Did anyone start out using a small business loan?

Discussion in 'Lawn Mowing' started by forgop, Dec 6, 2004.

  1. forgop

    forgop LawnSite Member
    Posts: 145

    I've thought about using a small business loan to get started out for my business. I already have a Redmax edger, backpack blower, and trimmer. My thinking is that I would purchase a Bob-cat ZT219 with just 72 hours for $4k(over $6k new), a 36" Scag or equivalent for around $1k, a 10-12' trailer for around $1k, and then get something like an early 90's Ford F350 for around $6-7k to pull the trailer and use for snow removal in the winter. I'd be looking in the neighborhood of $12k to start up.

    A couple guys where I currently work discussed that you never show a profit the first five years as though you can deduct your losses against what you would have to repay in the loan. Does any of this hold any merit? Any links to share with me?

    Thank you.
  2. tonygreek

    tonygreek LawnSite Gold Member
    Posts: 3,440

    the loan, and interest, are deductible business expenses and would therefore go against any revenues generated. this also holds true with business expenses financed on a credit card.

    the tricky part is getting the loan in the first place. don't bother with the "get government grants for your start-up!!!" garbage. they're scams. unless you have great credit, and/or collateral, you might have trouble with a bank and if you go the home equilty line of credit route, realize that if you have trouble repaying the loan, you don't lose the equipment, you can lose your house. if you are a member of a credit union, or a small bank where they know you, you increase your chances of a bank loan but it can be tough.

    personally, if your finances are limited, i'd start off with less costly equipment, and bootstrap the business until you can self-fund the expensive stuff. remember that your 12k isn't covering associated start-up costs, such as the all-important marketing.

    good luck!
  3. mastercare

    mastercare LawnSite Senior Member
    Posts: 289

    Just a note....I bought a 48" bobcat on credit. Most bobcat dealers (and many others) will use a company called Sheffield Financial. They'll set you up on a 3 yr payment for your equipment. It's a much easier credit check than getting a bank loan.....Bank loans require business plans/income statements, and all kinds of crap.

    The kicker:...you guessed it! An awful interest rate! But, on the plus side you can have all your equipment (trailers, blowers, etc) rolled into the same payment with your mower. They usually offer 0% interest and 0 payments for 6 months. So, buy your equipment in the off season to get last year's closeouts, and you won't make payments until spring. Then, get enough work to pay it off quicker than scheduled, to avoid those nasty interest rates.

    As long as you have the jobs lined up, get the equipment, pay it off quick, and you'll be in business!
  4. Aaron Marshall

    Aaron Marshall LawnSite Member
    Posts: 136

    I found it extreamly difficult when talking to the bank about getting a start-up load as well, they just don't want to deal with you, too much risk. I used credit cards to start-up and I deffinetly don't recomend that option, it gets crazy as most Americans now days know. Don't have much advice for you except start simple and small and save your money... paying cash will help you out in the end.
  5. walker-talker

    walker-talker LawnSite Platinum Member
    from Midwest
    Posts: 4,771

    Yes, be very careful!! I have a loan at 23.99% interest rate. I have nearly paid if off, but paying .81 cents a day on $2200 is crazy. You might even look at credit card with low intro rates. You can get some 4.75%-4.95% rates for the term of the loan, but in small print the interest rate will stay there unless you are late with a payment. One late payment and BAM!, they jump up into the double digits. I have my payments set up on electronic bill pay so I am never late...it's paid automatically. Also, take advantage of the no interest, no payment that manufactures offer. Gravely use to offer a 36 month no interest rate...as long as the loan was paid off in 36 months. If the loan was not paid off by the 36 months, you guessed it, you get all that accured interest at 23.99% interest rate. Just set up your monthly payments so that it's paid off earlier than 36 months and it's a great deal. Also, you might check into home equity loans, that might be good for you. You will also need some advertising capital. Unless you are or planning on buying out an existing LCO, you will need some way to get new business. You might find yourself needing 3 or 4 thousand for flyers, doorhanger, YP ad and so forth.

    Good luck,
    let us know what happens.

  6. out4now

    out4now LawnSite Bronze Member
    from AZ
    Posts: 1,796

    ;) :dizzy: 23% Ouch!
  7. muddstopper

    muddstopper LawnSite Silver Member
    Posts: 2,342

    $12,000 @23.99%for 36 months=$470.74 payments. ouch!

    Another option is the lease to own deals you can get at some equipment manufacturers. Dont know if any mower companies off this option but basicly you lease the equipment with the option to buy after a certain time period. You come up with the first months lease payment and you walk out with new equipment. At the expiration of the lease term, usually 6 months, you have made your down payment for the purchase price and you finance the remaining amount. Because you have been making lease payments your principle is reduced so you financing charges will be reduced also. Because you KEEP a good payment history you also qualifiy for better interest rates. Another plus is that if you see that you cant make it in business you can let the equipment go back to the dealer, at the end of the lease term, without damageing your credit. The lease payments are usually higher than the loan payments would be, so if you can make the lease you should be able to make the loan payments.

    The zero down and zero interest for six months can be a big trap if you are having a hard time making payments. As said before, if you are late on your payments your interest jumps up to extra high rates. These high rates are also retroactive back to the original purchase date. Basicly you end up paying interest on interest. Zero down and zero interest is great if you go ahead and start making payments but if you think that you might have trouble paying it off or paying on time it is best to steer clear of these type loans.

    Obtaining a personal line of credit at your bank shouldnt be all that hard. You can often get an unsecured line of credit for about $15000. The rates are a little higher because it is unsecured but it will also give you a little leeway if you are not able to make the full payment. I have found that the rates are usually cheaper than finance company rates. You do have to make the minimum interest payment each month but you can pay as little or as much of the principle as you have available. Of course you would want to figure out some sort of payment schedule and stick with it or you would never get it paid off.

    Nothing wrong with using a credit card "IF" you dont get sucked into the trap of just making minimum payments. Credit cards minimum payments are figured on 30 year payoffs. You dont want to pay for a mower for 30 years, and late fees are outragous as well. If you do use a credit card just make sure you amortize your loan in as short a time as possible.
  8. unioncross landscaping

    unioncross landscaping LawnSite Member
    Posts: 16

    Try local equipment dealers.They can finance used equipment they have through other equipment programs.Just know your limitations

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