When your business owns a vehicle or piece of equipment, the business can take a tax deduction for the depreciation in value of that vehicle or equipment over the life of the item. When your business leases the same item, though, the depreciation deduction is not allowed.

However, Equipment Finance Agreements (EFA) and Leases may enable businesses to receive Section 179 benefits and claim bonus depreciation in the same year the business acquires the equipment. Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income.

It is very important to speak with a tax professional to understand all the financial implications before you make your decision. MC² Finance does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction as that Section 179 can change each year (or even mid-year) without any notice. 

For more information regarding this massive benefit, please visit:

https://www.irs.gov/newsroom/irs-issues-guidance-on-section-179-expenses-and-section-168g-depreciation-under-tax-cuts-and-jobs-act

https://www.irs.gov/newsroom/depreciation-expense-helps-business-owners-keep-more-money

FICO and VantageScore make it easy to shop for the best possible rate while still preserving your score. They allow multiple inquiries to combine and count as only ONE inquiry while "rate shopping". This allows the consumer to shop for the best rate through different lenders during a certain period of time. The rules for FICO and VantageScore are slightly different. VantageScore allows for you to rate shop during a 14 day period whereas FICO allows up to 45 days sometimes. Without knowing which scoring model a lender uses, it is safest to stick to the 14 day period so that you are protected regardless which scoring model is used. In addition, even if you did go beyond your rate shopping time frame allowed by FICO or VantageScore, inquiries only make up approximately 10 percent of your FICO and are of low impact on your overall score. Please keep in mind that rate shopping is not intended for items like credit cards and retail accounts. It is also important to understand that this is not applicable when you are shopping for multiple items during a specific time period (i.e. you are rate shopping for a car, a boat, a house, and a truck all in one period of time).

MC² Finance has over a decade of experience working with commercial trucking and construction equipment. We specialize in financing, warranties, insurance, factoring, and other products and services that benefit customers. We are not limited to trucking and construction. We can finance any type of equipment that a business needs to purchase. Our team has worked directly for dealerships, banks and now we work for you to find you the best rate available. 

Building commercial credit is very important. You may have enough cash today to purchase the equipment that you need, however, as your business grows, there may come a time where you would benefit from having more money available to you than you have in your pocket. Unexpected expenses, growing fleets, and working capital are all reasons it is best to establish commercial credit as soon as possible to plan for your future. 

Let's Simplify This is Four Key Points:

1. Less Money at the Start: Instead of paying a lot of money all at once, you pay a little bit at the beginning and then some money every month. This helps people who don't have a lot of money right away. The amount you pay each month can change depending on what you're leasing.

2. Get New Equipment: When you lease, you can use the newest and coolest things without having to buy them forever. This is great when things like phones or computers keep changing. You can switch to something better often. It's also good for businesses to keep their customers happy.

3. You Can Choose: You can talk with the leasing people and decide how long you want to use something, how much you want to pay each month, and what you want to do at the end. You can give it back, keep leasing, or buy it at a special price.

4. Save Your Money: Leasing helps you keep your money for other things you want to do. You don't have to spend a lot of money at the beginning. It also doesn't use up your credit, so you can use it for other important things. When you think about how to pay for things, leasing can be a good choice. But you should think about what you really need and want to do with your money before deciding between leasing and buying.

Example: When you lease, you’re doing so with pre-tax dollars: Let's say that you decide to purchase a $60,000 semi-truck. That $60,000 purchase costs your business $60,000 and your lease payments can be written off as a business expense. On the flip side, if you purchase the equipment with cash, you're paying with post-tax dollars: That $60,000 item may cost you as much as $80,000 or $90,000 (depending on your specific tax situation). Why? Because your business needs that greater pre-tax income to net the $60,000 needed to make the purchase. Leases also usually have a lower payment, freeing up cash for other uses. They remove debt from your balance sheet, preserve bank credit liens, guard against obsolescence, and help to avoid capital outlay. 

The Five Cs of Credit. The Five Cs are:
Character, Capacity, Capital, Collateral, and Conditions.

Character of the debtor is also evaluated and shows how the customer has paid their previous creditors. Lenders have a time-tested tool to evaluate character. It is the credit report. Every underwriter has their preferred credit bureau report, but universally they provide similar information; a credit score, the amount of time the person has been in the credit bureau's file, and information on how individual accounts were repaid. With truck deals in particular, lenders like to see customers with good payment history on their previous truck credit, previous installment loans, and mortgages. That’s because this type of debt closely reflects a truck loan or lease. Every lender will have a range of scores that they feel comfortable with for loaning money and this varies from company to company. Typically, higher-risk deals – customers with lower credit scores – get higher interest rates and vice versa. Character can also be assessed by calling references, such as previous employers, previous creditors, and current or future haul sources. All of this information is used to figure out whether a person can be trusted to repay their truck debt.

If it is determined that a person is of sufficient character, the next evaluation that must be made is their CAPACITY to repay the debt. If faced with a monthly payment that is excessive for their monthly income, a debtor cannot pay. This is usually gauged by measuring someone’s debt-to-income ratio or DTI. A lower DTI reflects that a customer is less risky to lend to. Creditors will use bank statements, tax returns, and pay stubs which they will contrast to all an individual’s current outstanding debt to decide what a comfortable monthly payment amount would be.

CAPITAL, or in terms of trucks, how much money does a customer have to put down. The larger the down payment the less money the lender must come out of pocket to finance the truck. From the perspective of the lender the down payment helps to create equity. The finance company will first establish a value on a particular make and model, based off this value the lender will then determine a down payment which sufficiently secures them in case of default. Down payment can also have significant effects on the monthly payment, because of this certain deals may require enough money upfront so that the monthly payment will be reasonable for the customer to afford despite the value of the equipment. 

Collateral is the asset to which a loan or lease is tied. If a person does not pay their debts, the collateral may be repossessed by the creditor to repay any deficiency the debtor may have. In our industry, the collateral is commercial trucks. The value of the collateral impacts the down payment amount for a deal. Collateral also influences the length of time given to repay a debt. This is known as the term length. A truck with high mileage is more likely to have major repairs, thus, a buyer will typically be given less time to pay it off when compared to a lower-mileage truck. 

CONDITONS is the final C of credit. It is the final C because it is comprised of aspects of the other four aspects. Conditions in totality means, the information available to determine whether a deal should be approved and how it is approved. This includes elements that are out of the debtor’s control, such as global pandemics or economic recession. It also considers what the truck will be used for or the “nature of the business”. For example, if a customer is buying a dump truck but he hauls refrigerated goods over the road, an experienced underwriter would have some concern. The conditions provide the framework for the down payment, interest rate and a term length. As discussed, down payment is determined by a combination of capacity and capital. Interest rate is strongly tied to an individual’s character. Lastly, the term length is regulated by the collateral’s age and mileage. 

An Equipment Finance Agreement (EFA) is usually looked at as a link between a lease and a loan. There are differences between an Equipment Finance Agreement and simple interest loan.  

The two biggest differences between an EFA and a                            simple interest or consumer are:                           1.) EFAs have no stated interest rates, and
           2.) There is no breakdown between principal and interest in EFA contracts.

The finance charges are calculated into a stream of fixed contractual payments over the course of the chosen term. The customer is responsible for the gross contract amount, which is the sum of the contractual payments although most lenders will offer a "discounted payoff".

After receipt of the payoff funds, the lenders release their liens on the collateral and ownership will pass to the customer. Equipment Finance Agreements don't have a final purchase option price or "balloon payment". This feature will help customers avoid disputes that often occur at the end of lease agreements.

Yes. Using a 36 month Equipment Finance Agreement as an example, the customer can pay all of those 36 payments off at any time without penalty, however, the customer is still responsible for all 36 payments. Unlike a principal and interest loan, early payments on an EFA do not reduce the amount of finance charges owed although most lenders will offer a "discounted payoff".

Example of a Discounted Payoff :
The customer signed a 36 month Equipment Finance Agreement (EFA). After 12 months, the customer calls the lender or bank to payoff it off early. At the time that they call, the "example" payoff amount (which is the remaining 24 of the 36 monthly payments) is $47,005.56.* Some lenders may "discount" that amount owed. For example, the lender could choose to "discount" the payoff to $ 31,257.73. This provides a savings of $15,747.83 in comparison to remitting all the remaining monthly payments. 
*The dollar estimates in the example above are only an example used for explanation purposes. Please consult your individual lending institution for information regarding your specific term details.

It is very difficult to know ahead of time what your down payment would be. If you have challenged, credit, limited credit, or are a start-up or investing in a new company, your down payment could be higher depending on your credit score and bank balances. The other thing that will affect your down payment is the value of the equipment itself. It is very common to see a down payment from the "same bank" range from $25,000 down on one piece of equipment to $7,000 on another piece of equipment because the values of each piece of equipment could vary greatly.

Your down payment could increase or decrease based upon the equipment you wish to purchase and its value to the lender. Each lender uses different methods (such as NADA, Black Book, TruckPaper or their own internal evaluations) to determine with the asset is worth. The book value of the equipment will have a very high impact on the amount you have to put down. The better book value of the equipment results in a lower down payment for you.

There is no way to know your rate ahead of time. Each lender has a different method of underwriting and the rates and terms will vary based upon credit history and the individual lender reviewing your application.

Buying a commercial piece of equipment is not like buying a car. The risk for commercial equipment is much higher to a lender than an automobile. For that reason, lenders will almost always require at least three (3) months of bank statements to understand your cash flow situation. The lender wants to make sure that you are not set up for failure when it comes time to make your monthly payment. 

There are two different types of bankruptcies (BKs):
-Discharged
-Dismissed

We work with people that have had a "Discharged" bankruptcy all of the time and are often able to get them approved for a commercial loan. This type of BK has been completed, the debts were paid, and the person is starting over. Re-established credit obviously helps the terms of the loan but isn't necessary. Each situation is looked at individually.

A "Dismissed" bankruptcy, however, is highly unlikely to get approved.

A "Dismissed" BK is different from a "Discharged" BK because with a "Dismissed" BK, the person still owes the debt. The court decided that they don't have enough debt to qualify for a BK so they "dismiss" the BK. However, if the person gets another loan, that could make the debt owed fall into the category where it now does qualify for a bankruptcy. In this scenario, the truck or equipment that the customer just bought ends up in a BK court and the bank on the loan ends up in a bad situation. 

There are three major business credit reporting agencies:
- Dun & Bradstreet
- Experian Business
- Equifax Business

After legally setting up your business with the Secretary of State and the IRS obtaining your EIN or Federal Tax ID number, you also set up a Dun & Bradstreet D-U-N-S Number. The good news is, it's easy to set up, and it is free. It is very important to do this so that you can begin building your business credit. 

https://www.dnb.com/duns-number/get-a-duns.html

After you have established your D-U-N-S Number, it is important to manage your business credit here:

https://www.dnb.com/products/small-business/manage-my-business-credit.html

Many companies do not report your payment history so Dun & Bradstreet offers you a way to report these payments yourself. 

https://www.dnb.com/resources/what-is-a-trade-reference-impact-credit-scores.html

You could have been a sole proprietor prior which shows proof of time in business. Ways to validate this to a bank are: tax returns, SS-4 form from the IRS, insurance certificates, articles of incorporation or operating agreements. 

You can go to the IRS website and register. Then you will be able to download any completed tax return forms that you have completed. The link is: https://sa.www4.irs.gov/eauth/pub/es_general.jsp

GAP insurance, which stands for Guaranteed Asset Protection insurance, is a type of coverage you can get for your truck. It's designed to help you in case something bad happens to your truck, like if it's stolen or totaled in an accident. Here's how GAP insurance works: Truck Depreciation: When you buy a new or used truck, it starts losing value (depreciating) right away. If something happens to your truck, like an accident, your regular truck insurance will typically pay you the current market value of the truck, which may be less than what you owe on your truck loan or lease. Covering the "GAP": GAP insurance helps cover the difference, or "GAP," between the amount you owe on your truck loan or lease and the amount your regular insurance pays out. This can be especially useful if you still owe a lot of money on your truck but its value has gone down. For example, let's say you owe $20,000 on your truck loan, but your truck is only worth $15,000 when it's stolen or totaled. Your regular insurance may pay you $15,000, but you still owe $5,000 on your loan. GAP insurance would help cover that $5,000 so that you don't have to pay it out of your pocket. GAP insurance is often a good idea if: You have a new or used truck with a significant loan. You're leasing a truck. You made a small down payment on your truck You want extra peace of mind in case something happens to your truck.