It’s best to start the process well before you actually need it. You increase your likelihood of landing your loan when you’re not in crisis mode.
Whether you run a fledgling company or you’ve been in business for years, investing in equipment upgrades can be an anxious process — from the time you first identify an issue to waiting for the bank to approve your loan or lease application.
Should you upgrade? Seven factors that might influence your decision.
- Is old equipment hurting productivity?If your systems struggle to perform tasks they were never designed to do in the first place, you could be at risk of losing potential revenue or prospective customers because your administrative systems can’t keep up with you.
- Is it prone to breakdowns or a struggle to repair?Aging equipment is bound to be less efficient and require more frequent repairs when it’s pushed beyond its useful life. If you’re limping along with an obsolete system that is unsupported by the vendor or you’re finding it increasingly difficult to locate consumables or replacement parts, you can only delay for just so long before you’ll be forced to upgrade. Better to proactively upgrade before your equipment fails completely and you — and your customers — are left in a lurch.
- Are you experiencing frequent bottlenecks?If performance is suffering because too much demand is being placed on a particular resource, then you’d be well advised to expand the existing system to make it accessible to more users.
- Is it preventing upgrades in other areas?Dependencies often develop between various systems or equipment so that, even when you’re eager to upgrade one piece of equipment, you can’t make the switch until you upgrade another piece of equipment that, in many cases is far more expensive to contemplate. For example, you’d like to implement a new administrative management system but you can’t do that until you upgrade and expand your server array. One upgrade can have a domino effect on other systems but sometimes you just have to tap that first tile to set the entire thing in motion.
- Is your image suffering?In any competitive environment, customers come to expect a threshold level of products and services. If you can’t offer services, features and benefits that have become an industry standard, you could be driving current and prospective customers away because they perceive you as outdated and unprofessional. Your antiquated systems and processes could be hurting your reputation. Customer confidence, once lost, is difficult to recover, so upgrades may be a necessity to maintain your competitiveness and a modern, professional image.
- What are the costs of action versus inaction?The benefits of an upgrade are usually apparent because you’re already highly aware of the problems the upgrade should solve. However, there may be hidden costs and unintended consequences that result from an upgrade. Be sure you’ve examined the upgrade from all angles and are aware of any interdependencies in your systems that could be affected. Create detailed projections on cost savings or revenue gains against the replacement cost and the expense of servicing and maintaining the new equipment.
- Does the timing seem right within the larger marketplace?Do things appear generally stable for the near term? Nothing is guaranteed in today’s economy, but pay attention to basic economic indicators that provide you clues about whether to proceed or delay. An announcement about lowered interest rates, a new financing program soon to be released or a change in a relevant tax deduction, are just a few of the factors that may influence your choices about whether to take action now or delay for a time.
Next steps: Funding for your equipment upgrade
Applying for a small business loan will require some effort on your part. It will take time to prepare and assemble the required documentation, so it’s best to start the process well before you actually need it. You’ll increase your likelihood of landing your loan when you’re not in crisis mode. Here’s what you can do to prepare.
- Consult the professionals.Talk to your accountant about the best options for you and discuss the tax advantages or liabilities you should be aware of when considering whether to purchase, lease or finance. Work with your lender to determine the best type of loan for your needs and the loan terms that fit your situation.
- Prepare the loan package.Loan programs differ slightly in their requirements, but nearly all will require the loan package to include your business plan, profit and loss projections and current financials. You’ll need to be able to clearly articulate why you need a loan, how much you need and how you plan to use it. Be sure your business AND personal finances are in order because, for small business loans, many lenders will use your personal financial position to help gauge how well you might manage a business loan.
- Present your loan package.Request an appointment with the commercial lender you’ve selected, rehearse your presentation and make your case to the lender about how the loan will be put to use. You may want to invite the lender to your place of business for a tour of the operation and to illustrate your plans for upgrades, improvements or expansion.
- Follow-up.Stay in regular contact with your lender while the loan package is under consideration. Respond to any subsequent requests from your lender for additional documentation as quickly as possible. Your rapid response indicates your desire to achieve a successful outcome.
- Obtaining a small business loan or lease can be an intimidating, time-consuming process, but by educating yourself about the options and investing the time to create a compelling package, you’ll increase your odds of success.