What to Know About Capital Investment Planning
Capital investment planning was the focus during “Evaluating Your Buying Power in Today’s Economic Environment,” led by Craig Colling, VP of sales for Ascentium Capital. His presentation, held in the Future State Theater (Booth C11330) yesterday, outlined the financial options available in today’s marketplace as well as what’s going on and what to expect.
Colling pointed out that every business is in a different place. Add a recessionary period and inflationary environment to the mix, and the path to purchase just got more complicated. There are options, though each brings its own set of pros and cons.
- Cash: It’s fast and simple, with no paperwork and no interest. However, it impacts liquidity, depletes cash reserves balance sheet impact, and leaves a company vulnerable to the unexpected.
- Credit Cards: Credit cards are also fast. They also have promotional offers, such as 0% interest rate. On the other hand, credit cards can impact the ability to borrow more and there is a risk of conversion to high interest fees when the promo ends. The bigger issue here, Colling said, is the credit card fees for the merchant. “So, everyone here [at The Expo] that you might be considering buying equipment from, if they take your American Express or Visa, they have to incur a 2% to 5% merchant fee,” he pointed out, adding that fee may be passed onto the customer.
- Traditional Bank Loans/SBA Loans/Line of Credit: These offer a low rate/borrowing cost and affordable monthly payments. However, obtaining them can be time-consuming and bring potential restrictions.
- Equipment Leasing: Back in
December 2019, the federal government revised tax laws that affect these leases, Colling said. But this method of financing conserves cash, and there typically is no down payment or compensating balancing. That also means the company doesn’t own the equipment. For long-term ownership, Colling recommended choosing the $1 buyout lease.
“As you’re negotiating, unless you’re a CPA by trade or a lawyer by trade, whatever terms sheet or contract you receive, have your tax adviser look at it,” Colling stressed. “Make sure it’s aligned with what you think you agreed to. It’s worth an extra day of your life to make sure you understand what you’re getting into.”
