Thread: Loans?
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Old 10-11-2012, 12:25 AM
GreenI.A.'s Avatar
GreenI.A. GreenI.A. is offline
LawnSite Silver Member
Join Date: Jul 2010
Location: North East
Posts: 2,130
The most important reason we use credit is to insure the security of our cash flows. We have enough Capitol to pay cash for just about everything, but choose not to. We could close our doors tomorrow to any revenue source and our cash could carry us through a few months. We always make our payments on time, on smaller liabilities we pay the balance in full when the statement is received and on longer notes we pay more than the minimum and always pay off the balance in full atleast 25% faster than the payment schedule dictates.

I am looking to buy another truck, in the $30k-35k range. I can pay cash, but do not want to lay that much out. My reasoning is I don't know what could happen next month. I don't want to risk having some emergency down the line were I need that extra cash were I may not have the time to get cash. If next year I have a record year, I can pay the loan off and save the money on interest.

Here are the numbers for you: I can get a 4yr 3% apr loan. On a $35,000 loan, that adds up to about 2,000 in interest over the 4 yrs.

Simply I would much rather pay that extra 2k in interest to have the cash security. Credit is a great business tool when used correctly. To many guys use it incorrectly and sign a note for a 40k truck and then hope they will find the work to pay for it. If you use credit wisely, pay your bills on time, then credit providers will want to work with you to get your business.

A 5k mower at 5% apr for 4 years will add up to around $500 in accumulated interest. The question to ask your self; is it worth the extra $500 over 4 yrs? Chances are you will spend less time and money on repairs over an older mower, less down time, save money by having a more efficient machine, less wear and tear on your body, etc. If business takes off next year you can simply pay off the loan early and save on the interest. And as another said above, you may be able to get 0% if you have good credit.
Why do people not respect us as they do other tradesmen? Because every Tom, Dick, and Harry doesn't think he can be a plumber or electrician!
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