In today’s business environment, you can gain a significant competitive advantage with the right technology investment. What do you do when you don’t have the funds to support the purchase? Follow these five tips for financing your tech purchase, courtesy of BDC.
By Marie Moore
As an entrepreneur, you know your talent and your ambition are limitless. You may find it surprising, then, that female-owned companies in Canada tend to be smaller and grow more slowly than those owned by men.*
And this lack of scale can be a limiting factor to your business’ success. To remain competitive, it’s important to wisely invest in your business — especially in the fast-evolving area of technology.
If you don’t have the cash on hand to invest in technology, these five tips can help you finance your IT purchase:
1. Create a budget that factors in all costs.
The first step in purchasing technology for your business is preparing a budget. To create an accurate estimate of the project’s cost, be sure to look beyond the sticker price. In addition to buying the technology, you’ll need to factor in implementation, training, maintenance and updates. You also need to consider how the IT purchase will impact your business. For example, a new website could generate significantly more sales, which will require greater spending on raw materials, production, and inventory – and which could create a cash flow delay before the sales dollars roll in.
2. Match the duration of the loan to the lifespan of the asset.
All technology has a lifespan. When looking for a loan, aim to have the payment period be equal to the expected lifespan of your new asset – the amount of time it should function optimally. Otherwise, you could still be paying off your loan when the time comes to replace your purchase. As a rule of thumb, computer hardware typically lasts three to five years, but do your research or ask your IT sales representative to help determine a reasonable lifespan, then look for a loan duration to match.
3. Understand what type of financing best fits your desired purchase.
The type of financing you qualify for will be impacted by the type of technology in which you are investing. Why? It comes down to collateral. A hardware purchase will offer you the most options, simply because the hardware can be used as collateral for the loan. In this case, your options include: an equipment term loan, which requires the hardware to be used as collateral; a working capital term loan, which may or may not require collateral; or a line of credit, which is most often secured by your accounts receivable. You may also be able to lease the hardware through the supplier or a financial institution. There are fewer options for software purchases or digital marketing projects, like creating a website, because, unlike with hardware, there are no assets that can be put up as collateral. Look into financing these technology purchases with a working capital loan or line of credit.
4. Go into your bank meeting well-prepared.
Before meeting with your banker to request a loan, be sure you have compiled all the information they’ll need to make a decision. That includes your financial statements, the thorough budget you created for the planned tech purchase, and your broader business plan — demonstrating what impact the IT investment will have. You will also need a personal credit score and a credit bureau report on your company. The process can be lengthy, so don’t approach your banker when cash is tight and timing is critical. Instead, reach out well before you need to make the purchase.
5. Consider options from several financial institutions.
While it’s true that increasing the amount of collateral you offer will generally lead to a lower interest rate, this shouldn’t be the only factor you consider when evaluating a loan. Reach out to a few institutions and see who can offer the best terms, from repayment options to required guarantees. You’ll also find variances in the amount of financing that will be made available to you.
The Cisco Women Entrepreneurs Circle addresses some of the obstacles female-led businesses face in building their tech capabilities. In partnership with organizations including the Business Development Bank of Canada, Cisco is connecting women to the expertise and knowledge needed for their entrepreneurial ventures to thrive. Are you a business owner? Fill in a short survey to register for the free virtual training from the Cisco Networking Academy, and kick start your journey towards business success.
* Canada Works Limited presentation of Women Entrepreneurs in Canada: Gaps and Challenges, Allan Riding, July 2014