One thing that is sure to remain is companies rushing to get a Section 179 purchase or three in before the deadline. And as I’ve written in the past, that could be spotty depending on what you are buying.

** For those who don’t know, Section 179 is a business tax deduction that allows you to write off the full price of eligible equipment, up to a little over one million dollars. It’s a big deal.  

Remember the deadline requirements with Section 179 – your eligible purchase must be bought and put into service by midnight 12/31. That second part (put into service) could trip some companies up. 

The post-pandemic supply chain crunch is very real and is affecting countless industries. The domino effect is strong as well – even if you think your industry isn’t directly affected, a hard-to-get computer chip might be required to make the widget your industry relies on. Or your non-affected goods might sit in the container at the port weeks longer than usual. You’ll get it, eventually, but maybe past the deadline? Nobody is immune.

There are two suggestions if you are reading this now (November 2021) and still haven’t bought your Section 179 eligible purchases for the year:

1. If you can be guaranteed delivery by 12/31, buy it right now. As in today, not tomorrow. If you are paying cash, great, go do it. If you are financing, get your financing lined up immediately (hint: we can help). Getting it now can make a big difference in delivery. 12/31 is coming fast.

2. If delivery by 12/31 is iffy, maybe consider used? A preowned piece of equipment has the advantage of being right here, right now. If that works for you, definitely consider it. 

You can also wait until next year, but that doesn’t help your 2021 either. And for many companies, 2021 isn’t going to be slotted into the “our best years” list, so getting a nice tax deduction at the end is desirable. 

Section 179 is ready and waiting. Use it.

Like any lender, our credit requirements will leave out many businesses. And over the years, I’ve received more than one angry email from someone turned down, trying to explain why they had to declare bankruptcy three years ago, or why revenues fell the last two years.

And I want to take a few minutes to reiterate that a “no” for business credit is not personal – it’s made by numbers and data, and nothing more. And they are made without exception.

In other words, when we say “two years in business”, it’s two full years, to the day. 

When we say “no bankruptcies in the last seven years”, it’s the full seven years. Nothing else is taken into consideration (that’s why the reasons behind the bankruptcy won’t matter). 

Part of the reason for these absolute lines in the sand is there’s really no other way for a business to offer credit these days. Every lender has to have criteria to fit their rate and loan structure, and they have to follow their criteria exactly.  

This is why it’s simply criteria based, and not personal. 

I liken this to what has happened with asking for ID when purchasing alcohol. I have noticed these days that many stores ID everyone who isn’t an obvious octogenarian – no exceptions. Even a 50-year old is asked for ID. Why do stores do that? To make the ID process universal. No more relying on the cashier to determine if the person “looks” old enough. Because that comes with issues – I’ve seen 18-year-olds that could easily pass for 30+. Asking everyone for ID takes that situation (and the booze) off the table. It’s not personal – it’s a policy. 

The good news is, there are lenders for everyone. There are lenders for specific, higher-turnover industries. There are lenders for newly-minted businesses. And there are lenders, like Crest Capital, for successful businesses who wish to grow. 

But in the end, the credit decision is all business, and not personal. And “time” can also eventually turn a no into a yes. Passing two years in business is big. Having a bankruptcy pass the seven-year mark is excellent. And so on.

So remember, a credit “no” is not personal. We’ve funded people who we initially said no to, then said yes to a few years later.

On the other side of the coin, if you’ve demonstrated years in business, solid revenues, and have good credit, take a bow. We’ll talk about that the next blog.   

*For those who don’t know, Section 179 allows businesses to write off the full price of qualifying equipment (which is almost anything a business can use), up to a little over $1 million dollars. It’s good for any qualifying equipment purchased and put in service during the tax year.

One reason I mention Section 179 so often is sooo many companies do not know about this tax deduction. Believe me when I tell you, eyes are opened wide when we explain it. The conversation usually goes like this:

Wait, you’re telling me I can write off the entire $50k of this purchase? That means (does math) I will save $17,500 in taxes. Is that true? 

Yes, that’s absolutely true (the above assumes a 35% tax rate). 

So my question to you is this: if you sell to businesses, are you telling every single customer about this? And if you aren’t, why not? Because I’ll bet anything a good number of them are NOT aware of this. 

Telling a prospective customer they can write off the entire price (thus knocking whatever their tax rate is right off the true cost) can very quickly turn a “no” or “maybe later” into a full-on “yes”. Any good salesperson will salivate when told a customer doesn’t know about Section 179. 

Here in 2021, there’s an added incentive: as I’ve been mentioning time and time again, supply chain delays will have an effect on Section 179 – you need to get the equipment and put it into service. So having equipment in stock and ready to ship is a HUGE selling point.

If you sell to businesses, and have stock ready to ship, I can think of no better incentive than making prospective customers aware of Section 179, and you can get them their equipment in time to take advantage of it. 

Section 179 is a great sales tool. Use it.

The pandemic is still hanging in there, but we’re moving forward to some sense of “normality”. But this normal is indeed a “new” one.

Regardless of where the economy is going (and we’re quite optimistic here), it’s clear that on the whole, everything is going to cost more for the foreseeable future. 

There are many factors causing this: shortages of raw materials, shipping disruptions, a rapidly-changing labor market, and other pandemic-related factors. But (and this is good news) demand across most industries has held steady. The supply is a problem, whether that supply is goods or people to build/move them. 

And it’s simple economics that when there’s ample demand with a limited supply, prices must rise. This includes the price of goods (both new and used), as well as the cost to borrow (i.e., interest rates.)

Waiting is Costly

What this means for businesses is obvious. Waiting to buy needed equipment, be it vehicles, machines, software, servers, or anything else, means you will absolutely pay more than if you bought it right now. 

The cost of the equipment itself will be higher (both new and used). And rates will be higher too. So whether you’re paying cash or financing, waiting is costly. 

No matter what it is you are looking to buy, right now is the lowest price you are going to see, and likely the lowest rate as well.

Locking in with fixed-rate financing is easily the best way to protect yourself from paying more than you should. Again, this is simple economics.

I know, there’s an elephant in this room. I can hear it now: “Chris, you work for an equipment financing company. Of course you’re saying to finance now.”

Well, yea. But is anything I’m pointing out inaccurate? Do you truly feel prices on anything are going to drop? If you think they are, then I have a bridge to sell you (note: act now, as the price of that is going up too.)

Seriously, the die has been cast. We can argue as to the causes, but the fact is, this is our business climate, and smart companies don’t complain – they act. 

I’m writing this in September of 2021, and I strongly feel that whenever you are reading this – be it now or three years from now – today will be the lowest price and rate you will see on whatever it is you want to buy.

Despite this, I am very bullish on the future. Demand for almost everything remains extremely strong. The smart companies will do fine. 

Again, financing equipment you need (or are going to need) right now is your best hedge against rising prices and rates. Locking in is a sound strategy. 

Curious if you can be pre-qualified? We can do that in two minutes right here.

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Section 179 doesn’t care if you’re a sole proprietor, a partnership, or a corporation. It doesn’t care if you’re on Main Street or Wall Street. It doesn’t care if you have nine buildings and 10,000 employees, or if you’re a classic small business with one location and a handful of employees.

Here’s what you need to qualify for Section 179:

Be a Real Business. This means you’re a registered business, with a business bank account. 

Show a Profit. Since Section 179 reduces a company’s taxable income, the company must have taxable income in the first place. Also note that Section 179 cannot be used to “create” a loss. 

Buy / Finance Eligible Equipment and Put it into Service. Pretty self-explanatory here. You have to buy eligible equipment (which, honestly, is just about any tangible equipment you use in your business), and start using it by the deadline (always midnight Dec 31 of the current year).

And that’s it. 

I got on this topic again because my commercial landscaper friend told me he couldn’t fully deduct several new zero-turn mowers, and instead had to depreciate them yearly – basically, he said “only big businesses get the big write-offs”. I asked him why he thought that, and he really couldn’t answer me – he just assumed that a small business like his couldn’t fully deduct equipment purchases. Not true at all.  Trust me, I set him straight.  

It always amazes me how many businesspeople either haven’t heard of Section 179, or if they have, think it isn’t for them. I’m also somewhat amazed that their accountants aren’t mentioning it. Maybe they feel the client needs to ask about it, or they assume the client would rather have a smaller yearly write-off? I don’t know all the answers there, but I do know almost everyone who “didn’t” know about Section 179 is super enthused once they learn that yes, it’s for them too. 

Bottom line: As long as there’s taxable income and eligible equipment purchased for business use, Section 179 is there to be used. So use it.  

The short answer is “no, not for us”. There are lenders that have changed their requirements (specifically lenders that already took on high-risk loans), but Crest Capital’s requirements are exactly the same as they were pre-Covid.

And with that said, this is as good a time as any to go over our basic credit requirements. We’re an equipment financing company that specializes in working with successful small and mid-sized businesses looking to grow. 

So what does “successful small and mid-sized businesses looking to grow” mean in a nutshell? It means:

• Two Years in Business. No less, and no exceptions. Our favorable rates and restriction-free terms are specifically tailored to companies who have stood the test of time. 

• Demonstrated Revenue and Profit. Again, we have the most favorable rates and business-friendly terms in the industry. But we can only offer those because our customers are already profitable. They don’t see the loan they take from us as a “risk” like a recently minted business with no revenue would. Our customers already generate sufficient revenues to make the monthly payments. To our customer base, financing equipment is a smart business growth strategy rather than a way to address a lack of revenue. 

• No bankruptcies in the past 7 years.  Pretty self-explanatory. And again, no exceptions. 

• Industry. We work with almost all industries except owner-operator tractor trailers, and we generally do not work with the food-service industry either. The good news is both of these industries have their own specialized lenders.

Note – the preceding requirements are a baseline for a blog post, and do not guarantee any approval.

As I stated, our customers see financing as a component to growth. A brand-new entity typically needs financing to simply exist, and there are lenders that specialize in that. On the flip side, our customers need financing to grow. There’s a big difference. 

We like to say “we help successful companies become more successful”.  It’s how we were pre-Covid, and it’s exactly how we are now. 

But here we are in 2021, COVID restrictions are easing (if not gone), and many industries are returning to normal. While I still feel odd doing a “not hot” post, I can and will comment on a few industries. So here’s what’s hot in equipment financing in 2021.

1. Construction Equipment / Heavy Machinery

No surprise here, as the construction industry has been on the upswing for a few years now. New buildings, new homes, and even repurposed older buildings – they are all affecting an industry that doesn’t see too many slow times. We expect heavy equipment financing to be a very popular topic for the foreseeable future. 

2. Computers and Software

The pandemic sent everyone home, and changed the way a lot of businesses communicated. Software financing was always something we were strong in, and we’re seeing steady requests there as well. Especially for specialized industry-specific software suites, and communication-focused applications.  

3. Used Equipment of All Flavors

Preowned / used equipment financing (another thing we specialize in) is strong as well. There are several reasons for this. Companies hurt fiscally by the pandemic still need equipment, and used equipment is easier on the bottom line. Another reason (I feel) is the pandemic caused some older businesses with owners nearing retirement to close shop earlier than they originally planned, leading to a robust used equipment market. Lastly, the supply chain issues I’ve been writing about have caused many companies to consider the gently-used piece of equipment right in front of them and available right now.

So there you have it – three industries / financing types that are doing well here in 2021. But these aren’t the only ones – there are plenty of industries and companies that held serve during the pandemic, and are poised to grow. 

Hope your summer is going well!

Ok, that’s probably not what sprang to your mind, but that’s fine. You can have whatever you thought of (vacation, swimming pools, baseball, whatever) and still take advantage of Section 179.

There’s a reason why right now is a great time to finance a Section 179 purchase. With the year half over, if you finance equipment now, you have what, maybe 5 or 6 payments that you’ll make in 2021? Well, since you get to deduct the entire purchase price of your eligible equipment, your Section 179 tax savings will almost certainly exceed the total of the payments you make this year. 

You read that correctly – you will likely save more in taxes than you pay out for the equipment this year. That makes acquiring the equipment technically a no-cost proposition for 2021. PLUS you get to use the equipment to make more revenue.

When you think about large businesses, you hear the word “leverage” a lot. Using Section 179 financing  is “leverage” that’s available to any size business. The small Mom and Pop can take full advantage of Section 179 financing just as much as a multi-million-dollar entity. In fact, a smaller company might have even more leverage due to scale – proportionately, the impact to the bottom line is larger.   

You can look at this a few ways: if you finance a 50k piece of equipment in June, assuming a 35% tax rate, you’ll save $17,500 on your taxes. You’ll likely pay out approximately 5-6k in payments for the rest of 2021… so that’s like 11k more in your bank account just for financing Section 179 eligible equipment. 

Or, you can look at it another way – that $17,500 saved will likely cover your payments into 2023…  you won’t be reaching your own pocket until then. And all that time you get to USE the equipment. 

That’s serious leverage. 

We’ve created a downloadable PDF that explains this in detail. It’s available here: //www.virustara.com/Section-179-Financing-Deductions.pdf

So yes, it’s a magic time of year. Go to a BBQ, and go on vacation. But get that Section 179 financing purchase in also – your bottom line will be better for it. 

I even mentioned financing used equipment, and also went a step further and added in that we finance private party deals (aka user to user, or in simpler terms, buying a used piece of equipment from anyone who isn’t an authorized or “official” dealer.)

And since I mentioned that, I want to mention this for anyone interested: before you talk to your lender about used equipment, do some homework. Because in the end, it’s Caveat Emptor. Here are some tips:

If possible, buy used equipment from a reputable dealer. 

Buying used equipment from a reputable dealer is akin to buying a used car from a well-known automobile dealership – they will likely stand behind the sale with two very important assurances. The obvious one being some type of warranty (even a short one); the not-so-obvious one is that a reputable dealer has probably conducted a UCC search looking for past liens. They also will likely attempt to make certain the equipment is able to be sold in the first place.  

Note that I am using words like “probably” and “likely” here. So be diligent and ask about these things, and even ask what happens if an old lien crops up – will your dealer stand behind the equipment? A reputable dealer should.

Buying from a reputable dealer (especially one that’s an “authorized reseller” or similar) can minimize most of the risk of buying used equipment. 

The rest of these tips are more for buying used equipment from private sellers and/or someone selling on consignment (like a broker). It still may be an excellent deal, but it also means the risk is increased. 

If at all possible, trace the paperwork to the original sale/owner. 

Having a clear paper trail all the way back to the original sale is something you should try and get, so a proper UCC search can be conducted. Now, in the case of long-lived equipment, tracing the sale back to the original owner may be impossible. But it definitely helps to have a paper trail back to the original sale from the manufacturer. And, of course, if you are buying equipment from the original owner, all the better. 

Make sure the equipment CAN be sold in the first place. 

This is trickier than it appears, and even if you have assurances, it can still be murky (which is why buying from a dealer or someone you implicitly trust is recommended). 

For example, if the seller of the equipment has an outstanding bank loan, it’s very likely the equipment is under a blanket lien, whether the seller is aware of this or not. And while it’s probable nobody will show up to halt the sale of the equipment, legally, the bank will still have claim to it. You will want this (and any other) lien cleared / released before buying, period. And again, this is why multiple previous owners can be problematic – if any of them had a bank loan or such, the equipment could have an old lien that nobody is aware of.  

We’ve also seen instances where partners (or spouses) had a falling out, and equipment was sold that should not have been. Again, even if you buy it and have a receipt, you may not be the legal owner. 

Don’t buy from a craigslist seller who only wants cash.

I’d like to think I don’t need to say that, but I do. Just don’t do it. And if the serial number is filed off… yea, run away. 

The biggest reason to be diligent when buying used equipment is in the end, you’re on the hook for it. Old liens that nobody knew about or an unauthorized sale could mean you lose the equipment, yet still owe your lender for it. And let’s be honest: any situation where you’d lose the equipment is already a messy one legally – good luck getting your money back.

The tips we’ve outlined above can help, but in the end, are not legal advice, and cannot guarantee anything. 

Used equipment is typically an excellent choice, and we love financing it. But be diligent and understand the possible pitfalls and risk.