Thread: Exploring Financing Options As A Small Business

Originally Posted by dstryr

Calmotion box would solve that. Great machine that I'm sure could be had for $10k

That damn thing tempts me even. I could make room for that thing. If it only held more than 10 tools!

There are several excellent points, all correct, and all different.

No-low debt used. Good.
New. Lowest cost. Good.
Low financing cost - good.

All depend on YOUR local conditions.

Example:
Over here, small D/T machine TM- type machines are useless,/valueless/dont sell.
20k (==broke) shops have a small mill/cnc, and small work makes no money.

So, we ended up selling huge numbers of medium-large machines (VF5-VF6) with large tables, and basically all clients were instantly profitable.

Its NOT a question of machine.
Its a Q of business, and the business, depends, a great deal.

Most MTB and sellers wont tell you the truth, and are not on your side.

(Conversely, some are.
We were- and advised several clients why not to buy, or not to buy our stuff (we advised one to buy a Moris lathe, as it was a better fit, for them. Fair enough.
A failed client is much worse than a lost sale.)

alloutmx,

From what I've read about your plans consider yourself lucky nobody is going to loan you the kind of money you're talking about. That's a good thing. You'd be hopelessly over your head in no time.

What I suggest is keep your day job. Get a part time job, evenings & weekends, to put aside $1K or so a month into savings for future self employment. After two, three years you'll have $25 to %30K. Then you'll have a little "walking around" money that's needed to get off the ground in business.

When you do get ready to borrow, keep the amount low. Compromise on some of your wants, like expensive, high end CAM and a brand new machine.

Starting off in business with significant debt is almost a sure route to disaster.

Self employment is great. Keep your overhead costs as low as possible with respect to income, treat customers like you'd like to be treated and you'll do just fine.

Rates for most machine tool specific lenders will start around 3.99%. Consider leasing. You can likely do a 36 month lease and convince the machine tool dealer to warranty for the full 3 years. They will likely agree, because if business is good for you after 36 months, you get a new machine and they can another machine sale.
The lease doesn't add any debt to you or your company, and the payments can be deducted from your revenue. It's hard for shops to even consider leasing, but the upside is very good. You can always be running new equipment, always have warranty and always stay up to date with the newest technology.

Call US Bank, National Machine Tool Finance or MFR in Tampa (they can lend in NY). Good luck

If you haven't already, get the business papers done so that your 2 year clock starts now so that you can potentially get credit from vendors etc. I would also look into doing what ever you need to so that you can essentially get a credit rating for the business vs your personal name.

I went the used and affordable route. I had a change of mind completely after I started writing the checks and also when I watched so many shops around close due to not enough work and payments on machinery, rent etc. I am full time at my shop, but I knew it would be tight sometimes, so I wanted something that if it came down to it I could push carts at walmart and still make the payment. The cnc and my house are the only loans I have and the house will be paid off in 1 year, machine in a few more. The rest of the bills are utilities and insurance BS.

I know that I am giving up performance compared to the machines I had at the old job, but the difference was $175k in what I had there and what I have in my shop. I have also spent alot of time building up my niche where the speed of the machine honestly doesn't matter. The difference in feed and rapids just don't amount to anything but a huge payment for what I do.

Also, a consideration is to buy a CAM package that allows you to 'own' it and be able to drop the maintenance fee. It is a gamble on if you think you will need their help etc, because you will take a big hit if you dropped the maintenance and then called them for help.

The hardest thing most of us machinists/technicians have when owning a business in our field of expertise is stepping away from it far enough to run it like a business instead of a passion where you do things the way you want to/buy the machine or cam that you want to vs buying what is best for the business.

Not knowing all your specifics, I'd stay with the day job until you just can't swing both. I didn't have a choice, the boss shut my shop down and told me we were done. If I had bought either the cnc or the building or paid off the house, any one of those big ticket things before I lost my job, I'd be a few years ahead of where I am now financially. I had the income and I had already started gathering support equipment and mills, lathes etc. If I had just taken it the next step even 1 year before I lost my job, I would not have been in the boat of asking for a loan while on unemployment, that wasn't any fun, but I made it happen.

I will also tell on myself a little, when I lost my job, I went to talk to someone that I thought I might be able to work for. He wasn't interested and asked what I planned otherwise, I told him 'start a business', he said that I should go get a real job and do my thing on the side until I made enough there to quit the day job. To be honest, it pissed me off that he tried to force that opinion on me and it just felt like he disrespected me and such. I figured I was good enough and had enough contacts etc that I could make a go of it. I also know myself well enough that if I had worked for someone else, I would never start my shop. I don't like to admit it, but in most cases, he was right. I'd probably have been better off at the end of the month to just punch a clock. I hope I am going through the growing pains so I can have something worthwhile in the future.

Originally Posted by austingooch

Rates for most machine tool specific lenders will start around 3.99%. Consider leasing. You can likely do a 36 month lease and convince the machine tool dealer to warranty for the full 3 years. They will likely agree, because if business is good for you after 36 months, you get a new machine and they can another machine sale.
The lease doesn't add any debt to you or your company, and the payments can be deducted from your revenue. It's hard for shops to even consider leasing, but the upside is very good. You can always be running new equipment, always have warranty and always stay up to date with the newest technology.

Call US Bank, National Machine Tool Finance or MFR in Tampa (they can lend in NY). Good luck

The difficulty with a lease is that even though you do not officially have any debt from the lease, in actuality you do. The lease payments are a monthly cash expense that you as a business and personally are liable for the full duration of the lease. If you can not make the lease payments, the lease company can repossess the machine very easily from a legal standpoint and still sue you for payment of the lease payments. Sometimes you can be fortunate enough to find someone that will take over the lease payments but they must be considered credit worthy by the lessor.

Years ago, was having this very conversation with our friendly banker about leasing versus purchasing. He had a very interesting take on it. From his perspective, the lease payments were a cash expense that was ongoing for the duration of the lease. What he did not like about the lease was that the lease payment, which consisted of the principle and interest on the asset, was cash that was going to a third party. There was no increase in networth as the lease was paid off. If a business was in a tight cash spot, there was no wiggle room to preserve cash by postponing a principal payment and the cash, an asset was continuously being transferred to a third party.

The lease did allow you to use the asset without using up your working capital. For this you traded off the advantages of having an asset on your balance sheet that you are paying off to just a cash expense that comes off the top. From the bankers perspective, he was more comfortable with loaning the money for a new machine that made smart business sense and keeping the cash that would be going to a lease in the business and in essence under the banks limited control. He also had the perspective that the lease was a current debt that he used when calculating your current ratio. Now this was years ago in a different time when it was relatively easy to borrow a lot of money without too many hassles. But I have always thought his take was interesting on a lease. He was also a banker that was very much into profitability and did not like financial games that put cash flow over profits.

It should also be pointed out that a lease is usually written based on the full list price of the machine. The entity writing the lease, is using the depreciation and interest carrying charges for their advantage from a tax and profit standpoint so the more they can load the front end, the more profit potential for them.

Not against leases, they are just another tool in the financial tool box but I seem them used more often then I'd like to see just because the leaser does not have the ability to purchase the machine themselves. If a person falls into this trap, then you are owned by the lease company at that point. Paying the lease becomes the driving issue not the putting cash in your pocket.

Not following any of this "cash" references in the last post, as from my vantage point - I hafta make the payment either way. ??? Sounds like double talk to me.

???

In ref to some of his points tho:

As long as we are operating on a $1 planned buyout lease, my accountant sets up the lease on our books as a purchase. Not sure what difference that makes, but ....


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Think Snow Eh!
Ox

Originally Posted by austingooch

Rates for most machine tool specific lenders will start around 3.99%. Consider leasing. You can likely do a 36 month lease and convince the machine tool dealer to warranty for the full 3 years. They will likely agree, because if business is good for you after 36 months, you get a new machine and they can another machine sale.
The lease doesn't add any debt to you or your company, and the payments can be deducted from your revenue. It's hard for shops to even consider leasing, but the upside is very good. You can always be running new equipment, always have warranty and always stay up to date with the newest technology.

Call US Bank, National Machine Tool Finance or MFR in Tampa (they can lend in NY). Good luck

Those rates are usually not available to part time start ups out of their garage.

Originally Posted by macgyver

I hope I am going through the growing pains so I can have something worthwhile in the future.

From what I have seen, smaller businesses aren't worth anything by themselves. They produce an income for the people who own them and they pay for the building you are in. When you get old, the shop closes, machines and tools sell for pennies and you sell the building, and that's your retirement. So rule #1 is, BUY THE BUILDING !

Originally Posted by maryjames

I think you should take loan and buy a new VMC. I know a company which can give you loan for this purpose. Visit Merchant Advisors website and get all initial information regarding it.

Go spam elsewhere..........................

This is the blah blah blah part, I'd skip to ****

What you borrow needs to be paid back plus a whole lot more in interest...even at good rates. Something to keep in mind.

Also keep the fact that if you do not have the work for machine...you will have the bill.

Also keep in mind if your machine goes down...you will have the bill for it, plus the bill to repair it if not under warranty AND during that time machine is down...you will not have made a dime with it. So please keep in mind, better machines go down less..but they can still go down...make sure you can get parts and service.


Before I go out and buy a machine, I drum up more then enough work for that machine. It needs to come in and have the work to At The VERY LEAST makes its payments, plus get a little ahead. I did that by working crazy hours on the machines I had with the idea one CNC came in I catch up, learn, buy tooling get more work.

*****

Now to your question.

Whether you like or dislike Haas, go to their website, pick out a machine, option it the way you like then move to the "Finance it" page of website and run the numbers.

Don't forget shipping,rigging and electrical hookup. Also you need Insurance coverage on machine in case of fire or...your finance company will need to see that it is covered. Don't forget money for tooling, clamping etc.


OK- back to machine payments

70k machine, 10k down for 60 months...you'll see your payment. (add the money down plus 60 payments to see what machine will actually cost you)

OK I can handle that and more...maybe switch to 48 months. (add downpayment and 48months of payments)

Jeez, that's a bit more then I am comfortable with...
Maybe hold off and buy the 70K machine with 20k down and 60 months

Or realize you do not NEED to have a 4th axis right now, maybe just get it wired up for it.

Anyway, that is how I get a feel for what my new monthly bills WILL BE EVERY Month for the next 36-48 or 60 months.

I look at it as if I know I have 2 jobs I can run on machine every month and I only need one of them to make the payment...its a no brainer. If I am fairly certain I will be able to grab 3 or four...

I also like to know, if this goes south...is there a market for what I bought. Not to make money, but not lose my arse.

Originally Posted by EmanuelGoldstein

From what I have seen, smaller businesses aren't worth anything by themselves. They produce an income for the people who own them and they pay for the building you are in. When you get old, the shop closes, machines and tools sell for pennies and you sell the building,

Often true. I call it the difference between a company and a practice. A practice is as described, a company ends up with sustainable earnings that don't depend so much on the leader. Those earnings create a value in excess of the asset value so it gets sold and hopefully keeps going. Either is a valid approach, but the whole treasury thing (where the capital comes from) is quite different between the two.

your best bet is to save save save and save some more.
get a nice used machine ( still plenty reliable and a ton are for sale every day)
Dont forget about tooling, day to day expenses, and working capital.
No point in having a large machine payment if you don't have any of the other parts of the business operating correctly.
I noticed you already have a proto track. What is your main goal for a VMC? increased capacity?
is your mill running 8 plus hours a day now?
Just to buy a mill and not "need" the capacity is setting yourself up for failure.
just my too cents here, i wish you the best of luck as i am in the same boat as you here in NY.

This is 2 1/2 yr old thread.............................

There's still folks looking to finance machines tho.....


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Think Snow Eh!
Ox

Originally Posted by Ziggy2

...was having this very conversation with our friendly banker about leasing versus purchasing...What he did not like about the lease was that the lease payment, which consisted of the principle and interest on the asset, was cash that was going to a third party. There was no increase in networth as the lease was paid off...

A banker thinks in terms of property that appreciates in value, like a house. Paying off a machine does not permanently increase your net worth, because it depreciates in value. The value of a machine lies in its income-producing capacity. You want payments that will let you earn a paycheck and make a profit, which is fairly simple math, and for that a machine leasing company will do just fine. Do NOT allow anything other than the machine itself to be collateralized. A bank will want to collateralize everything you own. SCREW bank financing for anything except a mortgage. Keep them at arm's length from your business. Yeah, it's an old thread but the topic is timeless...

I think you can also consult with different private lenders who can give you personal loan of upto 500K e.g., one of them i know is Merchant Advisors. You should visit their website for more details.

Originally Posted by nicoleadam

I think you can also consult with different private lenders who can give you personal loan of upto 500K e.g., one of them i know is Merchant Advisors. You should visit their website for more details.

Uh...............Really?..............................

Originally Posted by nicoleadam

i think you can also consult with different private lenders who can give you personal loan of upto 500k e.g., one of them i know is BLANTANT SPAMMING. You should visit their website for more details.

"I am a marketing expert working on number of businesses and projects. I work on with talented team under my leadership. I truly believe in making a difference in the world."

Your "Team" ?

Your a middle school spammer....

The only difference your making is the ruining of your clients reputation,
and hopefully, in the end, your career.

Originally Posted by david n

This is 2 1/2 yr old thread.............................

Same spammer hit an ELEVEN year old thread, same boilerplate.

Prolly an AI. Artificial Idiot. Might even be a machine one, 'stead of meat, bone, and dirty water.