A true story, adjusted to current rates
by Mike Sapp, American Business Leasing
Several years ago, a friend received an unsolicited call from a representative of one of the largest banks in the country. “I have been authorized to offer your company a preferred rate loan. The first year has a fixed four and a half percent interest rate with no fees. Beginning the second year, the rate will be Prime plus one percent, and there will be a fee of just one percent of the entire line. What’s more, because of your fine credit rating and reputation, we will loan up to fifty thousand dollars without requiring financial statements. And that’s not all. [By now, my friend was waiting for the six free steak knives]. We will provide a free business checking account. Just write out a check for your loan proceeds as you want them.”
“All we ask,” he added, his enthusiasm changing to the rapid-fire drug interaction warning whispered at the end of a Viagra commercial, “is that you keep ten thousand dollars in that checking account.”
Heck, that ain’t hard, Mr. Viagra Banker. You just gave me fifty grand to play with.
Now let’s take a closer look. If my friend needs $40,000, he has to borrow $50,000. Forty for his business; ten for the “free” checking account in which he must maintain ten thousand dollars. (What’s that you say? You can usually keep ten thousand dollars in your checking account? Well, it’s a long way from can usually – or average – to gotta.) So, he can use forty, but pay interest on fifty. At four and one half percent per year, the payment on a three year, $50,000 loan is $1,487.35 per month.
Now, $1,487.35 a month to pay off a three year FORTY THOUSAND dollar loan is, er, let’s see, 20.04 percent. And in year number two it may go up or down depending on movement in Prime Rate. Even if there are no increases in prime rate, payments will be $ 1,487.35 based on $50,000, and I can use only $39,500 ($50,000, less $10,000 in the non-interest bearing “free” checking account, less that pesky one percent fee).
Your American Business Leasing lease of equipment worth $39,500, with first and last payment in advance and a small documentation fee, is going to be a lot less for each payment, with a one dollar purchase option. And payments will be even lower than that with a Fair Market Value or ten percent purchase option, giving you possible additional tax benefits.
We’ll also move much faster than your local banker.
And we won’t insult you with interest rate word games. We’ll simply give you the lowest payment we possibly can and encourage you to compare our quotes to any bank or other leasing company. But PLEASE compare dollars to dollars, and terms to terms. Will we have the lowest real rate? Surprisingly often we will. And we will never try to confuse you with misleading terms.
Thanks for listening. Your comments are welcome.