one. The issuer (lessee) is able to acquire and utilize equipment or facilities and pay for them over a specified time period.  If structured properly, the interest portion of the lease payment is exempt from federal and state income tax, resulting in low tax-exempt interest rates to the borrower.

 Why is a Municipal Lease / Purchase generally not considered debt? A Municipal Lease/Purchase Agreement is a yearly obligation renewable at the option of the lessee.  The obligation is subject to the annual appropriation of funds by the borrower.  If funds are not appropriated in a given year, the Municipal Lease / Purchase Agreement may be terminated.  While voter approval is generally not required for a public agency to enter into a Municipal Lease / Purchase Agreement, terms of the transaction are fully disclosed in their annual audited financial statements.  Due to a non-appropriation clause in the contract, payments are considered an operating expense rather than debt.

Who is eligible to utilize tax-exempt leasing? Basically, any municipality or political subdivision who can issue tax-exempt securities may utilize tax-exempt leasing.  Examples:  State & Local government agencies, special assessment districts, public hospitals, fire districts (including volunteer departments), public transit districts, school districts, etc.  The interest can also be done at a taxable rate.

Why should Government Officials consider Lease / Purchase Agreements? Lease / Purchase Agreements should be used to compliment, rather than replace, traditional bond financing.  Many times Lease / Purchase Agreements can be a more timely, efficient, and cost effective means of financing essential equipment and facilities.  In addition to the low cost of issuance, uncomplicated financing documents save both administrative and legal expenses.  For issuers expecting to do multiple transactions over a period of time, additional savings can be attained by use of an Advance Payment / Purchase Agreement.

What type of equipment should I consider leasing? Virtually any type of essential use equipment may qualify for a Lease / Purchase Agreement.  In general, terms may be offered from two to ten years or more, depending on the useful life of the asset. Compound Profit’s Municipal Lease program allows state and local governments to acquire everything from cars, trucks, and emergency vehicles to computers and office equipment and even buildings.

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Episode 1: Municipal Lease Financing – definition, usage and benefits

What is Municipal Lease Financing?

Municipal Lease Financing is an agreement entered into by state, county, city, town or other local government, in order to acquire essential equipment by paying for it over time. The government is the single largest customer in the world; they use (and buy) the same products as private sector companies.

There are over 90,000 separate municipal agencies in the U.S., including state, county and local governments, school districts, water districts, hospital districts, fire districts, utility districts… the list goes on. Each entity has a Board and can issue debt without permission from another agency.

What are the Benefits of Municipal Lease Financing?

Municipal Lease / Purchase Financing is designed to compliment, rather than replace bond financing.  As governmental units have learned about the advantages of Municipal Lease / Purchase Agreements over bonds, they have increased their utilization of this unique financing vehicle to satisfy many of their equipment and facility financing needs.  These are just a few of the advantages of Municipal Lease Financing:

No Cash Down Payment - These financings may provide for 100% of the equipment purchase price or facility construction cost, plus related expenses.  The governmental lessee only makes periodic lease payments.

Tax-Exempt Interest - When properly structured, these transactions result in each payment representing some principal and some interest; the Internal Revenue Service has determined that interest paid in this manner is exempt from federal income tax.  The interest may also be exempt from state and local income tax.

No Public Debt Created - Since the lease payments due in the transaction are subject to annual appropriation, the obligation created by the lease is not subject to constitutional or statutory debt limitations in most states.  Since public debt is not created, voter approval for a Municipal Lease / Purchase Financing transaction is not usually required.

Matching Cost with Revenue - payment obligations correspond more closely to the useful life of the asset(s) that are financed by the lessee.  A full cash purchase charges one year's operating budget with the cost of an asset, which will be in use for several years.  Lease / Purchase transactions can and should be designed to match the finance terms with the expected useful life of the asset, thereby spreading the cost over the budgets for all the years benefiting from the use of the asset.  Amortization can be designed on a monthly, quarterly, semi-annual, or annual basis or even on a SKIP payment basis.

Flexibility - Shorter lead time to arrange a financing, as the procedural aspects of traditional bond financing may be complicated by rigid constitutional requirements which serve capital project financing control, but are inflexible for asset acquisitions and future refinancing.

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