Exploring Financing Options As A Small Business
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    Default Exploring Financing Options As A Small Business

    Im still a ways away from a new machine day thread, but still eager as anyone else would expect to get my hands on " the next best thing". Having never borrowed money for the business I have no idea what to expect from a dollar stand point, when talking about a machine payment or a small business loan, nor do I know the significance between the two.

    What kinds of options are there, for example, in purchasing a VMC?

    As of now I do not own a seat of CAM or CAD... with that said, there is a XYZ dealer down the road that would probably suit me up in a new 123 mill 4th axis and a seat of %^&# CAM for 100ish K... What kind of terms do they give you on something like that?

    The other option I am curious about is should I go to a local bank and try to get some sort of loan, and purchase a decent used VMC, CAM and some misc tooling etc.... What would the terms on a 70K loan look like?

    Im hoping this will better help me understand where I need to be on the business side of things as far as gathering a dollar amount of sales per month. I still have a decent day job and Im steadily progressing there which helps fund my current "investments". Everything I have now is paid for but I wouldnt say its more than 10k in used machinery etc...that might be a stretch too.

    Any insight would be greatly appreciated.

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    My recommendation is to go with a company that specializes in Machine tool Financing. My preferred machine tool lenders are US Bank & TCF financing.
    Generally speaking a machine tool finance company is much easier to deal with than your local bank. Primarily because they have an in depth understanding of what they are lending on. Normally all they require is a simple application & then putting the machine you are borrowing on up as collateral.
    In essence you are leasing the machine. As long as you go with the $1 buy out option, it is basically nothing more than a loan. The finance company prefers the "lease" terminology as it makes it much easier for them to reposes the machine since they maintain title.

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    I prefer to go local. If something goes to hell, I can go in and talk to someone I know.

    You better have a pile of work stacked up make the payments on a $100K machine. My whole shop with 2 VMCs, 2 turning centers and the works is not insured for much more than that.

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    Keep on saving then when you have some money , get on some auctioneers sales flyers list.

    I have gotten some awesome deals on high end CNC's at auctions

    or market your product on kickstarter

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    First, I think you will have a hard time convincing the bank you are serious when you still have your regular job. That said, your cheapest money will be a home equity loan. Expect to pay at least twice as much for a pure business loan.

    If you plan on taking the plunge to be on your own in the future, you need to start looking for a bank now. Ask every small business owner you see who they use for a bank, and what kind of service they receive. It doesn't matter if they are a car wash, a dry cleaner, or a dog groomer. As a small business your banking needs are more similar to theirs than they are to a large machine shop. Small business banking is difficult. You will have to search for one that does it well.

    A full time regular job is going to take 40-60 hours a week out of your life. How many dollars of capital equipment can you afford to have setting around doing nothing, earning nothing while you are at work?

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    I don't have experience borrowing from banks on my business but I did talk to my local bank, with whom we've been banking with for a decade, and they said they require the business be in business for 2 years and show a full year's profit. My biz is only a year old so I couldn't get financed through them. They mentioned home equity loans as someone mentioned previously.

    I also agree about shopping auctions. I've seen some nice deals on decade old VMCs but these will usually need to be cash deals.

    If you can get a local bank to work with you, I'd opt for a line of credit, then it doesn't matter what you buy basically and less hassle.

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    Quote Originally Posted by gbent View Post
    A full time regular job is going to take 40-60 hours a week out of your life. How many dollars of capital equipment can you afford to have setting around doing nothing, earning nothing while you are at work?
    If and when the job allows it, I could have my, full time, stay at home wife load the vices during the day. Im also hoping that within a year of owning a real deal CNC, Ill be busy enough to go full time solo. My oldest is almost 3, soooo maybe only another 2 years or so before I can get her loading parts.

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    Allout - No comment on the financing aspect - I'm as interested as you are there...

    On the CAD/CAM though - Fusion360 is basically free. Look into it.

    On the machine side. No way I'd pay 100k for a 3-axis machine. Or did you say there was a 4th in there too? For a startup*, I'd want way more capability from a machine per-dollar than that. Maybe that means a HELOC and used equipment, or a fancier new machine? However, there's lots of attractive offers right now on new machines - probably for some time now, as the economy seems to be leveling-off/stagnating...???

    No business here, but I went to our local credit union last spring to ask basically the same thing about starting up. I was interested in about 1/4 of your amount, but they also recommended a HELOC. FWIW anyway...

    As always - best of luck man.

    -----------------------------

    *Young business

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    Problem Im thinking I might have with the HELOC is that we have only been there a touch over 3 years and Im not sure there is much equity there. I do have a 401k I could borrow from if I really wanted to... although Im afraid to even look at the account today...

    Problem I have with Fusion360 is giving up on the last 10 years of learning and loving mastercam... In my mind Im sure ill end up with a compact VMC or DT center. None of the brands Im interested in with the exception of HAAS, are brands Ive run before. With that said... to borrow money onto a machine that I am unfamiliar with to start off with, Im a little apprehensive about starting my CAM game over to boot. Im fairly confident however, if I end up with a foreign machine, I will have a much better time acclimating with a CAM system I am comfortable and confident with.

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    Quote Originally Posted by allloutmx View Post
    Problem Im thinking I might have with the HELOC is that we have only been there a touch over 3 years and Im not sure there is much equity there. I do have a 401k I could borrow from if I really wanted to... although Im afraid to even look at the account today...
    Same thing with us. 5 years in our house. We would have drawn the max. I also thought about the 401k too, but I also don't have much in mine. I'd be VERY careful drawing large sums from a 401K. Not only you have to pay the tax (as I understand - I could be wrong) but if it all goes south, that's basically free/earned money that's been tossed. Not trying to talk you out of it, but you better have the fire inside for what you're doing, to take that risk. I don't - at least not yet anyway. I'd also try use my business profits to replace that money ASAP too...

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    Quote Originally Posted by Jashley73 View Post
    Same thing with us. 5 years in our house. We would have drawn the max. I also thought about the 401k too, but I also don't have much in mine. I'd be VERY careful drawing large sums from a 401K. Not only you have to pay the tax (as I understand - I could be wrong) but if it all goes south, that's basically free/earned money that's been tossed. Not trying to talk you out of it, but you better have the fire inside for what you're doing, to take that risk. I don't - at least not yet anyway. I'd also try use my business profits to replace that money ASAP too...
    Pretty much my thought on it.... I would have to be bringing in more than enough to repay the loan to myself and/or be able to pay the loan off in its entirety when Im ready to leave the day job.

    I committed myself at a fairly early age...im in it for the long fight

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    Quote Originally Posted by gbent View Post
    First, I think you will have a hard time convincing the bank you are serious when you still have your regular job. That said, your cheapest money will be a home equity loan. Expect to pay at least twice as much for a pure business loan.

    If you plan on taking the plunge to be on your own in the future, you need to start looking for a bank now. Ask every small business owner you see who they use for a bank, and what kind of service they receive. It doesn't matter if they are a car wash, a dry cleaner, or a dog groomer. As a small business your banking needs are more similar to theirs than they are to a large machine shop. Small business banking is difficult. You will have to search for one that does it well.

    A full time regular job is going to take 40-60 hours a week out of your life. How many dollars of capital equipment can you afford to have setting around doing nothing, earning nothing while you are at work?
    I would never recommend using a home equity loan for any business. Think about it, if for some reason you can not make your payment you risk losing your home. If you get a business loan or what I would recommend an equipment loan then the worse thing that happens is you lose the machine. Equipment loans are easier to get in my opinion since the equipment acts as a type of collateral. I would use a third party lender that specializes in machinery as suggested before I think their rates are a little better than using the guys the dealers work with, we use Webster Capital. They are also willing to bundle some tooling and software in the loan if you need it. As far as loans go you are looking 5 year lease with $1 buyout around 5%. So a $115,000 loan is around $1,900 a month or $70,000 is in the $1,600 range. One thing with buying new is you have a warranty and generally low maintenance and repair costs for a while.

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    Quote Originally Posted by WDW View Post
    I would never recommend using a home equity loan for any business. Think about it, if for some reason you can not make your payment you risk losing your home. If you get a business loan or what I would recommend an equipment loan then the worse thing that happens is you lose the machine. Equipment loans are easier to get in my opinion since the equipment acts as a type of collateral. I would use a third party lender that specializes in machinery as suggested before I think their rates are a little better than using the guys the dealers work with, we use Webster Capital. They are also willing to bundle some tooling and software in the loan if you need it. As far as loans go you are looking 5 year lease with $1 buyout around 5%. So a $115,000 loan is around $1,900 a month or $70,000 is in the $1,600 range. One thing with buying new is you have a warranty and generally low maintenance and repair costs for a while.
    By far the most attractive thing to me about new equipment, would be the assumed reliablility and warranty. I have to imagine i will be on pins and needles as it is with that first purchase and knowing I would have some sort of warranty in place would be great piece of mind. Not to mention... If the machine goes down your not making money and jobs start running late... Further compounding the issue without a warranty.

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    Another option is pay cash for a used machine that will do just enough and get a loan for a new machine. Then you have a backup or something to make extra money on.

    An example regarding 401k withdrawals. I withdrew 130k and took home about 75k.

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    In my experience for small businesses small local banks will work with new businesses better then the big banks lots of times. Especially if you have accounts there. Lots of times with better rates even.

    Also, some banks like it better if you continue a day job because they think you will use that money to pay when things get slow.

    Those are some of the things I saw when in sales.

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    Save money and wait for the next recession. As it is now, there will be oil field related shops going under this year. During the last recession ('08), I bought a nice '97 14x20 Kitamura, side mount changer,13k spindle with Fanuc 0MC control for 5k$. It was dirty as hell, but in great condition. I would not go into debt until you have an established full time business with a good list of customers.

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    Quote Originally Posted by gbent View Post
    First, I think you will have a hard time convincing the bank you are serious when you still have your regular job. That said, your cheapest money will be a home equity loan. Expect to pay at least twice as much for a pure business loan.

    Boy - I see that the other way around. I would be less nervous about loaning $ to a guy that still had his solid job and was not needing to run enough parts through this new venture to not only make the payments, but to support his home life as well.

    ???


    Quote Originally Posted by allloutmx View Post
    In my mind Im sure ill end up with a compact VMC or DT center. None of the brands Im interested in with the exception of HAAS, are brands Ive run before.
    If you don't have an actual product in mind to run on this new machine, I would NOT be looking at anything smaller than 30" X. Fast tool changes don't mean Jack if it won't fit on the deck! I would recommend a 40" machine.

    Get a Jack-Of-All-Trades machine first. Maybe a more niche' machine after that if you can identify a trend in your work.


    If it was me - I would NOT go buy a new machine for unknown work just to get started. (!) I am not into warranties. They are not used often, and if you don't even have work for it, you Shirley aint gunna see many hours of spindle time before any warranty will have long run out.

    Can you change prox's? Encoders? Motors/amps? Sure - these might be $1500 expenses that you weren't planning on, but you can justify spending $40K extra just so that you don't hafta be on the hook for repairs for the first 600 hours of spindle time? (I doubt that you would have any more than that on by the time the warranty is gone.)

    As far as buying a used machine, ESPECIALLY if you are wanting to watch the auctions. Watch small/local auction companies websites. There are no deals at big auctions by any stretch. If you have already talked to a local bank, and have a note pending for ?? $25-$30K, then you could put the down payment on with your C/C and go in and finish the deal uptown.

    IF you want to buy from a dealer, or new, and especially if you want to $pend bigger bucks, I would also recommend US Bank, Machine Tool Finance Division. (lease) (They were recommended earlier in this thread) But they will NOT give you $ to go to an auction like the local bank might. US Bank used to have full page ads in Modern Machine Shop every month back in the 90's. I don't know why they quit advertising? I haven't dealt with them in 5 yrs or so, but they are the real deal in this industry IMO. If you go this route, the machine will stand on it's own. They don't want your kids arm.

    If you doo buy something other than a Haas, especially if it is a lesser known brand, I would recommend something with Fanuc 16 or newer control as you can get parts anywhere, and diagnostic help is way better from peers than any other brand. Keep in mind that any CNC is a hunk of iron that doesn't generally wear or break, a CNC system, and bearings (screw/rails/thrusts). Not much on a VMC that will go bad is OEM specific. Be more concerned about ease of diagnostics and support on the electrical side. Wiring schems are a big help as well.


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    Let me add one more point to the "not new" argument:

    So let's say that you go fetch a $70K VMC. Let's say that you can swing it, and your reasoning for justifying it is that it will be a solid machine for you for the next ten, and likely 20 yrs to come. This is a machine to "build from".

    Well, that's all well'n good if all you ever git in is mill work. When I started out, I had never even ran an engine lathe to doo anything more than cut neoprene strippers to length. I may have ran a turret lathe for a few hours, and prolly never even seen a CNC lathe. (this was <30 yrs ago) So I started with a Bridgeport, Harig, and a band saw. I was going to just farm out whatever little amount of lathe work that I got in - as I didn't expect it to be much eh? After 6 months of farming out lathe work at a MUCH higher price than my own shop rate, I decided that I needed a bloody lathe!

    I understand that you can't get the work that you want with a 13" SB lathe and an Acer with an Anilam on it. Not anymore.... But so you fetch a really nice - if not new - VMC. You git'cherself in the door here and/or there, but you find that while there is mill work there, what they really need a good/cheaper/more local/whatever source for WEDM, or lathe work. What now? I just don't see you being in a position for a while to go ask for (or feel comfortable with the thought of) borrowing another $50K for another machine.

    I bet you could find yourself a decent 2000 or newer mill for $25K, or even a decent mid 90's unit for $15K, and still be able to doo most anything that you want to. I will say that RIGID TAPPING is a feature worth looking for tho, which I'm guessing that you know from the day job... By 2000 I would think that most any mill worth having would have it on. I don't know how "Field Installable" that feature is?

    I find it better to try to serve the door that your foot is in, than it is to try to get your foot in some other door. Allow some wiggle room to serve the doors that open.


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    Quote Originally Posted by WDW View Post
    I would never recommend using a home equity loan for any business. Think about it, if for some reason you can not make your payment you risk losing your home. If you get a business loan or what I would recommend an equipment loan then the worse thing that happens is you lose the machine.
    As it was explained to me by the credit union, a HELOC doesn't require any payments, to be made monthly - and therefore be penalized on if you miss - but you are obligated to pay off the LOC at the end of the term. While it would be unwise to carry the full amount until the finish-line, it does allow you flexibility if you get behind and can't make the payment for a month or ten - hopefully while you either back up & punt, or start selling things off to pay off the LOC...

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    I have miles of input I could give in this here thread. But, I will keep it simple:
    Do not mix your personal, and your business finances. Anything you take from yourself to start your business? Be prepared to consider that money "gone".
    You will not pay it back. No matter how good your intentions. The growing cycle of the new business will not let you.
    Forget borrowing money from a bank. For many reasons. A small business loan is almost impossible to get. I had a $75k/yr full-time job, and 750fico, and they would not even talk to me.
    And a small business loan will most certainly be structured to increase your odds of failing.
    The only way a bank will extend un-secured credit (which is what a small business loan is) is if they stand to make significant profit on that note.
    Its not like a mortgage. They want their money back in 10yrs instead of 30yrs, @10% instead of 3% or 4%.
    You may as well use credit-cards, and play the zero interest balance transfer game (which realistically ends up costing you about 3%)

    It has already been mentioned, leasing a machine with $1 buy-out is really the only option for you that makes sense.
    Knowing the little I know about your background, my advice to you:
    Find a solid HAAS VMC. VF-2 through VF-4. And stick with the software you know. You need to make those payments.
    You will not have time to learn a new CAM in the beginning. When jobs come up, you need to be able to react swiftly.
    You cant react swiftly if you are stumbling around unfamiliar CAM.
    Yes, purchasing MasterCAM is a big hit! But, worth it. Unless you start learning something else now.
    But, when you do launch your own shop, CAM damn sure better not be a bottle-neck.

    Time is money. If you are a little slow because you are new to your CAM, you can not charge for that. Or you will quickly find yourself out of work.
    People kept telling me all the time: "you need to raise your prices" "if you get everything you quote, your prices are too low" bla-bla-bla!

    Well, I am here to tell you, that game is like walking the sharp edge of a razor-blade. I tried raising prices, and quickly found myself out of work!
    You need to know your abilities. You need to know your machines abilities. And you need to be able to accurately predict how long jobs are going to take.
    In order to give accurate quotes, that are competetive. You won't be able to do those things with un-familiar CAM, or un-familiar machine/machine control.

    In the beginning, stick with what you know, elaborate later.


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