MONEY, HONEY: FINANCING LOGIC

Equipment finance is a strange universe filled with fine print that makes the tax code read like the comics. But there are two simple realities today if you’re borrowing to pay for a new truck. First-and don’t forget this-lenders will compete for your business, whether it’s the local bank, the truckmaker’s finance arm, or a third-party commercial lender. Second, the more creditworthy you are, the more competitive they will be.

Here are 10 things you can do to improve your standing in the eyes of lenders and get the best deal. The returns for your legwork can be considerable, not only financially but also in the speed and ease with which the deal gets done.

Obtain a copy of your credit score from one of the major credit bureaus in Canada-Equifax and TransUnion. Notarize the originals so multiple copies can be made and stamped as authentic. Include a copy with your financial statements if you seek credit from a captive or third-party finance source.

ÀCRA Notices of Assessment are not proof of income or your ability to service debt. Confirmation of a successfully filed and assessed tax return is virtually useless to a lender (although many still ask for it). Cash flow statements-quarterly or annual-are best.

Know your trade-in values in order to compare the purchase price of new trucks of various makes from various dealers. Have your trade-in(s) professionally appraised. It’s not expensive, and the appraiser can give you economical tips on how to present your used truck in the best possible light. Further, a professional appraiser might direct you to a dealer that has a particular affinity for the make, model, and year of your trade-in.

Talk to your accountant. He can start the pre-approval process for financing even before you visit the dealership. He can also run scenarios so you can compare lease or purchase transactions. It’s particularly important if you move from a conditional sales contract, where your truck was capitalized and placed in a Capital Cost Allowance class for tax planning purposes, to a leased truck. You don’t want the stunning, unexpected tax liability created through a misguided shift from owning to leasing.

Don’t accept creditor life insurance, disability, or critical illness insurance as part of the finance package. Compare similar plans and premiums with a licensed insurance broker.

The ‘fine print’ is small to dissuade you from scrutinizing the contents. Read it. Make sure your accountant does, too. Identify early payout penalties, general security agreements that extend your commitment beyond the asset in question, blanket security agreements and/or continuing security agreements, or any other security that extends beyond the asset you intend to finance.

Lease or buy? Either way you don’t have title, so ignore the semantics and focus on the true costs, starting with an amortization schedule that reveals the hidden interest cost built into the lease. (get help to do this and confirm your calculations.) Choose the lowest cost of ownership measured by the total amount spent to bring either finance option to a zero balance due.

Talk to your banker about the limits that may be created on your ability to borrow for other assets (home, car, etc.) based on how you choose to finance your truck.

Do you need flexibility? If you have seasonal cash flow, a lender can build finance programs around it. Accelerated principal payout programs can balance a larger payment in the early part of the term where warranty coverage reduces operating expenses. øAim for smaller payments in the latter part of the contract as your expenses climb and warranties expire. Above all, avoid loans that have a longer life than the truck you’re choosing. What looks like a good deal now-a low monthly payment-may be a nightmare at the end of your term.