Published June 13, 2018 | Updated April 7, 2021
So you’ve won the new bid or have the latest production contract in place, or maybe you decided to upgrade your IT infrastructure to create new efficiencies. Either way, equipment purchases that require a healthy chunk of capital are a central component of those strategies. And while you may have planned for the equipment’s cost, often businesses forget to plan for a significant portion of the total equipment expense. We call them soft costs, and they can be an unwanted surprise, especially in today’s economic environment.
Soft costs are everything from installation, warranties, delivery, or even assembly in some cases. As equipment becomes more easily customized to meet your company’s unique requirements, more soft costs are often required to get the equipment up and running. And don’t underestimate the financial impact. It can cost up to $10,000 for some deliveries. IT services, installation, and engineering add an average of 40% to every IT purchase over $25,000. Some customized solutions can take as much as a year to be up and running.
These issues can create serious financial problems. Most of the time, soft costs have no real value and therefore add no value to the equipment long-term. They are necessary one-time expenditures to get the equipment running that cannot be transferred upon resale. And that makes most lenders run for the hills. You may enjoy your very low-rate financing for the equipment from a local lender, but when you evaluate the project in total – including soft costs – you could find yourself investing some pretty big money out of pocket to pay for everything. This defeats the purpose of preserving capital through financing.
As equipment becomes more easily customized to meet your company’s unique requirements, more soft costs are often required to get the equipment up and running.
The other financial issue is that soft costs typically happen upfront – before the revenues start rolling in from your equipment investment. This cash outlay can create severe cash flow burdens when you need cash the most. Ramping up for new business or creating new efficiencies can require more capital on hand to build inventories, hire staff, and invest in marketing. Tying up cash during this time for installation and delivery can create real challenges to execute your strategic plans.
There is the possibility of a better approach. While some lenders may run from soft costs, others can bring them into the financing arrangement. These lenders specialize in financing equipment and understand more than just the invoice amount. They know the impact equipment like this can have on your business. And as long as soft costs stay within specific total investment parameters, you can fold them into your affordable monthly equipment payment and preserve your cash for more essential needs.
At LEAF, we make equipment more affordable. Our customized finance solutions solve real problems – like financing the total equipment investment to preserve your cash when you need it most.