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Vetting The Vendor

Buying equipment? Read the fine print before you let your vendor do the financing.

Q: I recently purchased a large, multicolor printing press for my business. During the price negotiations, the seller offered financing for the equipment. The terms are really attractive. What are the advantages of utilizing this type of financing, and what should I be on the lookout for?

A: Vendor financing is one of the oldest tricks in the book for selling equipment. The vendor arranges financing with their own funds or through a third party at lower rates and longer terms than you might be able to arrange through your local bank. Other attractive aspects of vendor financing are speedy approval and equipment delivery and a lower down payment, which keeps working capital free for other things. This can be a quick, painless way to get that piece of equipment you need. Read the fine print, however, to make sure the price you'll pay through the vendor's program is the same as if you'd used a conventional loan for the purchase. Often, the vendor's terms are made attractive to hide a higher-than-normal purchase price. Consider showing your banker the terms offered by the equipment seller. He may offer you the same, if not better, terms, allowing you more negotiating leverage with the vendor.


Doug Hood is co-founder of Rainmaker Capital Corp., a capital acquisition consulting company in Cartersville, Georgia. Co-founder Marilea S. Hood contributed to this article. Send questions or anecdotes via e-mail to doughood@rainmakercapital.com.

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This article was originally published in the April 2001 print edition of Entrepreneur with the headline: Vetting The Vendor.

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