Best way to pay for lawn equipment.

There are many ways to pay for the equipment your business needs. You can buy equipment outright. You can borrow the entire cost of the equipment. Or you can do a combination of the two. That is what a member of the Gopher Lawn Care Business Forum does. It’s a really interesting way to pay for equipment while minimizing the amount you will pay on interest for money borrowed. Let’s take a look into this.

The lawn care business owner wrote “I plan on getting a new commercial ztr mower this year and a Toro or maybe a Scag next season as long as things are going ok. I don’t want to go into¬† debt to buy them. I would rather pay cash but if I do finance the purchase, I never finance anything unless I can pay at least 2/3’s of the price at the time of purchase.

This is a little trick I learned from my father many years ago. Then it was on a car and his thought on getting a loan to buy is this. If you are going to buy something that you need and will always need, why pay more? For example, buy out of need, not out of want and you will be much better off in the long run. So if I was to buy a new truck and put 2/3’s the price down on it, I would be able to pay it off in a year or 2 and have no long term debt. But the trick to it is, I will most likely keep and use this truck for 4 to 8 years. So when I pay it off in say 2 years with payments of aprox $350 a month, I don’t stop paying that payment since I can already afford it in my budget. Instead I keep putting that amount into a savings account. Later I will have enough money to put towards a new one when the time comes.”

This is a very interesting way to handle your finances. I was doing a little research to look into this matter more which I am very glad you brought up.

Now say you were going to take out a loan for a pickup truck for $20,000.00 paid off over 4 years.

Please look at the chart.

Truck purchase amortization

Truck purchase amortization

Your monthly payment is $477.53.
Of that $60.84 on average each month is your interest payment.

Now the question is this.

How on the financial edge are you? How on the financial edge is your business?

If you had $20,000.00 sitting in the bank, is it worth it to you to pay $60.84 more per month to keep it there and take out the loan or is it better to take that $20,000.00 out and pay for the truck?

Or if we used the theory you presented. Let’s say you paid out 2/3 of the trucks $20,000.00 or $13,333.32 and then took a loan out for $6,666.68.

Your monthly payments would be $298.04.
Of that, $20.25 would be interest.

It’s very interesting to think about because money is the life’s blood of a business. When you have a lawn care business and it’s seasonal, the more cash you can horde in reserve, the better chance you will have to get through the rough spots.

Would you rather have cash in the bank available at a moments notice in case of emergencies or opportunities? Would you rather have a loan and keep your cash on hand? Or would you rather invest the cash as a down payment on a piece of equipment?

Can you make more with that monthly loan investment into that piece of equipment by utilizing it than you are paying? Is it making you money plus a profit?

These are all very important things to think about!

“Think about this though. Why are finance companys in business? To make money, and they do. So instead of paying them the interest, why not pay yourself the interest? Ok, cash is king always, so what you do is this, you still save all that you can, you still do that if you have a truck or a mower financed right? This way, you set up another savings account labeled equipment and you continue to put the amount of the payment in this account as if you were still paying the bank. It is as you are paying yourself the same interest the bank would have been getting. Since it is all going into your equipment account, you will have enough to purchase the equipment when you need it faster then you would pay a loan off. So you are actually saving even more over time.

Also think of this, you brought up a few what if’s! There will always be what if’s and what if something major did happen would it also be nice not to have a bunch of payments you had to make every month since you were paying yourself those payments. If you had to, you could put them off with no repercussion’s.

So if you financed that truck you would be paying that finance co. $3,342.71 in interest, that comes out to $835.67 a year of a 4 year term which is 69.63 a month more. I don’t know about you guys but even over 4 years $3,342.71 is still alot of money to throw away.”

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