financing equipment. is it wrong?

Discussion in 'Lawn Mowing' started by jarroo's lawncare, Aug 31, 2006.

  1. LB1234

    LB1234 LawnSite Gold Member
    Posts: 3,210

    We took out a loan so we can establish credit.

    When we started our business...and then years after we would purchase equipment with money we had. Basically, we never had debt. However, as our business grew (the landscaping side) we needed to have a larger purchasing power for our jobs. Our credit card wouldn't provide us with the increase we needed. Reason, we don't have an established credit history. LOL, in other words its not bad, we just haven't proven to them that we can make payments on a loan.

    So, when we purchased our 3rd mower we took out a loan. I'm making the payments on it. I'll pay it off nexty spring after a year into the 3 year loan. That way, I can establish credit.

    TJLANDS LawnSite Bronze Member
    Posts: 1,669

    Good point also. To grow your business you need to establish good credit.
    This way when an opportunity comes along you have the credit and the purchasing power to grow using little if any of your own money.
  3. rodfather

    rodfather LawnSite Fanatic
    Posts: 9,501

    There is absolutely nothing wrong with financing equipment

    HOOLIE LawnSite Gold Member
    Posts: 3,981

    One good bit of advice I heard from a financial advisor on the radio...when things are going well, that's a great time to establish a line of credit for your business. Even if you have no immediate need for it. For the simple fact that typically in good times, your credit scores will be pretty good, making it easier to get credit, and get credit at good rates. Then when things are not going so well, or you just need to finance something large, you have the credit available already.
  5. ProStreetCamaro

    ProStreetCamaro LawnSite Platinum Member
    Posts: 4,148

    Yeah because everybody has the money sitting around to go pay cash for a 40K SUV or what have you. I agree about the house and vacations but for 99% of the population they simply do not have that much cash to drop on a new car or new equipment.
  6. indy2tall

    indy2tall LawnSite Senior Member
    Posts: 417

    Bigjeeping, perhaps you can go into more detail and explain your first line. I am certainly not Muslim but I think if you can avoid going into debt to start your lawn business that is how you should do it.
    I suppose it depends on the scale in which you wish to begin business. If you plan on having employees from the beginning and will need multiple trucks and/or trailers not to mention mowers and such then financing would be necessary. However if you only plan on mowing part time with some used equipment out of a used pickup that is different.
    Almost anyone should have a couple thousand set aside for emergencies, use that to get started and use your remaining credit as a backup that first season for equipment or truck breakdowns or other emergencies.
    I don't disagree that many, if not most, successful people use credit in their businesses but I also know that the majority of new startups fail in the first year and having too much debt is often one of the reasons.
  7. Precision

    Precision LawnSite Silver Member
    Posts: 2,995

    that is just plain stupid.

    My gravely Pm260 cost $8100. I financed it at 6 months no interest and 1.9% there after. So over the 2 years I had the loan out, I paid $180 in finance charges. And lets say I had the money in the bank at 3% interest, I would have made over $340 AND had the reserve cash in case of emergency.

    Debt is not a bad thing. bad management of debt is a bad thing.

    Proper use of debt is what helps to keep the divide between the rich and the poor a huge chasm. The rich know to use someone elses money to make money. The poor use their own money and pay cash.
  8. par69

    par69 LawnSite Member
    Posts: 50

    I started my lawn care business in 1988. Working at Oroweat bakery at night and mowing lawns during the day for one year. Buy then my equipment was payed for and I had enough accounts to live on.

    I have payed cash for everything. Except my new John Deere 757 w/ mulch on demand that I love. It was $10,000. I had the cash but wanted to use it for a vacation. NO not all of it. JD has 0% for 12 months.

    My house will be payed for in a year. I can't wait. An extra $1000.00 a month in my pocket. And no mortgage. If something happens and I can't work anymore. I have a house to live in. By the way its worth $300,000.

    I lost close to $400,000 in the stock market a few years ago. So I do invest but my house will always be mine.

  9. Envy Lawn Service

    Envy Lawn Service LawnSite Fanatic
    Posts: 11,062

    I always have mixed feelings about financing/debt.
    The reasom being is that it strongly depends on the mentality of the individual.

    I think business debt can be a fantastic tool for those using it as a tool and it does make managing cash flow sooo much easier. But a lot of people fall victim to the easyness. They look at a mower as only a $200 per month expense instead of a $10,000 investment that is depleating by the day...

    Also, just to be honest about it, a lot of people only use financing because they are spending money they don't have on something they want. Therefore, they enter into a debt cycle they can't afford to escape. The reason being is that they can't save the money to buy that next new mower or that next truck or whatever because they are too tied up making payments to be able to set aside that caliber of money during the useful life of the item they have financed.

    I've known some guys who couldn't afford a new ZTR who ran out and financed one, only to see them loose it because later they couldn't even make the payments. I've also know guys to take advantage of those nice low or no interest deals for 3 years. Then two seasons in the mower is ragged out/worn out, not worth payoff, there are still like 12-18 payments left... and here they need another new mower.

    You just have to be careful. If you can use business debt as a tool, use it to invest in your business for things that can provide fast returns, then that's good.

    Early on as a young adult just starting out, I carried a lot of business and personal debt. It was the easy way to get started in life, business and other investing. It allowed me the ability to get the things I wanted and needed, and the ability to 'pounce' on other things that came my way.

    I used it extremely wisely... but I'd be lying if I said that it didn't reach a point where it was a lot of pressure and affected my decision making. Some people can owe a million dollars and not give a crap if the bottom fell out tomorrow. The pressure doesn't get to them. Me... well it did in the back of my mind... and I already had enough to be concerned about.

    After going through a divorce, I put myself in a position where I could wage war on debt... and essentially started all over from scratch. Some years later I was out from under all that debt. Since then I have basically paid cash for everything. For several years I have been at a point where most people owe more in credit card debt that I owe in business and personal debt combined.

    It is NOT easy to do things this way. It's NOT easy to manage things were you can afford to pay cash for things and have it be sustainable. Each purchase also hurts your feelings a lot more too. But one thing is for sure... I'm certainly NOT walking around with any false sense of security about how I'm doing, nor are my business numbers skewed in a way that makes things look better than they REALLY ARE.

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