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I can pay cash but want to finance part of purchase

Discussion in 'Financing' started by ericscher, Jan 15, 2015.

  1. Impact

    Impact Senior Member

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    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
     
  2. CM1995

    CM1995 Super Moderator

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    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.
     
  3. grandpa

    grandpa Senior Member

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    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.
     
  4. 90plow

    90plow Senior Member

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    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!
     
  5. CM1995

    CM1995 Super Moderator

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    I agree. We are as much risk managers as we are contractors.
     
  6. grandpa

    grandpa Senior Member

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    You looked at it different than I did,,,, sure he made 5% but his term was 6 months,,,, annualized out is 10%.
     
  7. Dickjr.

    Dickjr. Senior Member

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    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.
     
  8. caterpillarmech

    caterpillarmech Senior Member

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    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!!!!!
     
  9. rossaroni

    rossaroni Well-Known Member

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    Here's how a FICO score is set up: ce_scorebreakdown.png
    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.
     
  10. JBGASH

    JBGASH Senior Member

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    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.
     
    Last edited: Jan 17, 2015
  11. ericscher

    ericscher Well-Known Member

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    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.
     
  12. lumberjack

    lumberjack Senior Member

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    Is the trailer new?
     
  13. ericscher

    ericscher Well-Known Member

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    It's so new that it hasn't even been built yet.
     
  14. Dickjr.

    Dickjr. Senior Member

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    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.
     
  15. lumberjack

    lumberjack Senior Member

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    Who's building the trailer? Do you have the excavator picked out or just the budget?
     
  16. Dickjr.

    Dickjr. Senior Member

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    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.
     
  17. ericscher

    ericscher Well-Known Member

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    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.
     
  18. JDOFMEMI

    JDOFMEMI Senior Member

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    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.
     
  19. ChuckatMatrix

    ChuckatMatrix Member

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    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)
     
  20. f311fr1

    f311fr1 Senior Member

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    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.
     
    old-iron-habit and CM1995 like this.