Advice 2009 - Right Time to Finance Business Equipment, Wrong Time to Pay Cash
You sell products vital to the health of your customers, right? Don't even think about letting them pay cash for their purchase. Sound like blasphemy? Not in the current economic climate where CASH IS KING. What makes us, Bank of Cardiff, qualified to give you advice? We finance thousands of equipment categories from copiers and forklifts to microscopes and excavators across the US. But we're not here to talk about that, this is about your customers and your business.
Put your eyeballs squarely on 2009. The real uncertainty ahead is what the President-elect might do next year, the only year when changes he and Congress make can turn disastrous and cause the economy to go into shock. This is not theory, but rather empirical fact backed up by data from the past century. Data on the S&P 500, a good gauge for America's stock market and economy since 1950, shows us the first year of a President's term has been a down year for stocks seven out of 15 times, 1981 and 2001 being the most recent examples. Second years have been down six out of 15 times with the dubious honor of having the biggest downturns-over 20% in 1974 and near 30% in 2002.
If the new President raises taxes or provides economic incentives for one group of citizens but not another, that creates winners and losers. Winners smile and losers cry. Losers hate losing more than winners like winning, so the economy stinks. Business owners are treading on dangerous ground now. Many have trouble paying the mortgages they signed when real estate prices skyrocketed five years ago. Our firm looks at credit reports all day and boy is America leveraged! If we have $20,000 available to us on our credit lines, we've used up $19,999.
Can't we just get another card and solve that problem? Not only will you have trouble getting the mortgage you got five years ago today, but credit card companies won't help you pile on more debt because they're seeing defaults and delinquencies rise month after month.
Cash is king and businesses need as much as they can muster in 2009. Sales are down, profit margins are squeezed, so watch your bank balances ever so carefully. If you sell physical products, you MUST offer financing, leasing, and lines of credit to good credit and poor credit customers alike. Get pushy and make sure you have a solid financial partner sharing the risk with you.
You'll move more product today because customers won't worry about buying an additional machine when the cost is just a slightly higher monthly payment. Then they might come back tomorrow to get something else. Doctors don't fret giving you prescriptions when they think you need medicine.
Good luck and G-d bless America in 2009.
Dean Lyulkin is Managing Director of Commercial Finance & Leasing Bank of Cardiff ( http://www.bankofcardiff.com) in Orange County, California. He can be reached at dean@bankofcardiff.com.