Buying a CNC Machine: Should I Take Out a Loan?

 While having debt isn’t ideal, loans are sometimes a necessary part of business.

Since getting a loan is so common these days, we THINK we understand them more than we ACTUALLY do. If you’ve got loans down pat, test your knowledge by taking our LOAN quiz on the NYCCNC site! The answers will surprise you!

That being said, we all NEED to know how these loans work and how to avoid common pitfalls! We’ve said it once before but we’ll say it again; “You don’t know what you don’t know!” Being a well-informed borrower can make the difference between owning that machine or having your personal assets taken!

Tips & Advice on Financing a CNC Machine:

  • Allow prepay without penalty
  • Understand what, if any, fees will be involved in originating the loan
  • Make sure Loan fully amortizes over term (otherwise balloon payment)
  • The better your credit, personal & business financial situation, and age of the business: the better your terms will be.
  • What is “recourse” or “secured” against the Note: Personal assets (Your House!)? Business assets? Just the machine?
  • “Bad Guy Clause” that can trigger full recourse
  • Read and understand Loan Covenants – e.g. what obligations you have each year to the bank to keep the Loan current.
  • Avoid “Prospective Default” language where Lender can “call” the note early if they think you may default or be facing problems.
  • Know what annual covenants and obligations are  (insurance, revenue, sharing financials)
  • Absolutely 100% has to be in writing in the loan documents. Not verbal, not in email. Bank employees come and go, loans get sold, banks get sold.
  • Some dealers offer “in house” financing. Some can even self finance.
  • Important to understand how a bank underwrites: a certain number of businesses will fail (personal reasons, business reasons, broad economy) – what is their collateral and how expensive is it to recover their outstanding balance (machines depreciate, cost of selling used, rigging, etc)
  • Lenders generally prefer to finance new machines

Mistakes and Pitfalls to Avoid:

  • Do not rely on any information or deal terms unless they are written in the official loan documents!
  • Make sure loan has clear “Notice” provisions if there is a default, along with ample time to “cure.”
  • Never allow the lender to place loan into default without giving you notice and the chance to cure
  • Zero interest (e.g. a “grace period”) can help you get the machine running and producing profit, but you still pay for it in the end.

Downloads:

Pro Members get unlimited access to exclusive content, in depth tutorials, and all of our helpful documents and resources! Click here to join now, and download the Loan Calculator file!

Loans: HOW MUCH DO YOU KNOW? Take this short quiz to find out!

1. Over the course of a loan, the monthly payment stays the same while the interest payment increases and principal payment decreases.

True or False?

2. Monthly Payments are split into:

a) Interest & Principle Payments

b) Interest & Default Payments

c) Interest & Appreciation Payments

d) Interest & Cash Payments

2. Monthly Payments are split into:

a) Interest & Principle Payments

b) Interest & Default Payments

c) Interest & Appreciation Payments

d) Interest & Cash Payments

3. Amortization and loan life/term are NOT the same.

True or False?

4. If I default but my loan is secured by my business, my home is safe.

True or False?

5. If I pay my loan off early, the banks can’t charge a penalty.

True or False?

6. Interest Rates for CNC Machines are typically ______ rates for real estate.

a) the same as

b) higher than

c) lower than

d) none of the above

6. Interest Rates for CNC Machines are typically ______ rates for real estate.

a) the same as

b) higher than

c) lower than

d) none of the above

7. CNC Machines appreciate in value over time.

True or False?

8. People/Businesses who need to borrow money often get the worst terms/rates.

True or False?

9. When deciding on a lona, 0% APR for 12 months is a good offer.

True or False?

10. Fixed interest rates prevent balloon loan payments.

True or False?

11. If my payments are on time, the bank can’t put me into default.

True or False?

Download the quiz for yourself below!

Quiz

Quiz Answers