What to know about capital investment planning
Capital investment planning was the focus of the “Assessing Your Buying Power in Today’s Economic Environment” workshop, led by Craig Colling, Vice President of Sales at Ascentium Capital. His presentation, held at the Future State Theater (booth C11330) yesterday, outlined the financial options available in today’s market as well as what is happening and what to expect.
Colling pointed out that every business is in a different place. Add to that a period of recession and an inflationary environment, and the buying path becomes more complicated. There are options, although each brings its own set of advantages and disadvantages.
- Money: It’s quick and easy, with no paperwork and no interest. However, this impacts liquidity, depletes the impact of cash reserves on the balance sheet, and leaves a business vulnerable to the unexpected.
- Credit cards: Credit cards are also fast. They also have promotional offers, such as 0% interest rates. On the other hand, credit cards may impact the ability to borrow more and there is a risk of conversion to high interest charges at the end of the promotion. The biggest issue here, Colling said, is credit card fees for the merchant. “So everyone here [at The Expo] who you may be considering purchasing equipment from, if they take your American Express or Visa, they must incur a 2% to 5% merchant fee,” he pointed out, adding that these fees can be passed on to the customer.
- Traditional Bank Loans/SBA Loans/Line of Credit: These offer a low rate/cost of borrowing and affordable monthly payments. However, obtaining them can take time and lead to potential restrictions.
- Equipment rental: return to
In December 2019, the federal government revised tax laws that affect such leases, Colling said. But this method of financing preserves cash and there is usually no down payment or compensatory balancing. It also means that the company does not own the equipment. For long-term ownership, Colling recommended choosing the $1 buyout lease.
“As you negotiate, unless you’re a CPA by trade or a lawyer by trade, whatever term sheet or contract you receive, ask your tax advisor to review it,” Colling pointed out. “Make sure it’s what you think you’ve agreed to. It’s well worth an extra day of your life to make sure you understand what you’re getting into.