Author: Ryan Bielagus

Equity is what your business is worth after all its assets and liabilities are calculated. Investors look at your business equity when deciding whether or not to invest in your company. Lenders look at your business equity when deciding if you qualify for a loan. You can leverage equity in your business when you need capital, helping you avoid debt. Finally, a business with high equity can attract top talent. That’s why it’s so critical to your business. Investing in equity should be one of your company’s top priorities.

When we talk about investing in equity, we mean growing the equity in your business through strategic investment decisions. Below, you’ll find some tips to help you figure out if it’s time to invest in equity and some financial tools you can use when you’re ready to invest. If equity investing isn’t right for you now, there are ways to build toward equity investing so you’re ready when the time is right. Don’t forget to tap into further resources like your broker, where you can get a wealth of information when you want to go more in-depth into equity for your business.

Evaluate Returns

Whenever you invest in anything for your business, it should be worth what you invested. Ideally, your investment will grow and add more value to your business, whether that means improved productivity, lower costs, or asset appreciation. Invest today for higher returns tomorrow. How can you be sure your investment will grow instead of depreciate? While no future is 100% guaranteed, doing your homework before you invest will greatly improve your chances of a positive outcome.

It’s worthwhile to outline the goals for your company before you look at investing. Then, you can choose investments that will align with those goals. Have in mind where you want to take your business five and ten years from now before you sit down with your broker. It will make choosing the right investment easier for you and give your broker a good idea of what recommendations fit best. Although it’s impossible to predict the future, it is possible to make your portfolio resilient so you’re ready for whatever the future holds.

Business Acquisition

Buying an already-established business is one way to expand your company’s reach and diversify its assets. But investing in the wrong business can drag you down, leaving you with liabilities you didn’t sign up for. By acquiring the new business, you’re looking for an asset that will bring high returns for little initial investment. In addition to the business itself, you may also acquire assets like real estate, talent, and brand recognition.

• Before deciding to buy the business, look at the past performance of both the company and its industry. Has the owner kept important records on file? How has the company changed since its inception?
• Next, you’ll examine its current position. What are the current management practices, and how are the staff performing? Who else is operating in that space, and how does the prospective company compare?
• Finally, what is the company’s potential for growth in the next five to ten years? If any aspect of the company is lacking, how much would you need to invest to enhance performance in those areas?

Once you’ve decided to acquire a business, your broker may recommend an SBA 7a loan, which enables you to purchase the business along with any real estate property in its portfolio. The SBA 7a can also provide working capital for any enhancements you need to make to the new company such as hiring personnel, rebranding, and remodeling. All of these costs can be rolled into one loan so you don’t have to apply for and manage several different loans.

Real Estate

Recent interest rate hikes have many business owners hesitant to finance a new real estate purchase. However, there are still good deals to be found all over the country, and if rates drop in the future, you can always look at refinancing. Increased interest rates may mean reducing the amount of your down payment or cutting operating expenses to make the purchase more affordable. However, your business shouldn’t invest in real estate if it means spreading its resources too thin.

The age of your business influences how successful a real estate investment today will be.

• Startups may want to consider leasing property for the first few years as an alternative to diving right into the commercial real estate market.
• Older, more established businesses with strong credit scores will be able to qualify for lower-interest loans that can offset the Prime Rate increases.
• Searching in a sector or market with a low demand for property can also give you leverage to negotiate a better deal.
• Look at real estate growth over ten years.

A local broker you can meet with face-to-face should have a strong knowledge of the market where you’re planning to invest. They can be your best advocate when hunting down CRE deals, both for investment properties and long-term ownership. In some markets, building property can even be less expensive than buying. Your broker can connect you with construction loans that cover multi-use properties, owner-occupied properties, and renovations.

Equipment

Many business owners see equipment as a burdensome expense, but equipment is more than vehicles, software, and machines that help you operate your company. It’s an investment in your company’s equity. Aside from adding the equipment itself to your asset portfolio, the work the equipment does also builds equity.

To build equity with equipment, it should have a usable life of five years or more. Anything less and you’re likely to get more value from leasing the equipment than owning it.

• Look at buying only when it will add value to your business.
• Making production more efficient, improving workplace safety, and reducing power consumption all contribute to positive equity.
• Tech like software, computer networks, and AI-enabled devices also build equity and can be financed just as easily as a tractor or industrial kiln.
• Calculate how soon you’ll need to upgrade and ask when buying software if updates are included in the initial purchase price.

One of the benefits of buying equipment is that you can leverage the equity in the asset to boost capital when you need an influx of cash. A sale-leaseback allows you to sell the equipment without losing it. You’ll receive a lump sum from the buyer and continue to use the equipment under a new lease agreement. Private loans and lines of credit also let you leverage equipment equity as collateral on the loan. Secured loans have lower interest rates, in most cases, than credit-based loans. You can also qualify for a higher credit limit when you use your equipment to back a line of credit.

Preparing for the Future

Once you’ve carefully weighed the pros and cons of equity investing, you may decide that now is not the right time to move forward. It’s important to set realistic investment goals that won’t undermine your company’s progress. However, equity investing should be in your outlook for the future. If you’re not ready to move forward with it now, there are several ways to position your company so that you’ll be ready when the time is right.

Smart debt management, improved capital efficiency, and credit-building activities will all help prepare your business for investing down the road. To get a customized financial plan that’s tailored to your unique business and goals, get in touch with a broker. Financial brokers have an arsenal of debt management tools at their disposal that they can share with you. They can help you pinpoint which debt to target first and reduce your expenses so you can save money faster.

With a little bit of homework, smart planning, and a trusted advisor, you’ll be ready to invest in your company’s future. And there’s no time to start building your future than right now. Contact our brokers and we will help you source the right financing to make your move.

As a wave of new technology transforms the way the world does business, it’s easy to feel overwhelmed. Even businesses that rely on age-old craftsmanship and handworked detail find that they must adopt new tech to market, ship, and inventory their products effectively. The global transformation many are calling a new industrial revolution is here and threatens to drown businesses that can’t keep up.

However, the progress made possible by 4IR technology can be a godsend for businesses that choose to embrace it. If done strategically, any business can make a smooth transition to new tech without disrupting their workflow and productivity. This article focuses on a powerful financial tool that enables businesses to update without wasting time or capital.

The tool is a sale-leaseback and it provides an immediate capital infusion while your business continues to operate known equipment as it purchases and onboards new technology. Let’s take a closer look at how a sale-leaseback works and how it can benefit your business.

What is a Sale-Leaseback?

A sale-leaseback is a transaction in which your company sells its equipment or real estate property to a buyer. But instead of halting productivity and transferring the asset over to the buyer, the asset stays where it is and continues to operate as before. Your company continues using the asset under a new lease agreement with the buyer.

Most equipment leases include maintenance and repair costs so you no longer have to worry about managing those expenses as they arise. At the end of the lease term, you can choose to surrender the existing asset if you’re prepared to make the switch. If you’re not ready to upgrade, you can renew the lease for another term or continue to use the existing asset in tandem with new assets.

Advantages of a Sale-Leaseback

A sale-leaseback offers several advantages to companies looking to upgrade their technology. The first of these advantages is an immediate infusion of capital without the need to take out a loan. Your company will get a lump sum based on the fair market value of the property. That capital can then be used to purchase new equipment, pay for training personnel on new technology, and build infrastructure to house new technology.

Another advantage to a sale-leaseback is that it reduces downtime while your company switches to new technology. If you plan to purchase your new equipment with funds from the sale of existing equipment, you can still do so. However, without a sale-leaseback, you’ll need to stop work while you handle the purchase and bring in the new tech. The longer it takes to implement your new workflow, the longer you’ll miss out on earning revenue.

It’s possible that, once you’ve decided to move to a new 4IR device, you’ll find that it doesn’t fit as seamlessly into your workflow as you’d hoped. Maybe the learning curve for operating the new equipment is steeper than expected. Perhaps new infrastructure needs to be in place before the equipment can perform as desired.

When you’ve used a sale-leaseback, it’s not too late to pause implementing the new equipment while you make the necessary adjustments. Or, you can decide it’s not the right time to upgrade. With a sale-leaseback, you still have the power of your current equipment behind you.

Sale-Leaseback Case Studies

A sale-leaseback is a great option for any industry with a technological leap that requires staff to upskill before bringing new equipment into full production. But if you’re still not sure that a sale-leaseback is right for your business, here are a few examples of how businesses can use a sale-leaseback effectively to make the leap to 4IR technology.

A logistics firm in Littleton, CO has identified several target improvement areas in its flagship warehouse. Going into the new fiscal year, its goals are to keep a more accurate inventory, increase fulfillment speed, and retain workers who are aging out of more labor-intensive tasks but have built a valuable knowledge base over their time with the company. To reach these goals, the firm has decided to upgrade to a new intelligent warehouse. The new warehouse will have automated inventory tracking, a pick-to-light system, and robotic forklifts.

To switch to their new warehouse, they’ll continue production at the current location but use a sale-leaseback to generate immediate capital from their property. As the firm leverages its current assets, it will train its seasoned workers on the new system and hire temporary workers to close out the old warehouse.

Another case study comes from a startup media company based in Cherry Creek, CO. The two brothers who launched the business from their home office were looking to add animation to their menu of services. They decided to leverage the equity in two of their film cameras to purchase animation software and training courses. However, they needed their cameras to film several commercial projects currently under production. Using a sale-leaseback, they were able to generate the capital needed to learn animation without losing progress on the commercial projects.

In Pueblo County, CO, a specialty greenhouse was receiving more orders than it could fill and had to turn down business because their greenhouse was operating at full capacity and couldn’t keep up with demand. Their competition, a neighboring farm, was happy to soak up their overflow business. Instead of watching their competition outgrow them, the greenhouse used a sale-leaseback to open a new grow facility nearby. With the increased capacity, automated water monitoring system, plant rotation devices, and a solar power generator, the company quickly caught up with demand and became the largest producer of specialty crops in the area.

Those are just a few examples of how a sale-leaseback helped businesses in different industries reach their goals. If you want to stay current with 4IR technology, improve workplace safety, and enhance your company’s productivity, consider a sale-leaseback. Speak with our brokers about your transition plan so you never have to slow down the pulse of production.

The Federal Reserve, in an effort to stave off runaway inflation, bumped the Prime Rate up four times in 2023 and a whopping seven times in 2022. As of this writing, the Prime Rate is 8.5%. If you’ve been in the market for a business loan, you might be a bit worried. Is now really the time to apply or should you wait until rates go down again? Are you going to end up paying elevated rates for the life of your loan if you can’t afford to wait?

Economists predict more rate hikes in 2024, which means you can either jump on a loan now to take advantage of current rates before they go up again or hold out for the Fed to drop those rates. There is, however, a third option, which we’ll talk about below. The good news is, even with the recent rate increases, loans from the Small Business Administration (SBA) loans are still a bargain, and here’s why.

SBA Basics

First, let’s get into the basics of SBA loans and the options they provide. Loans are not available directly through the SBA. The SBA works with banks and private lenders to offer 7a loans backed by the agency. It essentially acts as a cosigner on the loan to make accessing these loans easier.

The SBA also works through regional nonprofits that offer 504 loans. Both types of loans have maximum interest rates set by the SBA. Borrowers have to meet the SBA’s requirements to be eligible for either program, such as not having a federal conviction on their record or a default on federal debt (including student loans). Some business types aren’t eligible, which is one good reason to have a broker on your side. A broker can help you navigate the eligibility rules to meet qualifications before you decide to apply.

Interest rates for 7a and 504 loans vary based on the Prime Rate, how much you borrow, what your loan term is, why you want the loan, and whether your loan has a fixed or variable interest rate. Variable rates are subject to change with the Prime Rate, the LIBOR, and other comparable loans. Fixed rates will stay the same throughout the term of your loan, regardless of what the Prime Rate does.

The third option, mentioned earlier, is refinancing. SBA loans can be refinanced based on certain conditions. So, even if you choose a fixed-rate loan, you may be able to change for a lower rate. When interest rates are high, but expected to come down, picking an SBA loan with a variable rate may be the best option, with a future fixed refi in the plan. Refinancing replaces your old loan with a new one with a lower rate or a shorter term.

How Do SBA Loans Compare?

Most borrowers seek the lowest interest rate on a business loan that they can get. So, how do the SBA’s rates stack up against other small business loans? As of the date of writing, the current SBA loan rates are:

• SBA 7a fixed: 13.5% to 16.5%
• SBA 7a variable: 10.75% to 13.25%
• SBA 504 fixed: 6.6% to 7.1%

It should be noted that SBA 504 loans have three parts: 50% from a bank, 40% from a CDC, and a 10% down payment from the borrower. The rate above is only for the CDC portion of the loan and remains fixed. The bank portion, however, might have a variable rate.

Compare the rates above with the average rates for traditional bank loans:

• Bank loan: 5.89% to 12.23%

Banks offer fixed and variable loan rates based on your credit score and your time in business. Unlike the SBA, most are reluctant to lend to borrowers who have been declined by other lenders or that they see as a risk due to sudden growth, inconsistent revenue, or a less than premium credit score.

Private loans are another source of funding for small businesses. These loans are commonly short-term loans secured by the business’s assets. The average rates for private loans are: Private loan: 10% to 18% These rates are from collateralized, short-term loans from private companies. On top of the rates above, most private lenders also charge points and origination fees that can range up to 6%. While these are far more accessible for most businesses, the rates can put businesses at a disadvantage as compared with larger, more established competitors.

Finding the Best Rates

There are a lot of factors that play into whether you’ll be at the high end or the low end of these averages. Some have more rigorous qualification requirements and take longer to be approved than others. The best rate for your business loan won’t be the same “best rate” as the business down the street received.

The easiest and fastest way to find out what you qualify for and which lender can give your business the funding it needs is to use a reliable broker. When it comes to SBA loans, there’s still a bit of shopping around that can net you the best rate. Our team does the work for you, so you don’t need to waste time searching lender by lender. We help you match with the most likely SBA-approved lender to give you a loan and the best packages.

SBA loans can cover equipment, property, working capital, and more. SBA 7a loans can cover combinations of working capital with property or equipment. Brokers help structure these packages around your business’s scenario and objectives to provide the most beneficial mix.

We do more than save you money on a loan. Because we work with many types of loans daily, we know the ins and outs most people don’t have time to learn. We also have existing lender relationships, which ultimately work to your advantage with special offers and exclusive deals. Our knowledge and skills help you position your business for the best financing terms and conditions.

So, if you’re hunting for a small business loan and don’t know where to start, start by contacting us today.