Financing equipment and working capital together

When you add a machine, the invoice is only part of the cost. There is delivery and installation, training, tooling, the first loads of material, and a few weeks or months of payroll before the machine is producing at full speed. That gap is where many expansions run short of cash.

Owners often plan carefully for the equipment payment and forget the ramp-up. The machine arrives, the payment starts, and the work that will pay for it is still a month or two away.

Three ways to cover the gap

• Finance the soft costs inside the equipment contract: delivery, installation, training, software and warranties.
• Add a separate working capital note alongside the equipment financing, on the same application.
• Use an existing line of credit, if you have room on it and are willing to use it for this.

Why pairing them can work better

One application and one credit review. One lender that understands the whole project and can see how the equipment will generate the cash to repay both pieces. And the working capital can often be secured by the same equipment, rather than a blanket lien on everything your business owns, which keeps your bank lines free.

Match each piece to its life

The equipment goes on a term that matches its useful life, often 36 to 84 months. The working capital goes on a shorter note, because it pays for things that are used up quickly. Putting both on the longest term lowers the payment but means you are still paying for last year’s materials years from now.

An example

A machine shop adds a $350,000 machining center to take on a new aerospace customer. Rigging, installation, tooling and programming add $45,000, and the shop estimates three months of extra payroll and material, about $80,000, before the new work is fully billed. It finances the machine and the soft costs on a 60-month equipment finance agreement and adds a shorter working capital note for the ramp-up. The operating account stays available for everything else.

What to ask a lender

• Can soft costs be included in the equipment contract, and up to what share of the deal?
• Is the working capital a separate note, and what secures it?
• What is the APR on each piece, and what fees are taken from the amount funded?
• Are there deferred or seasonal payment options while the machine ramps up?
• Is a personal guarantee required, and does it cover both pieces?

When to keep them separate

If your bank already offers an inexpensive line of credit with room on it, using that for the ramp-up and financing only the equipment may cost less. The point is to plan the working capital before the machine arrives, not to borrow more than you need.

LenderCloud finances equipment from $10K to $10M and can add working capital on the same application. All financing is subject to credit approval.