Long story short... My company's Tax ID is only a year old and although I am debt free I have no credit. I am buying a new trailer and a used excavator,: Trailer ~ $15,000 Excavator ~ $25,000 I can pay cash but I want to finance a small amount of each purchase to build credit, so this HAS to be done under the TIN, not my SSN. You would THINK that this is easy. Any lenders out there that are interested in working with me on this?
Find a lender for the equipment that does commercial loans. Finance part of the purchase price, pay for the rest. Not a big deal.
With large down payments and an established plan a local bank should be glad to help.
either route you go you will most likely have sign a personal guarantee and as long your business bank statements going back like 6 months are decent you should be able to do it
If you have the money to pay for them up front,,, why in the world would you ever want to finance a part of it? You say to build credit? Those machines all payed for would be credit enough for me!!!!!!
I'm 28, credit is a valuable tool and setting yourself up for the future is an important thing.
Listen to the old fart, he's right. Pay cash, own it and earn money with it. A successful business is built on wealth, not credit. Credit can be taken away with a blink of an eye.
Ha Ha.... you learn well Grasshopper.
Credit is a too, just like money in the bank. Kubota offered me 0% and .8% interest on my last two purchases... I can make more money with my money than I pay in interest using their money. Living on credit is moving backwards. Exploiting others "cheap" money is a venture... nothing ventured nothing gained. I am super small potatoes, but I still "make" a couple grand a year in cash back with vendors that do not give a discount for cash/check transactions. I wouldn't have the option to "make" that money without my credit.
Yeah, whatever. Blow it out your frigid windpipe.
The trailer dealer cant find you financing? I agree with you, debt is a tool you can use. He has the cash, theres just no reason to fork it all over at once. I would rather have a cash cushion if you have to fix the excavvator or something
A very simple solution to that problem; get the loan under your name & social security # DBA as your company name, any bank should be willing to do business with you in this manor. I agree with you completely on building your credit, the only way to do so, is getting and paying loans & bills timely - a very important tool in this world & business today. This is especially true & very important if the time comes when you need a bid & performance bond for a construction job.
Debt is a tool you can use? Guess I can't see the reasoning.
Example, 8 ton Kubota excavator and some misc attachments. $105k cash or $110k financed for 60 months at 0%. Which would you do (assuming you are not independently wealthy)? Independently wealthy folks have different issues. I would keep the $105k in cash... I can turn $100k into $105k in 6 months no problem. I can't make that $5k if I don't have cash... and it would require lots of hours to make that $5k in 6 months with the excavator.
Last year I spent a bit over $80k in cash on a stump grinder and some attachments. I bought a Honda Pilot (0 down, ~3% interest, personal debt), a Kubota SVL90-2 (0 down, .8%, credit building commercial loan for the same company), and a F550 (20% down, 6%, credit building commercial loan for a new company) in that order totaling $123k currently. The Pilot was for my fiancé. The money I didn't spend on the SVL90-2 bought the stump grinder (it grossed over its cost just last year). I sold my older 550 and replaced it (and invested the money I made selling the old one) with the 2013 in November. Last purchase of 2014 was $25k cash for a grapple saw for my mini excavator, which opens me both direct and indirect profit potential.
If you have the cash, you can get a secured line of credit at your bank, it will tie up your cash in a savings account until you pay the balance back off, but it's very low interest and it will look good on your credit report after a while.
I agree on building your credit. Put down a decent amount on both pieces and finance the rest. Maybe this is a generational way of thinking, but if you can put down enough money to get the payment where you're comfortable, and use someone else's money at a low interest rate why not go for it, and keep your money for operating capital. I got my kubota 121-3 for 0 down and 0% for 60 months. I felt like it was silly to even put anything down with that deal. Whatever works best for you, just go for it!
If you can make better money on your money somewhere else, why even buy the machine?
You can turn 100k into 105k in 6 months no problem? I'd like to know what investment tool you know about that I don't.... that's 10 percent..... to me there is a high risk in that... no?
grandpa, To me, debt is most certainly a tool, use it wisely to make money with, in any business to prosper. On the other hand use it poorly and it will put you in the poor house. Examples of poor use- living beyond your means, new cars, big trips, too long of a stay in Las Vegas, too many new equipment purchases etc.
Only time I've used debt as a tool, is to increase operating capital for bonding or contractors license. As soon as those are acquired, debt is gone
There are conditions that dictate our markets that are beyond our control, just look at the financial collapse of 2008. I got burnt hard in that one and it has changed my perception of debt. Debt is not a tool I want to grow my business with but that's my opinion.
Debit you call a tool..... that same Debit I call a risk. Two schools of thought on this,,, the one's that grow slow but sure and the ones that are willing to accept the risk for the rewards that it may offer. We can all name about two or three individuals that have over exposed themselves and fell hard.... some two and three times,,, and every once in a while one will make it.
Grandpa, if he turns 100,000 into 105,000 he made 5% not 10% if has a hot stock tip he probably could make 5k in a day!! I would finance the machine and buy the trailer cash. Most trailer loans due to the high risk are very high apr loans like 5-8%. Credit is good to have but everything is personally guaranteed so keep your debt as low as possible because if you go to get a mortgage they look at your debt to income ratio and too much debt is never good. I know from personal experience from buying my now second home. Good luck with your new toys... I mean tools!
I agree. We are as much risk managers as we are contractors.
You looked at it different than I did,,,, sure he made 5% but his term was 6 months,,,, annualized out is 10%.
I have to borrow money. But on the upside the interest is tax deductible and I can depreciate the machine a little every year so that helps offset the payment via return. Before I bought my last dozer I was debt free as far as my business. Modestly looking at the net worth of my equipment vs the debt , I'm 60% paid off, with the newer dozer. I am in the same boat credit wise , My score is 710 checked it today. It shows my credit history is not that old, it does not show bank savings which my name is on. To me the credit system is flawed. I do know this , I went to look at a new mini van 0% interest on 60 months. Looked at it drove it all that got back to the dealer , they ran my credit which at that time 12 years ago was not even 600 , the salesman told me the 0% interest deal was for people with a credit score of 720 or more. My home is 75 % paid for , this doesn't reflect on my score either.
I got pinched in the bust as well. Maybe not as hard as some but still. It was fun deciding if I bought groceries or paying mortgage. I live by cash now. If you don't have the cash, you don't need it!!!!!
Here's how a FICO score is set up: Basic gist of it is that the more you owe and pay on more different methods, the better your score. To me, a high FICO is like winning a trophy for being the biggest junkie, with bonus points for trying a new fix. It's a measure of how hooked you are. As much as I hate to use the cliche that nothing is free, read the fine print on a 0% financing contract. Miss a payment, pay late, misjudge a payment, and the interest rate jumps, and you may be liable for past due interest on the amount owed. Not such a good deal anymore. Things happen in business. Not all of them are good. Credit is optimistic at best.
Rossaroni, Thanks for showing the pie chart on the fico score that will help many to understand it better. I have come to realize that that fico score not only determines if you can get credit at a low rate of interest, it also is used extensively by insurance companies to set the rates they charge us- the better your fico score is, the lower rate you receive. All bonding companies use it in deciding if they will issue you or your company a bid and performance bond. To sum it up - if I had a poor fico score my company would not be able to bid & do any work that required a bid and performance bond. The only way to build/get a good higher fico score is to have and use credit wisely over time to build that score number. Call it what you want debt, tool, risk, credit management, loan, but without it my company & many others would suffer greatly.
I appreciate everyone's replies but I need to make something clear. It's not a question of whether or not I can do a personal guarantee... I can. The point is that I am trying to establish credit under my tax ID. The thing about credit is, it's a lot like a gun. Nobody needs it until they need it very, very badly. I guess I was hoping that a credit vendor would reply, or that somebody you knew of a loaning agent I should call.
Is the trailer new?
It's so new that it hasn't even been built yet.
I understand what your trying to do. If you go thru a local bank, I don't see why you couldn't put the cash in the bank or maybe its already in one , use it as security to borrow the money and the paper trail is started. My lender doesn't report to the credit bureau , its thru Farm Credit , which I think is backed by government in some form or fashion. Last year I had paid them off , and that never was on my credit report. The other thing if you read my earlier post , my house is way over half paid for giving me equity there , that's not on my report either. Maybe you need to talk to a local banker , someone you know or trust.
Who's building the trailer? Do you have the excavator picked out or just the budget?
After thinking a second , if you have your 20% down payment , and your not paying over fair market value , like they are marking the equipment up to help with a down payment , any lender will go along with this. With little credit history they will most likely give you a higher interest rate. Farm Credit is at 5%. I can borrow there because about half my work is farm related.
That is one of the options that I'm exploring. Unfortunately I run into policy issues, like the bank will only loan a certain minimum amount. Or they won't do what you're suggesting because they're part of a larger chain and the board doesn't do those kind of loans.
I would recommend forming a relationship with a small local bank. The kind where they will know you by name when you come in. A good relationship there will be worth more than the credit it builds. Be sure not to be extended too much relying on credit, as your situation will change over time, and not always for the better. When hard times come and you are working for the finance company with no flexibility, your attitude towards things will change. I am not saying don't finance, but not to get in too deep. Build slow and strong and don't be a flash in the pan.
good debt vs bad debt Good debt: collateral that appreciates with value or does not depreciate at a rapid pace can be considered good debt as these usually require installment payments Bad debt: personal loans, credit cards, unsecured cash (with no intention of increasing revenues by twice the amount borrowed)
This is so true. You need to know your banker on a first name basis. My banker has done some great things for our small company. All the tellers greet me by name and I do like wise. Stay away from the too big to fail banks.
I bought something a while back on credit, after I was done with it all paid 50$ less than if I paid cash,,, ha But if you are really going to build biz its good to have.
In the old school of small loan lending; where I once worked, we based lending on 3 things. Ability, Stability, and Willingness. Ability- Some stable source of income to actually make payments. Steady job or valid income producing venture. Stability- Same address or limited locale for a decent /recent period. Shows scale of living/operations Willingness- Record of making payments to others on a timely schedule. History from references. Not much different from remarks here; except, mine could get the cash, smile, walk out and move away. I was later in forklifts for 14 years. Had a small line of credit at a bank to get cash to go auctions. Sold for cash, he can go to the bank. First sale of an auction buy paid off the line of credit advance for the whole buy. Close crdit.
I know this is an older thread but I have to say im very pleased each and every time I see anyone recognize this and utilize it. Ive gone out of my way to drill this into my crew especially over the last few decades where lenders were basically giving away money to anyone with a 700 or better credit score, all while the market was returning roughly 6% or better on very conservative investments like QQQ, SPY, and VOO. Too the thread starter as well, congratulations on having a sound financial background and recognizing the value in building credit under your FIN even if you can pay outright and most likely wont ever need the credit. Hope everyone in this thread is doing well as of today no matter your stance on building credit and carrying debt. Im sitting here waiting to sign the dotted line for new equipment and reading a bunch of these older threads.
I did flooring when I got out the marines, went out on my own and some where in there I started doing snow removal, everything up to buying a Brand new CTL was paid for in cash but as I started excavation daily instead of floors, I was more concerned with having a Oh poop fund instead of worrying about spending money to borrow someone elses money. On a grand scale these banks/lender are making a killing but on my end it ends up being equal to a payment or few, I would rather have liquid to cover things when the contractor doesn't pay on time or weather and delays happen. I don't live above my means but I can see value in using someone else's money to help me grow. I have accepted that a payment(s) is a going to be a thing on my big ticket items