What's up with these online working capital loans?  

 

 Kevin F. Clune, CLFP

Are you bombarded with solicitations from non-traditional loan companies to “obtain working capital quickly and easily?” The recent news from the online lending industry of tumbling stock prices and even an abrupt resignation of a CEO of a high profile lending company, begs for some comments.

It is not my intent to discredit this industry or to examine the reasons for their rise or possible fall, but rather to compare and contrast it with the leasing industry. After all, online lenders are also in the business of extending credit.

If a business intends to acquire capital equipment with the funds from an online loan, an equipment lease should be considered as an alternative. If a working capital loan is needed and the business has already acquired equipment that is free and clear of liens, a “sale/leaseback” should be considered. In a sale/leaseback, the equipment is sold to the leasing company which produces cash for working capital.

Both of these lease programs should have much lower rates, since the leasing company is secured by specific equipment. By contrast, an unsecured loan of capital carries more risk and, thereby, must impose incredibly higher rates. 

There are other factors that differentiate an equipment lease from a capital loan that should also be noted.

                  1.  Tax Advantages due to accelerated depreciation and Section 179 savings.

                  
2. Easy Upgrades to latest technology.

                  
3. Easy Budgeting enables businesses to be efficient, compliant, and competitive

                  
4. Preservation of Credit Lines for operating costs and surprise expenses.

It is too soon to predict the future of the online lending industry which is facing some challenges ahead, as stated in the cited article. “Regulators weary of new business models and perceived risky products are ready to pounce. Lawyers are already preparing lawsuits on behalf of shareholders.”

In the meantime, if you are considering a capital infusion to finance an equipment acquisition, a lease may not only meet your needs but also provide additional benefits for your business.

 

At your service,
Kevin F. Clune, CLFP
Clune & Company