A: Yeah, I had one that seemed overall like a really good customer, but once we got down into some details, we ran into a couple different obstacles, but in the end, it ended up working really well for them.
A: In the beginning, the customer looked really strong on her PreQualification form that people fill out to get started with us at American. The form indicated that she had been an established business for 4 years, that she was a homeowner, had a 650 credit score, and her cash flows were really great. But, when I pulled her credit, I started to look at some details, and there was a bankruptcy that she had not disclosed that was right on that 7 year mark, which is the time frame when a lot of credit officers put less stock in something like that. She had about $160,000 in student loans, which was kind of a lot! We found out that her homeownership wasn’t showing on her credit, and that the Secretary of State showed that she was only a start-up. So, we kind of ran into these things that, when you look at the overall picture, she still had a 650 credit score, and she had like one auto loan, and those things still matched up with the PreQual, but the other little details were things that are things that you wouldn’t really want to see.
A: Yeah, so what ended up happening is that I just had to dig… I had to do a lot of digging in order to kind of figure out what was going on and get it pieced together. It’s really nice in our industry, since it is not necessarily just credit-based, that there is more of that story, and you have to look at the storyline to make sure it makes sense. We ended up looking more into it. With the bankruptcy, her husband had started a business right at the beginning of the recession, and things started to fall apart, and they just couldn’t catch a break. You know, that’s one of those things that you hear, and it makes sense – and as long as they rebuilt their credit and everything, we can work around that, so I got explanation for that one.
A: She didn’t disclose that the business had a previous owner at the 4-year mark. It was established in 2015, but she didn’t come in until 2016/2017, so I had to do a little more digging on the Secretary of State and find where the receipt was where she was put on as a member. We also had to have her husband sign on, because the homeownership was on his report, and the bankruptcy explanation she provided me, well, he was so tied into it, and he also had the auto loans that helped support her case, so we ended up having to bring him on as well. What ended up happening is that after we did the digging and found out those details that she didn’t necessarily disclose upfront, and we were able to back everything up, we were able to get her an approval that beat what we quoted her by a couple hundred dollars, and so it ended up working pretty well in her favor.
A: She was looking to get two aluminum vans, so just little box trucks, kind of. She was in the event rental industry, so I think that also worked in their favor. That’s one of those things where for the lender, with their portfolio, you don’t really see an event rental company looking for equipment all the time, so I know that kind of worked in their favor.
A: Once you have the explanation, and it makes sense, and they’ve rebuilt their credit, normally the credit officers that we speak with are really forgiving. As long as the customer is willing and cooperative with us, will give us a good explanation, and are really open and honest about their situation and how they’ve grown from it, we usually find that the credit officers are really forgiving. Really, the more open they are, the easier it is for me to get around the bankruptcies that show up on occasion.
A: Right! I mean, we are working in their best interest, so when they hide things from us, it doesn’t really help anyone, honestly. I’d rather know about anything that could show up upfront, so that for one, we save time – I get the explanation I need, get that extra paperwork, etc. rather than spend a day or two digging for it. If they give it to me upfront, I can find the solutions to get around it immediately, and then a lot of times it will end up that we’ll still meet the terms or beat them, they just have to be open and honest – don’t try to hide things because they’re going to come to light regardless… we’re going to find the things.
A: Exactly.
A: Yes! She was pretty happy with the payments since we were able to lower them from what we had originally quoted, and she was able to get the equipment they were wanting.
Next week we will check in with another one of our finance officers for another Q&A session. Stay up to date and learn more from our valuable resources at www.AmericanEFS.com/The-Bottom-Line
A: Yeah, it was a situation where not only were they trying to get it done quickly in order to obtain the equipment and make the purchase before 2018 was over for tax purposes, but that also meant they were trying to do that during the holiday season, in which they were going out of the country to England to spend the holidays with their family.
A: It’s a once in my career of being here in which I’ve had those two situations occur at the same time.
A: It was a little bit over a week before January first when they initially pre-qualified in our system.
A: This was a dump truck… It was titled, so it takes longer.
A: Keeping in mind that they would not be in the country, it made it a lot better knowing that I could be in control of the process for them. I was dealing with the lender and the dealer, and working through everything that we needed. I made sure that I got everything I needed from her up front so that when it came down to it, really all we needed to do was get docs signed, and have her brother-in-law pick up the truck.
A: Yeah, and having the ability to take the processes over for them.
A: Well, so like working out their insurance and stuff like that. It was all things that I got from her ahead of time so that when as soon as the deal got to a point where we were ready to go I had called her insurance, and worked out everything they needed from a policy standpoint so that all they needed to do was confirm it with the customer that the policy was going to change to ‘x’ and once they got their approval from that, it was done.
Right.
Absolutely. I mean, granted, they knew that they wanted to get a lot of things done before the end of the year, and I knew that they were leaving town early, so I had to set a little bit of a sense of urgency with them, but ultimately, they were very helpful in getting me what I needed to make sure it happened.
I was. We got it funded on December 30th, I believe.
With time to spare.
Yes, everything went smoothly, and they were glad that we were able to get it done before the start of the new year.
Next week we will check in with another one of our finance officers to continue to give prospective on how we are able to help customers just like you! Stay up to date and learn more from our valuable resources at www.AmericanEFS.com/The-Bottom-Line
A: This was a repeat customer that came my way who had challenged credit… Probably not your typical C-Credit – strong cash flow and tax returns. 561 and 577 for credit scores. Not only that, but they operate in the logging industry. The logging industry can be tough. Essentially, a lot of places don’t like to work with logging as much. With a low FICO score along with working in the logging industry, we knew we would have some trouble.
A: Our funding sources don’t always want to fund that industry. We do have places that will, but if it’s outside their credit guidelines, they will be more hesitant to take that on. You have to find the sources that will look at someone where the credit is poor, not terrible, and in a restrictive industry… We really have to look at a more limited list of people that will work with all of these factors, and that are more cash-flow based. The equipment was also non-titled, which some of these specific funding sources prefer. Strong cash flows and non-titled equipment made this a good look for a couple of these more niche sources.
A: Putting together the financials was a hurdle we had to get over. They didn’t really have an accountant that dealt with some of the specific items that we usually grab in these cases, so I had to get together with someone over there who wasn’t as versed in finance, and walk her through what a balance sheet is and an income statement. She was able to do those on QuickBooks and send them my way, and they were pretty strong – they looked good. When it comes down to say, challenged credits… Credit can be one thing, but financials can be another. Some businesses are more cash-based rather than credit-based.
A: That’s a good question. I think it’s because it holds it value better. You’re talking about, say, trucks, on the other end of the spectrum. You put a lot of miles on them and the equipment’s value seems to depreciate a lot faster than, say, a 1996 John Deere Skidder, which will hold it’s value a lot better than a truck would, or a trailer. That’s why we had a little bit more wiggle room with someone that’s a C-Credit, or D-Credit.
A: They had to put down a more significant security deposit – maybe $16,000 or $19,000 down on a $42,000 piece of equipment. You have to be upfront with the customer on why some of these initial costs may be higher than average, but that we’re doing everything we can on our end to get it done.
A: Yeah, that’s a good way to put it. It was taking around a week or a week and a half to find an approval on this one, and the customer was starting to get nervous. I just had to assure them that we were working hard and weren’t giving up until we knew for sure what we were able to do on this deal.
A: Yeah, we were able to get her the equipment, and she left us a pretty good review when it was all said and done. With situations like this, when you can overcome a lot of the obstacles, it can feel like a great relief when it closes out in a positive way.
Next week we will check in with another one of our finance officers to continue to give prospective on how we are able to help customers just like you! Stay up to date and learn more from our valuable resources at www.AmericanEFS.com/The-Bottom-Line
A: This customer had a credit score of 544 and a revolving available credit of only 21%. She didn’t have first-hand experience in the logging industry, which is the industry she wanted to get into. She did mention that her family has been in the logging industry for decades, but she didn’t have any experience. However, she did have the right attitude and the motivation to get started in operating her business. Everything I asked of her she would provide within a couple hours!
A: Sure, we have a lot of customers who apply for credit that have no experience in their prospective industry and have poor credit. Often times, we aren’t able to get them approved so it is a bit of a challenge when we do get those customers.
A: The main reason her score was so low was the high revolving credit debt. She had some other factors that were positives, which was great, but that high revolving credit debt really brought it down.
A: It does limit us on offering better financing for challenged credits when they are in the process of opening up their business. She was also trying to finance a piece of equipment which automatically landed her in one of our programs that requires 50% down, which is one way we are able to provide financing for start-ups that have a personal guarantor with poor credit.
A: We sent the application to our preferred lenders for this program, and all of them declined except for one. In the end, we were able to get the customer approved with better terms than what we had quoted.
A: Customers should be aware of the commercial loan process, and how different commercial lenders can help. It IS possible to get an approval with challenged credit but does require a heavier down payment. Be ready for that when you are starting your search.
A: She was able to get her machine so she could start generating revenue for her new business. Once things start picking up, she can quit her full-time job and start focusing more on her business… and have the freedom to do what’s important to her which is caring for her newborn. The payment did seem high to her but she realized that she was going to make almost 20 times more in revenues so it was a no brainer to her.
Next week we will check in with another one of our finance officers to continue to give prospective on how we are able to help customers just like you! Stay up to date and learn more from our valuable resources at www.AmericanEFS.com/The-Bottom-Line
As a company inundated with requests for semi truck financing – there is one overarching question we get all the time. Why American?
After all, a simple Google search of semi truck financing companies reveals that an owner operator can find financing options galore. What’s more, most dealers who sell class 8 trucks and heavy trailers also offer in-house financing or manufacturer financing options from companies like Daimler and Paccar. What makes us most unique is that we pride ourselves on being a ‘one stop shop’ for semi tractor financing – a single firm that caters to all different credit types, allows you to buy used, and understands the unique needs of owner operators versus fleet operators.
Years ago, I had the opportunity to sit down with a respected local dealer of over the road trucks. He explained that he was constantly frustrated by the programs available to truckers because of the so called ‘funding gap.’ The funding gap is a huge middle of the road space where there are no viable options for good credit owner operators that fall just shy of qualifying for bank rate programs, but who are over qualified for the high-rate, large down payment offerings of many asset-based lending alternatives. At the time, the market was saturated with funding sources happy to occupy either extreme, but with no one willing to work the middle.
American understands that owner operators don’t all belong crammed into one program. Our semi truck financing programs evaluate industry and driving experience, savings and cash on hand, homeownership and other metrics that help us place middle of the road customers into a fair program where the structure and terms more accurately match the risk inherent to the deal. What that means to our customers is we won’t place a 660 credit score customer who shows good experience and reserves into the same program as a 400 credit score first time owner operator. It also means we are able to offer financing options that help owner operators build their fleets over time, and graduate from starter programs to better terms as they improve their personal credit, cash flow, and commercial pay history over time.
American Equipment Finance understands that there are a lot of options, but as a direct lender that has in-house financing programs alongside two dozen outside funding source relationships, we are very often the only option a driver needs.
Many manufacturer and bank programs restrict what semi truck an owner operator can buy. They require a truck be either physically on the lot, of a certain make or variety, or be new (or relatively new). American finances new trucks, but what really sets us apart is our willingness to finance used semi trucks and trailers. Not all trucking applications require a brand new truck, and most of our customers have figured out that you can make the same gross revenue with a used truck as with the more expensive new one. Moreover, while many manufacturers offer 0% financing and other seemingly attractive options, customers are wising up to the fact that these companies make all of their money on markup in the price. Thus, a 15% financing option on a used truck can often pencil out to be cheaper than the 0% option on a new truck, such as in the below example:
New truck sale price: $135,000 Used truck sale price: $55,000
Sticker markup on truck at dealership: $6,000 Depreciation in year one: $4,800
Depreciation in year one: $29,500 Interest expense in year one: $6,550
Interest expense: $0 Total costs of ownership in year one: $11,350
Total costs of ownership in year one: $35,500 Market value of asset after year one: $50,200
Market value of asset after year one: $99,500
Since most of the depreciation is front-loaded when an asset is newer, many used trucks retain more of their value over time and require less time to payback. American gives truckers the flexibility to buy new or used, and for better credit profiles, we can finance trucks that are 15, 20, or even 25 years old.
American helps owner operators in ways that go beyond just providing a simple truck loan or lease. We help with financing for APU’s, engine rebuilds, and even fabrication projects such as converting a daycab truck to a dump body or adding a drop axle. We have programs where your down payment goes entirely to the dealer to help reduce how much you borrow, and offer terms as long as 60, or even 72 months for certain newer truck models.
Once of the key ways that we can be competitive is through our Build a Fleet program. American allows a customer with twelve on time payments to come back to finance a second truck – while most competitors require you to payoff your first loan before you can qualify for more funding. Thus, by the end of a four year term, a customer can be operating a three truck fleet. We believe in transportation customers and recognize trucking as the backbone of the American supply and logistics chain, and in many ways, the backbone of the entire economy.
American Equipment was formed when two companies that had already been in business for 30 years decided to get together, combining speed and technology with customer-first values. We put owner operators first from the time we receive an application until your final loan with us is paid in full. So, yes, there are a lot of semi truck and trailer financing companies in the market, but there’s only one American Equipment Finance. While anyone can lend money for a truck purchase, the ability to provide flexibility and service have consistently made us the premier truck and trailer financing company, and the choice of dealers, private sellers, auction houses, first time owner operators and large commercial fleets – not to mention truck listings companies like Commercial Truck Trader and Trucker to Trucker.
We’re here to prove semi truck financing doesn’t need to be complicated to cater to the needs of our customers. We’re American and we’re in this for the long haul.
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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: It was a new business enterprise which can be more difficult for other lenders. In this case, the customer was a well-seasoned entrepreneur looking for $160,000 of capital to fund his entire equipment acquisition. When you’re looking at lending for a more risky profile, like with new businesses, there are a lot of variables that will give other lenders pause when reviewing an application like this.
A: No, everything ran smoothly, as our processes are well-equipped for moving along in a timely manner ~ even with applicants that fit a non-traditional profile.
A: We were able to provide the $160,000 of capital to fund his entire equipment acquisition, and provide the opportunity for another business owner to live out the American Dream!
A: Don’t be discouraged by certain lenders turning you away if you are new in business. Different lenders have different areas of focus… one size does not fit all! Keep looking, and be ready to share details about your business ~ tell your story! You may be able to find a lender that is right for you.
Check back in a couple weeks as we talk 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
A: Yes, I would certainly say that this customer fits that mold.
A: There were actually multiple aspects of the overall credit package which might cause other lenders to stumble. The customer had lots of industry experience but had only had a business of his own for a limited time. The equipment was very soft collateral. In addition, the equipment is rented out and would be moved around from location to location. Finally, the company had made a lot of investments recently and was thus showing a loss on their books.
A: No, not really. We were able to wrap up an approval in less than a day after receiving the full package, and we moved as fast as the customer and vendor could provide information needed for closing on the financing.
A: We listened to his whole story and were able to get comfortable with his overall situation based on his experience, connections, understanding of the industry, and equipment and the like.
A: When you have an opportunity to grow and expand your business that truly makes sense, find someone who will actually listen to your story and will consider all strengths and weaknesses in an effort to help you overcome any potential roadblocks or shortcomings. Then, share as much detail as you can with them to help them understand why you are a good risk. If you don’t already have a relationship with someone like this, please give us a call!
Next week we will check in with another finance officer to continue to provide you with insight in to our processes. Stay up to date and learn more from our valuable resources at www.AmericanEFS.com/The-Bottom-Line
A: The customer had told us when we first talked that he thought his credit score was well over 700, and when we ran it, it came in at a 590.
A: Sure, we have a lot of customers who overestimate their credit score, but the reason this one stood out is they had all of the signs of a solid transaction – lots of credit depth, they were homeowners (actually owed two houses), had lots of cash flow, and just in general paid their bills on time.
A: The credit scoring models are finnicky at times. Often, a late payment on something right now can negate years of positive pay history. In this case, a bank error led to their payment being applied to the wrong account, and they were reporting 30 days late on two separate auto loans with the same institution. The only thing worse than being recently late is being currently late.
So, you have a customer who always pays his bills on time and for years has considered himself a 700+ credit guy reporting over 100 points lower than his norm. It was a big shocker.
A: Well, unfortunately, credit score is something we can’t look past completely. It’s always a factor. Thankfully, however, we have built a business on helping customers with non-traditional profiles. While we can’t outsmart their credit score, we can look at other factors to get around credit issues – especially when they don’t really represent the character of our applicant.
A: For starters, when we looked at their business credit history it was nearly flawless. This helped show that the late payments were incidental and not indicative of the quality of the customer. Then, we set the customer up with a small security deposit to help overcome any worries about risk or short-term cash flow. Lastly, we had them show proof they were current on the accounts now. Their bank even provided a letter promising to update their payment history. In the end, even though the credit score said 590 – we were able to show that our customer was a 700 guy.
A: Customers should always be acutely aware of their credit history – it’s way more important than just monitoring their score. Most consumer-driven scoring models like the ones offered for free across the web are NOT FICO scores, so they are not the same ones we as lenders use to evaluate credit. The big surprise isn’t that we might see a lower score than you do – it’s that the customer may not realize something is reporting late (whether correctly or incorrectly). Using a good monitoring service and accessing a credit report about four times a year helps safeguard against mistakes.
A: The Federal Trade Commission ran a study a few years ago that demonstrated 21% of customers had a mistake on their credit report. That’s about 40 million Americans, and what’s more, customers who apply for credit more than twice a year are about three times more likely to have a material error on their report. We find that business owners are much more active with their personal credit and tend to fall in that category more often than not.
A: He was able to get his new tow truck, and all is well. As much as I’m proud we were able to work with him, his willingness to work with us on putting a structure together that made sense for the underwriters was the most important ingredient in our successful outcome.
Next week we will check in with George Vandel in our Sioux Falls office. Stay up to date and learn more from our valuable resources at www.AmericanEFS.com/The-Bottom-Line
A common question that comes up with nearly all of our customers is, “Why choose a non-bank lender?” After all, banks have access to the most inexpensive capital, in theory have no limits on how much they can lend, and have all of the resources in the world to make borrowing money both fast and simple, right? Like most theories, it is feasible, but in practical application doesn’t usually work for most customers seeking machine tool financing. Here’s why.
Banks like liquidity – that is lots of cash on hand. Most machine tool financing transactions are with customers that by design do not have a lot of cash on hand. Machine shops are one of the most receivable intensive categories of customers we lend to, meaning their balance sheet is way more likely to show a large accounts receivable balance as opposed to cash reserves. If you think about the logic behind how a shop full of machine tools operates, it’s easy to comprehend why. For starters, machine shops often need to make a lot of product in advance of being paid. This means they have to expend cash on materials and inventory with a long lead time to create finished product, and even longer set of terms before they can receive payment in full.
Besides wanting to see cash on the balance sheet, banks also like to touch it. In other words, for older machine tools expect to see a down payment requirement of 10-20% easily. That means you’re no longer just vying to get an approval by demonstrating liquidity, you’re actually risking your liquidity and giving up access to vital working capital you may need to produce product just to obtain financing.
Alternative and non-bank lenders finance machine tools based on the value of equipment and potential to earn income, not just on a strong balance sheet. That means if you buy something like a horizontal machining center or CNC machine that has a strong intrinsic value, you have an easier path to financing even if your current cash flow isn’t particularly strong. Machine tool loans are very desirable for a lender, because there’s a huge market for resale of the collateral and the equipment tends to depreciate very slowly, unlike, say, a used truck on a piece of construction equipment.
In a business completely built around production deadlines, it’s easy to understand why it’s important to cut down on the turnaround time from selecting a machine to implementation of a tool in the shop. According to Business Money Today, the average bank takes around 45-60 days to process your commercial loan application, and that’s assuming you provide everything they require upfront. With the average lead time of a machined product being 30 days, shops could see as many as two product cycles go by without being able to access their lathe, press, or other machine tool. The lost productivity alone is probably more than the interest savings over the life of the loan they’d gain by choosing a bank.
Our average turnaround time for most machine tool loans and leases is just ten business days from application to funding. Moreover, with our creative purchase order and prefunding arrangements, we’re often able to get a vendor to deliver a machine tool to our customer even prior to funding, cutting down on losses in productivity.
When customers first apply for a machine tool finance transaction, we usually expect to hear questions about rate and terms. This is because customers have been programmed to ask the basic question: “What’s the interest rate?” What’s particularly jarring about the campaign to cram customers into one line of questioning is that it’s a dishonest way to ask customers to evaluate a deal. ‘Rate’ is calculated in five or six different ways, whether it’s buy rate, sell rate, per year yield, APR, simple interest rate, payback as a percentage of the loan, or some kind of rate factor, none of these numbers tell a customer anything tangible about a transaction.
So when a bank offers a ‘low rate,’ we always ask the customer to consider the tangibles. Will they report to your personal credit? If so, have you considered that this may leverage your credit personally, keeping you from buying a new car or refinancing your home? Will they file a blanket lien, essentially encumbering all of your business and personal assets in the process? Will they cross-collateralize against your bank accounts, giving them free reign to transfer money from your checking account if you ever fall behind on payments?
Financing with an alternative lender ensures you still have access to credit exposure with your bank personally and commercially, allowing you to use bank funds for operating expenses and working capital, items that are more capital intensive over time, and that don’t have offsetting, predictable return on investment metrics. Buying inputs for a run in your machine shop is a recurring priority that you’ll need your bank relationship for, so it makes sense to use an outside lender for capital expenditures like adding a new press brake or mill.
Banks are set up very differently than in house machine tool financing programs. They are designed to protect a very narrow credit window by ensuring you fit inside every box. Our machine tool financing programs, contrarily, are designed to find ways to include customers conventionally excluded by most mainstream lenders. This includes unconventional profile customers seeking a machine tool loan, including:
Being philosophically programmed to build creative structure around transactions to offer approvals that banks can’t gives us a major advantage in the B, C, and even D credit spaces, but we often find ways to help our A credit customers when the bank drops the hammer due to their lending policies.
Not all banks are created equal. Some can and do approve machine tool deals at decent terms. Understanding that banks might require you to sacrifice time, leverage, and operating cash can help you weigh the decision of how best to proceed – especially knowing that a lot of banks end up saying no when the process is all said and done. Nonbank lenders are eager to compete for your business and will be more willing to make exceptions that banks cannot, while still giving you the flexibility to utilize your bank exposure for daily and monthly recurring operating costs.
At American Leasing & Financial, we’re so passionate about machine tools (and financing for machine shops and their tooling needs in general), that we actually created a special financing program just for machine tools. Machine Tools Finance.com is a niche funding processor backed by two dozen boutique funding sources and banks, as well as our own in-house funding arm American Leasefund. We pride ourselves on offering flexible cnc, mill, press, and other machine lending programs, regardless of credit issues, for startups and established businesses alike. Learn more at www.machinetoolsfinance.com OR apply now for an easy approval in as little as 24 hours.
This experience has given us some serious perspective on the challenges facing equipment-intensive industries like construction and logging. Consider this: logging companies often need an average of four pieces of heavy equipment compared with two needed for most construction niche or trucking companies. Forestry operations are process oriented businesses and the most successful companies are ones who can handle multiple phases of that process – from cutting and felling, to forwarding, delimbing, and processing. In fact, many logging companies even specialize in transporting logs and chips to mill with their own log trucks and trailers.
What this need to specialize in multiple processes creates, however, is the need for lots of equipment. With excavation companies, a single excavator is usually enough. With pavers, they can get started with just a single paving unit. Brand new logging companies, on the other hand, usually need a loan for a feller buncher, skidder, and log loader just to have the basics. It’s not uncommon, therefore, for us to receive daily requests from loggers for $200,000 in equipment just to establish a new venture. Over time, this serious need has caused us to train our representatives on the basics of how to help our newer forestry industry customers get on the right track to smart growth.
Logging equipment is used in some of the toughest terrains in the world. Because of this, it’s understandable that lenders and customers alike are averse to buying exceptionally old machines. Because we have no age restrictions on logging equipment, we like to counsel customers to pursue a happy medium between brand new equipment and older, but still valuable equipment. The reason for this is simple: a newer harvester (provided it has the same mechanical capacity) makes a logger no more money than an old one. It can be tempting to buy something shiny and new, but if you can find a good, low-hour feller buncher, or better yet a feller buncher that was part of a well known companies fleet (and subject to a high standard of maintenance), you’ll be better off because of it. Consider this: a $50,000 feller buncher will cost a customer an average of $1,600-$2,000 a month. On the other hand, a $150,000 one will cost between $4,800-$6,000 per month. That savings, over the course of four years is as much as $200,000. If you are mechanically inclined and have the ability to maintain a solid piece of used equipment, the savings are well worth it. What’s more, most lenders don’t like to lend hundreds of thousands of dollars to a startup logging company. Choosing a more budget friendly used machine will make it substantially easier to qualify.
A lot of loggers pursue financing with just enough money for their first month’s payment and documentation fees, but never consider that there are too many things that can go wrong to operate on such a tight budget. For wage earners looking to turn a corner and start their own venture, we advise saving a cushion of around six months worth of working capital to cover expenses like equipment payments, insurance, potential maintenance and repairs, fuel, and payroll. Having reserves not only improves your practical odds of success in a very competitive forestry world, but also makes you less of a risk to a lender. Without a track record of success in business, the only way a logging finance company can judge your chances of being profitable are your personal credit, work experience, and cash on hand. If you can alleviate on of the biggest concerns by showing a nice rainy day fund or savings, you’ll make your finance or leasing officer’s job much easier.
Most logging companies, assuming the owners have good personal credit, can qualify for around $100,000 in equipment financing. That’s a far cry from what most of them want day one. If you can lower your expectations and choose equipment that will get you by and allow you to begin generating revenue, you can always upgrade to bigger and better equipment in time. Our rule of thumb is that most owners should begin to build real equity in their equipment about 50% of the way through the term. If you finance on a 60 month term, you can probably start thinking seriously about buying something else 2 1/2 years through your lease or loan term. Logging equipment finance companies are real sticklers about customers biting off more than they can chew, but business owners who opt for slow growth can win the hearts of underwriters and demonstrate genuine business savvy – the kind that turns startup companies into success stories.
Obtaining logging equipment as a startup in the equipment intensive forestry world can be challenging, however, customers who aren’t afraid to buy used equipment, can show working capital and reserves, and who don’t mind buying less (or at least less expensive) units are bound to be more successful in their pursuits.
At American Leasing & Financial, we’re so passionate about logging equipment financing (and financing for log trucks and trailers), that we actually created a special financing program just for loggers. Logging Finance .com is a niche funding processor backed by two dozen boutique funding sources and banks, as well as our own in-house funding arm, American Leasefund. We pride ourselves on offering flexible forestry equipment lending programs, regardless of credit issues, for startups and established businesses alike. Learn more at www.loggingfinance.com OR apply now for an logging equipment loan approval in as little as 24 hours.
