Let’s Know About Computer Financing and Its Bad Credit

Computer financing refers to the various methods business owners use to purchase new computers or computer equipment. Many different agencies, including computer and electronics companies, specialized lending institutions, and banks, offer ways to finance buying new computers or equipment.

The first source for computer financing that a business owner should consider, is the direct manufacturer of computers and computer related products. Companies, such as Dell, Sony, and Apple, usually offer plans that allow a buyer to make small monthly payments on purchases at low interest rates. Monthly payments and interest rates are calculated according to the buyer’s credit report. The better the credit, the better chance a business owner has of paying less. Similar financing can be obtained through retail electronics stores as well, such as Best Buy and Circuit City.

There are lending institutions that deal solely with computer financing. Usually, their terms for financing are more liberal than those of manufacturers and retail stores. Many of these lending agencies do not even require a credit check or a down payment; therefore, individuals with bad credit have a good chance off getting a better deal with these agents.

Banks and credit unions may also have computer financing programs. With banks, however, an individual with bad credit may be turned down or may have to make large payments. Also, approval for financing from a bank could take several days or weeks; with other methods of financing, the approval process usually takes no more than twenty-four hours.

To get the best value for your money a business owner should research all the available options and decide which would be most suitable for his or her needs.

Computer financing for bad credit generally refers to ways for business owners with bad credit to get financing for new computers or equipment. Most computer manufacturers, retail electronics stores, and financing institutions have programs that allow individuals with bad credit to get the computers and equipment needed for a business.

Companies that offer computer financing for bad credit typically require applicants to have a checking or savings account and a minimum monthly income. If the individual is on the verge of bankruptcy they would be charged higher rates along with expensive monthly payments.

Computer financing for bad credit costs more because financing companies take a risk that the buyer may or may not pay off the computers or equipment. The buyer also pays more to compensate for his or her bad credit. When a buyer meets the monthly payments, finance companies report this to national credit institutions, thereby improving the buyer’s credit score.

Other companies that offer computer financing for bad credit are rent-to-own businesses. A buyer gets to use the computer while paying monthly installments towards the ownership of a computer. These companies typically charge higher interest rates and payment plans in comparison to other computer financing agencies.

Once a business owner with bad credit obtains a means of financing a computer, it is important to pay the monthly installments on time to improve his or her credit report and possibly lower the interest rate on the computer.

Franchises Preserve Capital with Equipment Leasing

Many people today dream of owning a business. Being your own boss can be liberating, not to mention profitable. However, small businesses have a disturbingly high failure rate and the new owner wants a prospect with a proven history of success.

Franchises give entrepreneurs the opportunity to open a business with an established regional or national brand identity. With a plan to follow and experts to consult, your chance of success soars. Franchising is the path of choice for the slightly more conservative entrepreneur.

The downside of franchises is that they are often quite expensive, more so than starting a business under your own name. Coming up with the initial capital can be tough and preserving your assets is paramount. One of the largest expenses is equipment financing. When stocking your franchise with equipment, leasing rather than buying is the more cost effective solution.

Start up equipment leasing

The initial franchise fee buys you assets such as the right to use the brand, initial training, and long-term consultation to keep your business running profitably. You still need to acquire the equipment necessary to run the business.

For example, let’s say you buy a franchise of a successful, well-recognized steak house but you need tens of thousands of dollars worth of stoves, tables, and plumbing fixtures. Rather than taking out a huge loan to equip your restaurant, equipment leasing allows you to get the kitchen and dining room furnished without depleting your valuable capital.

Financing upgrades

When you own a franchise, you aren’t truly your own boss. You still have to make changes at the whim of the parent company in order to preserve the brand. Sometimes this is something simple like integrating a national ad campaign into your local marketing efforts or changing a few options on the menu. Sometimes it’s more complicated and expensive.

Parent companies look at the national or global impact of their decisions and project the financials years in advance. They reason that a short-term loss in assets, say from upgrading their restaurants nationwide, is worth it for a long-term boost in profits.

On the multi-billion dollar corporate level that might be fine, but the cost of upgrades can be devastating to the local franchise owner. Small business owners don’t have the deep pockets of the parent corporations and it can be daunting to face the prospect of substantial debt in the hope of future profit.

For a small business, equipment leasing allows significant upgrades to be done in a more cost-effective and less financially damaging manner. You don’t have to squander your resources nor risk your credit rating on expensive new purchases.

Although you may be part of a national or global franchise, you are actually a small business owner. You have the benefit of consulting with experienced support personnel at the parent company, but you are operating on a tight budget and can’t afford huge equipment costs. Equipment leasing is the smart choice for franchise owners.

Commercial Financing – The Benefits of Off-Balance-Sheet Financing

There are two different categories of commercial financing from an accounting perspective: on-balance-sheet financing and off-balance-sheet financing. Understanding the difference can be critical to obtaining the right type of commercial financing for your company.

Put simply, on-balance-sheet financing is commercial financing in which capital expenditures appear as a liability on a company’s balance sheet. Commercial loans are the most common example: Typically, a company will leverage an asset (such as accounts receivable) in order to borrow money from a bank, thus creating a liability (i.e., the outstanding loan) that must be reported as such on the balance sheet.

With off-balance-sheet financing, however, liabilities do not have to be reported because no debt or equity is created. The most common form of off-balance-sheet financing is an operating lease, in which the company makes a small down payment upfront and then monthly lease payments. When the lease term is up, the company can usually buy the asset for a minimal amount (often just one dollar).

The key difference is that with an operating lease, the asset stays on the lessor’s balance sheet. The lessee only reports the expense associated with the use of the asset (i.e., the rental payments), not the cost of the asset itself.

Why Does It Matter?

This might sound like technical accounting-speak that only a CPA could appreciate. In the continuing tight credit environment, however, off-balance-sheet financing can offer significant benefits to any size company, from large multi-nationals to mom-and-pops.

These benefits arise from the fact that off-balance-sheet financing creates liquidity for a business while avoiding leverage, thus improving the overall financial picture of the company. This can help companies keep their debt-to-equity ratio low: If a company is already leveraged, additional debt might trip a covenant to an existing loan.

The trade-off is that off-balance-sheet financing is usually more expensive than traditional on-balance-sheet loans. Business owners should work closely with their CPAs to determine whether the benefits of off-balance-sheet financing outweigh the costs in their specific situation.

Other Types of Off-Balance-Sheet Financing

An increasingly popular type of off-balance-sheet financing today is what’s known as a sale/leaseback. Here, a business sells property it owns and then immediately leases it back from the new owner. It can be used with virtually any type of fixed asset, including commercial real estate, equipment and commercial vehicles and aircraft, to name a few.

A sale/leaseback can increase a company’s financial flexibility and may provide a large lump sum of cash by freeing up the equity in the asset. This cash can then be poured back into the business to support growth, pay down debt, acquire another business, or meet working capital needs.

Factoring is another type of off-balance-sheet financing. Here, a business sells its outstanding accounts receivable to a commercial finance company, or “factor.” Typically, the factor will advance the business between 70 and 90 percent of the value of the receivable at the time of purchase; the balance, less the factoring fee, is released when the invoice is collected.

Like with an operating lease, no debt is created with factoring, thus enabling companies to create liquidity while avoiding additional leverage. The same kinds of off-balance-sheet benefits occur in both factoring arrangements and operating leases.

Keep in mind that strict accounting rules must be followed when it comes to properly distinguishing between on-balance-sheet and off-balance-sheet financing, so you should work closely with your CPA in this regard. But with the continued uncertainty surrounding the economy and credit markets, it’s worth looking into the potential benefits of off-balance-sheet financing for your company.