This past week I was in Portland and Eugene, Oregon visiting clients. While I was there, I was captivated by Mt. Hood, the tallest mountain and peak in the state of Oregon. I have been to these cities plenty of times before, but I have never been there under good weather. I was amazed. The skies were clear blue with a subtle clouded background. The snow all the way up the mountain was pure white, almost painted on. I consider myself to be an outdoorsman, certainly no expert, but experienced in climbing and hiking. But the more that I researched this climb, the more difficult it seemed. There is no direct way to the top, aside from a road up to the ski lodge. The trails are covered in snow between October and April. It seemed impossible. But, every thousand feet or so, there were breaks in the incline, where you could rest.The process of purchasing large capital equipment or services is EXACTLY like climbing a mountain.
The Burden on a Company’s Balance Sheet
If you have a job that deals with high cost equipment or services, you have probably heard one too many times “It’s just not something we can fit into our capital expenditure (CAPEX) budget this year.” It’s awful, there’s usually not much you can do as the company has allocated all of their free cash toward other things for the next annual period. For instance, what I currently sell are multi-million dollar machines, most projects need to be found years in advance. Luckily, I occasionally get the call “our old machine from [any other competitor] broke down and we need one this month”.
On balance sheets, this purchase can look like $1,680,000 as a one time capital expenditure. This causes auditors heart attacks. Especially if it is coming straight out of that company’s cash account. Introduce financing or in this case, off-balance-sheet financing.
What is Financing? And who the hell would finance MY products?
Financing capital expenses is essentially the same thing as financing a car or home. Because the cost is higher than most things you would spend money on, banks or companies will lend you money to help pay for it immediately and allow you to spread that cost out over a longer period of time. For instance, a $2,000,000 software upgrade can be taken by a bank and broken into 10 annual amounts of $200,000. That bank will apply a small fee and an interest rate, that’s how they make money off of it. Most CAPEX pieces can be financed at 5-105 which is nothing to a company that NEEDS that product.
Now, instead of that company’s balance sheet showing one huge cost, it is going to show one small cost (for the year) and the same thing for the length of the loan. So, who lends money besides banks? Well, there are quite a few companies out there that specialize in this type of loan.
Nerd Wallet actually has several great options comparing rates and terms here. I have worked in the past with Direct Capital and Currency. Almost any bank will lend to established businesses with good cash flow and reasonably black balance sheets.
I know what the hell financing is. How do I sell it?
This part can be tricky. I have dealt with people who take offense to the offer, people who cannot do this because of their credit and people who expect that we offer financing. It really comes down to reading your client. If they have ever brought up tough times with cash or paying bills, they will likely need this.
- Let Financing get brought up organically
- If they have not asked, it is likely that they don’t want to move forward. If you have done your job in selling, they will exhaust all resources to get it.
- Make sure they are confident in the solution you are providing first
- Simply tell them, you have this problem, I have outlined why this product or service will solve and provided support and references from current projects. Are you confident in this?
- Schedule a meeting between your trusted financial partner and this company
- If you have access to financing within your company, fantastic, most businesses require a third-party. You should be on a first name basis withe the banker who is pushing financing on you.
- Request the best rate possible, in front of your customer. This is a funny, little touch I picked up when presenting financing. “Now Chris, I need you to get Mrs. Wheeler the best rate possible so this thing’s ROI is even better”
- Make sure your proposals are finalized and you have everything in order before closing with financing
- One little mistake on your quote or agreement could cause weeks of rewriting legal documents for the loan.
Now, instead of a company having to climb a mountain of cash loss for paying for something, they are able to pay once a year and make pit stops along the way. All while enjoying the benefits of your product or service.