Each week, we’ll interview one of our experienced Finance Officers for a brief question and answer session about something interesting from the week, along with tips and tricks to make your finance process easier, and their unique perspective on the industries and customers we work with.
A: This one funded this week, I think. This guy was trying to get a brand new dump trailer, and a bucket truck. Actually, he originally just came to us for the bucket truck, and then he asked me if there was any way he could get a higher approval so that he could include a dump trailer, which we were easily able to accommodate, right? But from there, is where it really got interesting. The dump trailer was with a dealer who was pretty straight up. It was a brand new dump trailer, and they manufacture them, right? However, the bucket truck was with a guy off of Craigslist.
A: Classic Craigslist sale. We were working with that guy, the seller, to obviously try to get everything that we needed from him in order to complete the transaction. Well, that seller also requested financing from us while we were in the middle of that deal, and we were unable to approve him. So that put an interesting twist on the dynamic between us and them as a seller.
A: Nope, you don’t. And so, as I tried to weave through that, I think I was able to at least maintain a good dynamic with that seller in order for him to continue working with us. Unfortunately, I think what ended up happening was, he put that truck back into work. I think some work came about that he was able to utilize that truck for, and so he put it out on the street to work, and did not want to sell it any longer, although he wouldn’t tell us that. He kept on saying, yeah, I want to sell this truck, I’ll get this stuff to you, like the copy of the title and all that kind of stuff.
A: Well, the biggest one was that we had already had agreements done for this truck, and we were basically ready to go. We just needed the copy of the title, right? And ultimately, it came down to where, I kind of had to make the call for my customer, because he didn’t know how to deal with it. I told him, hey, start looking for another truck, because I don’t know if this one’s going to happen. He found another one that he liked, but I was trying to explain to him, you know, this will be an all new agreement. This is kind of not completely starting over, but moderately starting over.
A: Weighing those timelines out with the reality of the situation with the customer, I just kind of had to bite my tongue for a little bit and say hey, our best option right now is just to have this seller, this craigslist seller, finally come around and get us the stuff that we need. Eventually, it came down to the point where it was just no longer worth waiting, and so I had to make the decision to pull the trigger to re-do docs completely for the other truck, and so, all of that was a fun process. The biggest thing there that I think really provided a lot of value to the customer, was that during that entire transaction, which was over a month’s period, I was constantly in contact with the dealer for the dump trailer to keep him on board, which was difficult. He was, especially towards the end, pretty much asking, “is this thing ever going to fund?” Which, granted, it was a lot better than me just saying, here’s a promise, here’s a promise, and provide false promises without knowing how long this thing was going to take. To be honest, the dealer of the new truck wasn’t exactly the best either. They didn’t correctly complete documents multiple times, even with direction, but ultimately, we were able to get the deal done, and everybody was happy. Granted, by the time we got the dealer for the dump trailer funded, that dealer was, I think, perfectly fine, saying, “I understand these things happen”, although he wasn’t all that excited before it got funded. When it got to the end, things were a lot better. And so, that was a difficult situation, in multiple ways.
A: That’s true. We’ve had a lot of great transactions with Craigslist sales, but in this case, I had given our guy a lot of warnings that we were going to go somewhere else if we didn’t hear anything back, so ultimately, I just let it go.
A: And that’s something that, you know, I always tell my dealers whenever they say, “well do you guys work with private sellers, can I work with this guy from Craigslist” … Yes, we can, but there is going to be a lot of different things that could come up, so be prepared. Ultimately, we got to avoid the issues with funding and all of that stuff.
A: Yeah, most of the issues dissolved once we got to funding. We just needed a little patience.
Next week we will check in with another one of our finance officers. Stay up to date and learn more from our valuable resources at www.AmericanEFS.com/The-Bottom-Line
We often get asked “what is the minimum time in business you require for equipment financing?” We know it can be hard to find commercial lending when you’re just starting out. The fact of the matter is there are a lot of companies that won’t give a second look to businesses that have under two years of operation under their belt. Here at American, we don’t want to put our customers in a box. We know there are more to new businesses than just length of operation. You may have heard us talk about our PreQualification form in other blog posts. We have 20 different programs that our applicants can be placed in according to their answers, and 3 of those programs are specifically for start-ups and newer businesses. In fact, the top tier start-up program has rates that compare to some of our upper-tier programs for established businesses. If that’s not evidence that we’re committed to commercial lending for entrepreneurs, I don’t know what is. So, how do we get these deals done? What are requirements that we look for in an applicant? Let’s talk about that.
Strong cash reserves can be a huge benefit when you’re looking for start-up equipment financing. This shows us that you will be able to cover the payments for the equipment you’re financing if there happens to be slow months. For our second-tier start-up financing program, we’re looking at $10,000 to $15,000 in reserves for the last three months. This can play a huge role in the monthly payments you’re quoted once you finish the PreQualification. With our highest-tier start-up program, if you have a better credit score (700+), we may be able to offer you incredibly competitive rates to our more traditional programs with only $5,000 in reserves.
Homeownership can provide huge security for lenders that offer start-up financing programs. For our two upper-tier programs, homeownership is a requirement. In our lowest-tiered start-up program, homeownership is strongly preferred if credit depth is thinner.
Since we don’t have as much data from an established business, we will be looking to your credit history, as the personal guarantor. Do you have a good track record of paying back your debts on time? Do you have comparable installment borrowing history? Though we accommodate three different credit profiles in our three tiers of start-up equipment financing programs, the better your credit, and the better your credit history, the more easily we will able to get you an approval, and the funding you need to see your business succeed.
There are other items to consider like previous history in your industry, or in business in general, as well as the age of the asset you’re looking to acquire, but we hope we gave a good snapshot to prep you for applying for commercial lending for your new business. We would recommend giving our PreQualification form a shot to see where you stand. You can get payment and term options in around 5 minutes, without us running your credit. We want to let you know what we can offer while you continue to shop around for the equipment that fits the needs of your new business. Check out our PreQualification form by clicking here.
A: Yeah, I actually had one that we worked on a week or two ago… It was a pretty recent one. That was one was pre-approval for one of our opportunity programs for start-ups. Really solid application. The credit score was up there – I want to say it was in the 700s. This one had two PGs on it, and that’s how we had to do it, because it was a married couple. The wife had excellent credit – had some pretty big credit depth as well – but the husband was the one with the CDL, so we had to add him on there. He had some issues in the past with credit. One thing, he had a bankruptcy. That was several years back, but it still came up on the credit report. So, it went from about a 29% rate to around 35%, with a security deposit that was around 20%, or so. We quoted 10% previously – luckily, they were okay with the terms after the re-score and we were able to close that one.
A: It was the wife.
A: Exactly, yeah.
A: You know, it was actually an easy one, surprisingly. She didn’t give too much push back. She was pretty much okay with it for the most part. She had questions around it, obviously. But I explained, you know, husband’s credit had some dings on it, so we weren’t able to grant the pre-approval terms, but we had this other option where we could finance the full amount. The security deposit is also 100% refundable, so that kind of eased things a little bit. But yeah, she didn’t give a whole lot of push back. We closed that in about nine days from when I received the application all the way until we funded the equipment. She just wanted to make sure she was able to get the truck in the end.
A: She wasn’t aware that we needed to add him on there, but she was okay with it after the explanation. I mean, she didn’t have a CDL. We weren’t able to get a deal without the husband, because, again, he was the one with the CDL, and she didn’t have any experience in the field either, so it was going to ding the approval possibly to one of our lower programs if we weren’t able to add the husband on there. So, after we explained that, she was on board, and so was the husband, so it was a pretty easy transaction, even though there were some complications along the way.
A: Yeah, I think as long as you explain to the customer what the situation is, why we’re not able to get the terms that we initially quote, that explanation helps them to move on from what it could have been to what it actually is and see if we’re still able to make it happen in a timeframe that matches their expectations.
Next week we will check in with another one of our finance officers in one of our other offices. Stay up to date and learn more from our valuable resources at www.AmericanEFS.com/The-Bottom-Line
If you’re starting the process of acquiring a tow truck for your business, whether it is your first, or if you’re adding to your fleet, the options in front of you can seem vast and overwhelming. There are many different online sellers with a ton of listings to sift through, like Commercial Truck Trader and Equipment Trader, and you still need to figure out how you’re going to pay for it. You know you want to finance the tow truck but are worried it may take a long time if you haven’t chosen the exact model you want to move forward with. You may even be asking to yourself “Will I qualify?” These are all understandable concerns, and we see them every day with the various customers we communicate with here at American Equipment Financial Services. We’ve developed a solution that has been incredibly helpful for anyone looking to get financing for a tow truck: Pre-Qualification.
Traditionally, many commercial lenders have had a standard practice of leading you to their credit application for you to complete, and would then ask for various items, including anything from bank statements, to tax returns, personal financial statements and more, to analyze your credit profile. Once these steps have been taken, they would then pass along a quote that may not even be close to your expectations, and now you have spent valuable time on an avenue that you aren’t wanting to pursue.
We have flipped the script on this process and aim to get you quotes BEFORE running your credit or asking for any additional items. Using our extensive data over years of operating in the commercial lending industry, we have developed a Pre-Qualification form that can accurately place you in one of our programs, and give you quoted term and payment options within minutes so you can start getting a better idea of how to proceed in your search for a new tow truck. You can even get a quote and use that for any similar unit, so that you’re not tied down to one item.
There are other articles on tow truck financing that put the ball in your court to figure out if you need to find lenders that are more credit-based, collateral-based, cash flow-based, and more, but let us be the first to tell you, there are a lot of options out there, and your search could take you down a lot of avenues that, again, may elongate the process of getting the funding you need to start making more money with better, or additional equipment. We have programs for all of the above, and have specified questions that will help us identify where you stand and how we may best be able to find an approval for you. Time is valuable, and we want to make sure we’re saving you time so you can focus on your business.
So, apart from saving you time, how can Pre-Qualification make tow truck financing easier? Once you are Pre-Qualified, you can generate a Pre-Qualification letter as you shop around to show to dealers that you have been in conversations with a commercial lender and have been quoted a payment you’re happy with. Having this letter can be a huge benefit during your search, because it shows lenders that you are serious about buying and have already taken steps to move forward. Rather than being a “window shopper”, you’re saying “I’m ready to go!” Don’t you think equipment sellers will respond a bit better to a more serious shopper?
All in all, if you’re ready to move forward with getting Pre-Qualified for tow truck financing, we have an asset-specific page you can visit to get started. This will get you paired up with a rep who will be in tune to your tow truck needs. You can find our form to get Pre-Qualified at: https://towtruckfinance.com/
A: So, what we had was a customer that has been in business for about 4 years. He’s in the transportation business, and his banks of late were a little bit light, and he was looking to purchase an old trailer. Like 13-year-old trailer, and so, that falls outside of the scope of a lot of lenders, but others can help. But then you start adding in his bank, and the fact that his credit, while having a reasonable score, was actually very light with only 4 tradelines, and the largest of those tradelines was a mortgage, which was closed and had started the foreclosure process at one point. So outside of that, he had one small auto loan, and two credit cards that made up his entire credit bureau.
A: Well the score was 687 – which, again, is reasonable, but anyone that looks at it is not going to look at it as a typical 687, obviously. And so, when you combine all the facets of the transaction – the light credit, the trouble on the past foreclosure on the last line that he had, looking at an old trailer, there weren’t a lot of people that were willing to consider that type of transaction. What he did have to bring to the table was a couple of trucks that he owned free and clear. However, they were also aged assets. One being a 10-year-old truck, and the other being about 13 years old. And so, once again, that’s another stopping point for many lenders that we’re familiar with even. Because of this he had run into some declines because the assets were too old to be used as collateral, or the asset that he was looking to purchase was too old. So combined with the credit profile, banks, etc. it just became a very difficult transaction. However, we were able to approve him taking those two trucks as collateral to get his trailer done.
A: I believe those were cash purchases. They were not recent purchases. He had been in business, as I said, 4 years, and I think they were purchased a few years back.
A: No, he was coming out of a slow season especially, in this case, and he’s looking to expand the type of hauling options that he has for his customers, he had been mainly doing dry van, you know dry goods hauling at this point, and he was adding a low boy to his offerings to haul heavy equipment, and coming out of the slow season, his bank balances were very light, and he didn’t have the cash to move forward with something like this at this time.
A: That is correct.
A: It was part of the interview process for us, and as we go through and interview the customer and obtain all the information on his overall credit profile, to see what his credit looks like, what his bank statements looks like, yeah, we determined that we needed some extra strength, and I already had the information in my back pocket knowing that he had additional trucks free and clear. When I approached him about offering those, it was not something that he was opposed to.
A: Absolutely.
Next week we will check in with another one of our finance officers. Stay up to date and learn more from our valuable resources at www.AmericanEFS.com/The-Bottom-Line
In a recent Friday Q&A we talked to one of our reps about a customer in the logging industry who had poor credit, and was trying to find a way to acquire a John Deere Skidder because they knew it would be a benefit to their business long-term. Their cash flows were looking pretty solid, and they were able to put together a balance sheet and income statement to show evidence of that fact to get them an approval. It has to be noted that you will need to be prepared for potential higher down payments and rates. While we mentioned that credit isn’t everything, it will still play a factor. But if you’re looking at equipment that’s going to increase your revenues, and even offset what you will be paying monthly on the equipment, isn’t getting that approval worth it? If you’re ready to grow your business, and know your cash flows are strong, but you are worried about your credit, make sure to talk to your rep about the positive aspects of your cash flow to overcome any obstacles that may come up due to your credit score.
Another way to help overcome low credit when looking to acquire logging equipment is with collateral. Many lenders will be able to find an approval if there is sufficient collateral put up according to their requirements. Be aware that those requirements may change from lender to lender, so make sure you have those conversations early so you can make sure that your proposed collateral is sufficient. With collateral as an added security, lenders can have more confidence in moving forward in circumstances where challenging credit is an issue. We often ask for this information upfront on our PreQualification Form to make sure that the option is front and center to make sure we can find a way to help customers of various credit profiles.
We hope this helps give you an idea of the options that may be available to you in the logging industry if you’re looking to get new or used logging equipment. We would also like to note, as we did in the above linked Q&A, that if you have a more challenged credit profile, you may need to factor in a little more time for the deal to progress. Often times, multiple avenues are being explored to make sure that an approval can be found that best fits your circumstances. Stay patient, and work along with your finance officer, and the payoff of that new revenue-producing machine will be worth it!
A: This guy had a pretty solid credit application, however, he was Hawaii-based. Looking at the best place he would qualify, we came to the conclusion that one of our funding sources would be the best fit. I got him approved with no obstacles on that front, however some of the other obstacles in the case were one, obviously him being in Hawaii, two, the equipment was here in Oregon, three, the equipment was under lien with US Bank, and four, It was a private party sale.
A: Yeah… five as well, he wanted to include the shipping in the financing. Let’s see if there is six… yeah, six was that we could not pay the shipping company directly because of just how they account for it on their end. So, I think those were probably the six main obstacles there in putting this deal together.
A: To start out, you know, we got with the private party seller, and they informed me that they were selling this for $32,000, where they still owed six-two or seven thousand, so we had to pay US Bank, and US Bank being a big institutional bank, you know, their process can be a little bit slow. We had paid them, and then they took 10 business days (exactly on the mark from what they told us) when our funding source received the title down in Colorado. So once that was done, we were able to pay the sellers, the private party, the rest of the money, because we wouldn’t release the funds to them until we had the title in hand, obviously signed off, and the lien removed. So obviously, private party sellers being private party sellers, they want their money as fast as they can, so that was a little frustrating on their end, which I totally get that. But, we got that taken care of.
A: Then, it was time for the buyer. He had a brother out here to pick up the truck to bring it up to Seattle and get it out on the barge, which, you know, took about another 7 to 10 business days to get it delivered to Hawaii, and then the truck sat in Maui for a few other days because of some weather, or something like that. So then he finally got the truck, took possession of that, paid the shipping company, and then we reimbursed him, finally, to essentially fund the entire deal – that took about a whole quarter. It was really dragged out, but I think we were really able to add value to the customer. You know, we were able to get him approved, get everything paid for, actually get it shipped out to him while he was there in Hawaii. I just think all of that together, it was just a really solid added value to the customer. It may have taken 3 months to complete, but you know, sometimes things like that are out of our control? The buyer was a really nice guy, really patient.
A: A couple of our funding sources don’t really do deals that aren’t in the continental United States, but luckily, we had one of our sources whose manager spends a lot of time out there, so they made a couple exceptions, and we were able to get this one done in the end. This was my one and only Hawaii deal!
A: Umm… Absolutely! Just have to send it back to the same funding source.
A: Well, maybe we’ll make sure the equipment is actually on the island haha. Just kidding. This was a very specialized truck, so it was definitely part of the circumstances. Could have been worse – the equipment could have been on the east coast!
A: But at the end of the day, we were able to get three different parties paid – the shipping company, the private party, and the bank to release the lien, and we even got the equipment shipped out to Hawaii. Overall, I think we added a lot of value to the customer on this one, and got everything finished up in a good way.
Next week we will check in with another one of our finance officers. Stay up to date and learn more from our valuable resources at www.AmericanEFS.com/The-Bottom-Line
While that’s fair, there are other factors you need to consider and how those factors may affect your business. Can the rate be important? Sure. But let’s look at a few other items that should be a bigger part of your decision-making process.
You could have a rate that looks great, but what if the down payment doesn’t match what your business can feasibly put forward for a new truck? Or maybe you want a lower down payment to conserve cash flow? Maybe you want to put more down so you have less to finance over your term. The down payment should be an important part of your conversation with a commercial lender. And speaking of terms…
Again, your rate could look great, but how many months are you paying that rate for? Even at American Equipment Financial, we have different programs with different term options, so you can only imagine what that looks like across the commercial lending space. Some programs allow for more term options so you can find a sweet spot for how long you will be financing your truck for. Some programs may cap out their term offerings below what you are looking for, so your monthly payment ends up higher than what you were hoping for. Make sure you pay attention and don’t get sucked in by low rates when there are other factors involved. Check out this example:
Most commercial lenders will have a fee that is due at the beginning of your contract, and in some cases, certain lenders will charge a fee to even get started. While these fees can seem less important in comparison to the large price of the equipment as a whole, you should pay attention to the differences in fees between different lenders. A lower fee with a higher rate can still come out cheaper in the long run than a higher fee with a lower rate, and vice versa. Even if it’s just a small difference, that’s still money that you can save to re-invest in your business. Make sure you’re taking everything into account when you’re looking at commercial lending options.
Looking to get some conversations started with us on financing for a truck? Get payment and term options in just five minutes without us running your credit: https://americanefs.com/pre-qual/
A: So, the company is kind of a general contractor – framing, roofing, home construction – in Phoenix that had originally incorporated in 2012, and had moved to Phoenix, AZ in 2014, and that’s what we had for Secretary of State. The owner scored a 675, however, he did have a bankruptcy in 2013. He did have some good comparable installment debt, but most of that was before the bankruptcy. In terms of true established credit since the bankruptcy was very low. That’s something that underwriting is really going to pay attention to after a bankruptcy – what have you done for me lately in terms of building credit, and he just didn’t have a ton.
A: Definitely trying to get some kind of bank and tax information at that point. Could you have tried to find a potential app only solution? Maybe. But in a situation like this where you know you have hurdles, it makes sense to at least, if nothing else, try to understand what 2018 looks like and what their bank statements look like. We did get bank statements and it did show low 6-figure cash flow, but beginning/ending balances ranged anywhere from a few dollars to 30-40 grand. Even then, you could say that the overall cash flow strength of the business in terms of beginning/ending balances wasn’t spectacular either. Good money going in, but a lot coming out at the same time, right? That didn’t hurt, but that probably didn’t help as much as much as I would have liked it to. The 2018 internal, not audited statements, showed that he was an 18-million-dollar company, and had net income of around 1 million bucks. You have to be a little tentative about how valid a lot of that is until you can see the year’s prior tax returns to see if that was something that was at all around normal for them.
So, getting to the buying process, in talking with him, the initial response from him was that I’m going to shop, and we’ll worry about when I need something. Then, a week later he said that he wanted to bid at an auction, and have it paid tomorrow, and we didn’t have an approval or anything for a guy that had a bankruptcy. There were a number of things you could look at that showed this was a pretty challenging deal.
A: After the initial conversations, obviously we knew about the bankruptcy piece, and financially, he made it out like he was very strong – internally that was validated, but nothing concrete by any means. Said the bank was great – forgot to mention ending balance one month was 40 bucks. In all honesty, he probably doesn’t see any issue with it. He has 6 figures going in and out. Through the process I try to make sure we don’t over-promise any type of expectation. I really focus on the fact that we’re doing whatever we can to make it work. We were very upfront with what the options would probably look like in terms of mid-20s type buy rate, sell rates in the 30 area, which is because of everything we saw – we also clarified that was IF we could even get it done, and set expectations for what would be realistic – which he was fine with.
A: Again, you know, if you do look at his history of credit, he did have a number of very good paid installments that were sizable – 50-grand, 70-grand. His bank statements do show that he is not a small company when you’re averaging 200-grand in and out a month. If you are a credit team, and you are giving stock to the internally prepared statements, then that would have made this very appealing. He did provide proof that other collections accounts were paid off in remedy, which alleviated a couple concerns, but truth be told, I was actually fairly shocked we could even get him approved due to the myriad of things that made this very, very difficult.
A: The tough part was, the place that needed to get paid was an auction company. They don’t have a ton of patience, reasonable so, they’re there to sell equipment at an auction and then you have a certain time window to pay it, so when he approached me saying yes, I want to make this happen to when we got it funded, it was close to three weeks. Reasons for that, a lot of it was navigating a very challenging credit. There were a handful of sources we did approach, that did ask questions, that did take time, that did decline. So, you know, it takes 3 or 4 days at one bank, 3 or 4 days at another, getting additional information, and then there is additional time needed for the customer to gather his information. All the while we’re trying to keep the auction company at bay so that they don’t sell it to the next bidder, and so we did have to navigate those waters very gently for the course of about a week to get it funded.
Well, yeah, yeah. Especially because it seemed like every rock we turned over showed other hurdles. That was the real kicker, because we were able to address everything we could see right up front, but it was the things we couldn’t see that took time to navigate, right? So, we navigated enough of it ahead of time that did take probably a week, just to get the information from him – the bank statements, the financials, the explanations for write-up, etc. and then questions banks would ask that you had to get answered, and then relaying that information does take time. And then ultimately, the place that wanted to do it found even more hurdles that took even longer to overcome (calling a cell phone to get a collection paid, etc.) and those things did take time.
Now, from the time we issued documents to the time we funded it, it actually went very smooth, he returned documents on a Monday, and we funded it on that Wednesday, so that aspect of it all can go very smoothly. The kicker is we try to, on these types of deals, try to explain as much as we possibly can for what we see, but you know we always try to make the customer aware the nature of the beast, that there will potentially be other items we’re not recognizing as potential hurdles that we’ll need to overcome. And as long as we can do that in an appropriate time frame, and they’re understanding of that, we can navigate it. We do have to set appropriate expectations for all parties involved, including in this case, the auction company, where, you know I told him it was going to take up to 48 hours to fund it after we got the signed paperwork just to give us a day’s buffer. There were delays on the customer’s side too with getting the docs back to us, but we just want to make sure that we always give some leeway so that we never give any inappropriate time frames, if that makes sense.
A: Yeah, what I don’t want to do is share any information that is intimate to the borrower’s credit profile at all, business or personal, so what I try to mention is through our years of experience, we’re very good at navigating that B to C credit space, and for those customers, a lot of the abilities for us to do this in an expedited manner does come with the customer’s participation, and we can only move as quickly as we get information back from the customer. As an overall process, it’s going to take a bit longer than with an A credit because there are more checks and balances that need to happen, so any time I’m dealing with these in my initial contacts with the vendor, I mention that it can happen in as little as a few days, but more than likely it can take up to a week to get paid. That’s not exactly what they want to hear, but once they hear it, we set the best expectations we can because they still want to sell this stuff, right? And I wasn’t introduced to the auction company as it relates to needing to communicate with them, until will had a formal approval that did not have any contingencies. I didn’t want to get involved with the auction company until I knew I had a very clean approval. I left communication up to the customer prior to me doing it, because I didn’t want to start promising anything before I knew we were good to go.
A: Exactly, and I try to put more of that on the customer, number one, because then I know he has an urgency to complete the transaction. In some cases, we will have folks that will take 3 days to send in the documents, or we’re waiting on smaller items, and that can really hinder the process. It’s harder to blame the process when you see delays like this, but putting it in the customer’s hands when there is an accelerated time table, you’re really putting the ability to succeed in their hands.
Next week we will check in with another one of our finance officers for another Q&A. Stay up to date and learn more from our valuable resources at www.AmericanEFS.com/The-Bottom-Line
Words and phrases like pre-qualified, pre-approved, and approved have been used to describe one’s loan application status in a number of industries over the last several decades, perhaps none more prominently than the mortgage world. Commercial financing, however, has really lagged behind the sensibilities of nearly every other lending segment’s protocol. That is to say, it used to be simple: you were either approved or declined.
Recently, however, with our own innovation of the PreQual system in 2017 – and with a number of so-called ‘fintech’ (or financial technology) lenders entering the marketplace, buyers have begun to get exposed to a number of other application statuses in between. The reasons for this vary, but usually have a lot to do with the ever-increasing velocity of online transactions.
Each day, we hear about a customer getting approved only to find out their desired truck sold yesterday. Buyers and sellers of equipment are moving faster and faster – leading to the need for preemptive qualification (that is, the ability to predict with some reliability whether or not you have the buying power needed to negotiate the purchase of equipment.) Understanding if you can buy first, and secondly how much you can spend, enables one to shop in their price range with more confidence.
Pre-qualification is the art of reviewing standard data points like time in business, personal and business credit history, monthly cash flow, reserves/working capital on hand, and a number of other factors to see if you qualify based solely on the available data. American’s PreQual system is an advanced underwriting platform that compares this data against 110,000 possible scenarios and combinations, aggregating our own internal credit parameters alongside those of three dozen partner banks to find the ideal place where a customer’s transaction fits.
We’re awfully proud of this system – but not all “pre’s” are created equally. You’ve probably seen the spam emails that are sent regularly to your inbox – often on a daily basis if you’ve had the unfortunate experience of having your information sold by a company with a slimy privacy policy. They read: “You’re Pre-Approved!” We all shake our heads at this nonsense. After all, how can you be pre-approved if you haven’t provided any information? I’m sure we’ve all had an experience where we were told we were pre-approved, and found out later that we weren’t approved at all.
Pre-qualification differs from pre-approval because it is based on actual data points supplied by the end user. Pre-approval is usually based solely on market data. This means pre-approval might help identify classes or groups of applicants that may qualify, but pre-qualification helps identify actual individual applicants that fit the criteria, often through a comparison of that individual’s data against the market data available.
When our competitors offer customers a quote or a pre-approval, usually they’re providing a customer who meets barebones requirements like two years in business, 600+ credit, etc. the lowest possible rate and terms they offer. Then, once the collect a full application package on the customer, they let the customer know that the actual terms will be much higher. We’ve turned this concept on its head – we intentionally quote on the high side of a customer’s range to help set proper expectations. Our goal is to come in with lower terms once everything is actually formalized. This is the essence of why pre-qualification is superior to pre-approval.
In the mortgage world, a pre-approval usually happens once the bank knows how much you keep in your bank account and has looked at your credit. The pre-qualification happens once you supply financial information and complete the full application process. Then, final approval happens once you decide what you want to buy and the bank verifies the property you’re seeking qualifies for the exact mortgage program they’re underwriting. We have modeled our process after this sequence of events.
After a pre-qualified customer identifies the equipment they want to move forward on, we perform due diligence on the dealer (or seller) and equipment. This is an involved process that includes performing lien searches, completing an asset valuation and appraisal process, and rounding up any final documents we need to verify everything you stated on the PreQual is true. For many customers purchasing equipment that costs less than $50,000-$75,000, this can be accomplished very quickly.
The value of pre-qualification is that it allows us to look at a customer’s data points and lock in terms for 90 days while they shop for the ideal equipment, truck, or trailer. It also helps customers who don’t qualify to find that out day one, and for customers who only qualify with a large down payment to start the process of saving and preparing for the upfront costs associated with getting their venture up and running.
The best piece of advice we can offer to customers looking for a reliable equipment finance company is to use common sense. If a company is offering you terms without any real data on your company – the terms can be (and probably are) too good to be true. If a company asks you for a full financial package and application before they’ve given you a quote – consider this a sign of things to come. If their process does not allow them to give realistic payment numbers upfront, many of their documentation and funding processes will probably be equally outdated and cumbersome.
At American, we’re proud to be the only equipment financing company to understand that times are changing and customers need answers they can rely on right away. If you’re ready to get started finding the perfect commercial equipment to start or grow your business, you can get pre-qualified right away and receive terms in just 2-3 minutes.
