Everyone who is running a business or thinking about starting one has one thing in common: a need for money to invest in their business in order to be successful. There are several ways to acquire capital, from using one’s own savings to finding investors who want equity in return for their infusion of cash. However, there is one option for growing a business that makes many small business owners cringe but is often the best option available: getting a loan.
While many are psychologically averse to taking on debt as a means of growth, financing allows for you as a business owner to purchase the truck, tractor, or trailer you need without giving up equity in your business that could potentially be worth exponentially more in the future. Nearly every successful company in the world, from Apple to Costco, holds some debt from time to time, so it is not something to be feared. We at Innovative Lease Services, TruckTractorTrailer.com’s trusted finance partner, are here to explain the benefits of financing for your company and why you should consider doing so for your next equipment purchase.
One of the most common ways new business owners expand or buy equipment is by giving up equity in their business in exchange for an investment of cash. While this might seem like a better option than financing, it is often more perilous.
Let’s say, for example, you are starting up a new trucking business and want to buy a $100,000 truck to get started. You only have $25,000 saved, but find an investor that is willing to give you the remaining $75,000 in exchange for 75% of the company. At the time this seems like a good trade because you won’t have any debt and will only have to pay the investor in future profits.
Through your hard work and determination, you grow the business and eventually make $1 million a year in profits. However, because you gave up 75% of the equity to the investor, $750,000 of the profits goes into their pockets.
If you had financed the purchase of the truck with ILS instead, once you finished paying off the principal and interest, you still would own 100% of your company and keep all of the profits!
Most people who are starting a new business will have to use their personal credit history as a means to receive financing for their start-up. At inception, the new business has no credit history, good or bad. In nearly half of our client relationships, ILS is the first lender to the business.
Once a start-up company has received financing and begins paying it off, ILS will report to a national credit reporting agency for business debt, which will allow the company to start building its business credit history. The company’s ability to borrow in the future will be greatly enhanced and creditors can look at the company as a standalone entity. While the owner may have to personally guarantee the debt at the beginning, that debt is not reported to the national credit report as revolving or installment debt. It is not reported at all for one’s personal credit report, as long as the debt is handled in accordance with the terms of the loan.
Once you find the perfect truck, tractor, or trailer on TTT you can finance your purchase with ILS here: https://trucktractortrailer.com/financing. All credit types are welcome to apply and we can finance equipment purchases from $5,000 to $5 million over 1-6 years.