Soft costs are the parts of an equipment project you can’t resell: freight, rigging, installation, training, software licenses, extended warranties and sales tax. On complex equipment they can be a meaningful share of the total, and they are easy to leave out of the budget.
Why lenders treat them differently
A lender can repossess and resell a machine. It can’t resell a training course or a completed installation. So lenders typically cap soft costs at a share of the deal, and the cap tends to be lower for weaker credits or for equipment with a thin resale market. Published caps of around 25% exist in the market, but each lender sets its own and may decide case by case.
What usually qualifies
- Freight and delivery
- Installation, rigging and site preparation tied to the equipment
- Operator training from the dealer or manufacturer
- Software that runs or is bundled with the equipment
- Extended warranties and service contracts
- Sales tax
What usually doesn’t
- General building renovations not tied to the equipment
- Ongoing consumables, such as fuel or raw materials (these are working capital)
- Costs paid long before the equipment arrives, unless the lender agrees to reimburse them
Why finance them
Paying soft costs in cash is the same as paying part of the equipment in cash: it pulls money out of the operating account just when the new machine needs materials and labor to start producing. Rolling them into one contract means one payment and more cash on hand for the ramp-up.
Get them on the quote
The easiest way to finance soft costs is to have the dealer list them on the equipment quote or invoice. Separate invoices from installers or trainers can also be included, but they take a little more documentation.
Tax note
Some soft costs, such as freight and installation, are generally part of the equipment’s cost basis and may qualify for Section 179 along with the machine; others, such as service contracts, may be treated differently. Ask your tax advisor how your specific costs are treated.
LenderCloud can include eligible soft costs in equipment financing and add working capital on the same application. All financing is subject to credit approval.
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