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/
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.
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.
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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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: 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.
As a company that has been offering financing on dump trucks and trailers for nearly thirty years, we’ve seen every possible credit profile. Ironically, the customers with personal credit issues have often been our best paying and longest tenured partners. Because of that, we have a passion for helping all credit types. Having an in-house finance program allows us to make loans for customers and ignore credit challenges when we know they have a thriving business, but how is it that we successfully place hundreds of dump truck loans per year even with outside lenders?
Over time, we’ve developed a tried and true method to getting bad credit, thin credit, and even no credit customers into dump truck loans and leases. This involves a simple five step approach that we train all of our representatives to follow:
Prior to submitting your transaction, we ensure that all of your credit obligations show current. That means if you’re late on a car payment or have a small open collection, we’d rather guide you to bring your accounts to a positive status BEFORE submitting your application to a lender. It’s not that we can’t get rolling stock financing approved with some minor credit issues, but by being proactive we improve the character profile of your application and improve the odds that you’ll score favorably whether we look at your transaction in-house or syndicate with one our outside construction lenders.
After addressing minor credit issues, the next biggest priority is coming up with an alternative structure to entice a lender to offer an approval. The best ways to do this include pledging a second dump truck, trailer, or other titled vehicle as additional collateral; providing a large (15% or more) down payment; being willing to accept a shorter term (like 24-36 months); and having a good credit additional signer willing to guarantee the transaction. To really sweeten the deal, having two or even three kinds of structure can make a finance company turn a blind eye to some credit hiccups, and can even result in a better rate or terms — even if you have less than perfect credit.
One common joke in the equipment leasing business is, “If I only had a truck…” The punchline is that owning a dump truck, or excavator, or dozer will automatically bring work, and that work will yield the money needed to make the monthly payment. The reality is that just because you buy equipment, you may not necessarily find a massive influx of revenue. Lenders know this all too well, for even some businesses with amazing work in progress and massive cash flows have gone by the wayside during slow times.
If you can provide some kind of proof that you have work in the pipeline – a letter of intent from a contractor that plans to hire you, a trucking company that will lease your unit on, or proof that maintenance on a dump truck that needs replacing is impacting your ability to do outstanding work now – the funding source will give some credence to future revenues. In general, the rule of thumb is that credit decisions are made based on what you earn now – not potential income – but lenders are also human beings with common sense and can connect the dots. If you help them see how you get from point A (buying the truck) to point B (actually making money hauling), you’ll score legitimate bonus points in the process.
We don’t mean this literally, but giving your representative an idea of your background and body of experience in construction and trucking, including how long you’ve had your CDL, and what kinds of work you’ve done in the past can always help. This is especially true for customers with limited time in business. You may not have a track record of success under your current business name, but you can show that you’ve had personal successes in the industry. If you really want to stand out, provide work references who can vouch for your level of service and commitment. All of these things help to address any potential character concerns that pop up when they see derogatory credit marks.
If you have poor credit (below 600), there’s always wisdom in finding a less expensive truck or trailer, or buying one instead of multiple units. You’d be surprised how frequently we have customers contact us to buy $150,000 dump trucks with a 500 credit score. In fact, for applicants in the poor and fair credit sphere, nearly 90% end up lowering their expectations and buying something less expensive, older, or in a smaller quantity than they initially anticipated. Don’t let this discourage you. Buying a truck that can immediately generate a return on investment gives you an opportunity to use increased profits to repair credit issues and results in you showing more cash flow. All of that ultimately means that when you next apply for financing, you will have better odds of qualifying for a more expensive hauler.
All of the above steps are ways to minimize the damage of negative credit. In truth, nothing can fully replace a track record of paying your bills on time. Customers with bad credit seeking dump truck loans will typically have to pay larger financing charges. Nonetheless, these contracts build commercial credit ratings and references that can be powerful ammunition in obtaining better rates, longer terms, and lower or even no down payment financing in the future.
Getting the best deal on financing for a dump truck, trailer, pup, transfer, articulated hauler, or other construction vehcile doesn’t have to be rocket science, but it does require thinking outside the box. Instead of focusing in on the best interest rate programs, customers should consider return on investment, and make moves to improve their future credit outlook. By knowing how to present the best package to a lender, you’ll already be a step ahead of the pack.
Financing a farm tractor is a really unique experience because most people who run a farm or ranch get boxed into one of two categories. Either A) you’re a large commercial outfit who produces for companies like Tyson or Costco; or B) you’re the little guy just raising your own chickens or cows.
If you’re in the ‘A’ category, companies like Ag Direct or Farm Credit can offer out of this world rates in exchange for a blanket lien on everything you own (including land and livestock). Let’s just say you’ll be lucky if they don’t ask for your first born. For bigger companies, this represents quite an opportunity cost for farm equipment financing – especially if you’re simply adding tractors.
If you’re the little guy, you still might be able to get in with one of these companies with a large down payment a really short term, and the same blanket lien on everything you have. Smaller farms and ranches usually strive to hang onto as much cash as possible to get them through harvest, making most big advance payments a non-starter.
So why do the major players in the farm tractor financing marketplace utilize these structures so frequently? That’s simple: because they want to turn their out of the box tractor leasing programs into captive financing funnels. You see, once a big company has a blanket lien, and once a small company has committed a large chunk of cash AND a large chunk of ongoing monthly revenues to tractor payments, they HAVE to return to the same lender for financing because they no longer have additional collateral to pledge or money to commit upfront to a new farm implement.
Farm tractor loans don’t have to be at the cost of pledging everything a farmer has. Moreover, for one man (or one woman) outfits looking to finance, they don’t have to be short term or upfront cost intensive. At American Leasing & Financial, we use a proprietary lending model focused on personal credit (even in the absence of commercial credit), cash flow, and time in business. What’s more: we interview every customer to learn more about their unique situation so that we can understand the return on investment (ROI) opportunity adding a tractor may yield.
For some of our customers, a single tractor may be overworked at more than one land site. For others, they need a larger tractor to cover more ground. We even help farms just getting started that need to add their very first tractor. The point is: when we have a comfort level that the tractor will help make a farmer money, we are able to structure simple, lightly structured farm tractor financing terms.
This approach also allows us to help those with credit challenges. Rather than asking for all of their money and leaving them strapped to make a payment, we might ask that they pledge another tractor as additional collateral. We can even structure their contracts with annual or seasonal payments to help take the bite out of a bill that comes in a non-revenue time of the year.
Getting the best deal on financing for a farm tractor doesn’t have to be rocket science, but it does require thinking outside the box. Instead of focusing in on the best interest rate programs, customers should consider return on investment, steering clear of captive financing traps. By knowing how much revenue you’ll net as the result of leasing or financing a tractor, you’ll already be a step ahead of the pack. Coming to the table with additional collateral to help answer back potential credit issues will also help.
At American Equipment Finance, we’re so passionate about farm tractor financing (and financing for farm trucks and other equipment and implements), that we actually created a special financing program just for farmers. Farm Tractor 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. We pride ourselves on offering flexible farm equipment lending programs, regardless of credit issues, for startups and established businesses alike. Learn more at www.farmtractorfinance.com OR apply now for an farm equipment approval in as little as 24 hours.
Rate shopping is an important part of seeking out financing. Understanding how much borrowing money is going to cost in both the short and long-term is key to making an intelligent, business-minded decision. Unfortunately, shopping for financing isn’t always about finding the best terms or rate. In some cases, people will shop for any possible lender who can get a deal done. Usually, these types of desperate measures were reserved for those who probably couldn’t get approved anywhere anyway, but recently a new form of this ‘shotgun’ approach has emerged.
Customers appreciate the ability to go to one place and get everything done. In a perfect world, a customer could go to their vendor to pick out the equipment, then get financed and funded, and make payments directly to their vendor as well. In the real world, it happens more like this:
1) Vendor takes a credit application
2) Vendor sends an application to their preferred lenders
3) If declined, vendor sends to alternative financing options
4) As a last ditch effort, the vendor might refer the customer to a brokerage house.
The problem with this scenario is, that many vendors are submitting transactions to multiple brokers rather than simply sending directly to funding sources. That is not to say that there aren’t good brokers. If there’s one thing I’ve learned from this business, it’s that there truly are professional brokers out there who know the business inside and out and can help their customers. The problem is that many brokers utilize the same funding sources. To understand why this is a problem, picture being on the other side of the equation.
Imagine that you are a loan officer at a bank, working in a department specializing in equipment financing. On a given day, you see a variety of applications, but on this day in particular you get bombarded by three different brokers with three different stories but the same applicant and roughly the same equipment. Each broker, when notified about the multiple submissions, is oblivious to the other brokers also working the deal. What’s more troubling is that the vendor is the person who submitted the deal to multiple brokers. Each broker then, in the course of trying to get the applicant approved, has submitted the customer to three or four funding sources a piece before converging at the same funding source before the loan officer now looking through the file.
This is a real scenario we encountered just the other day. Upon further investigation, it was discovered that the customer wasn’t even aware that as many as ten or eleven different lenders had reviewed their information. The moral of the story: customers need to ask more questions about where vendors and brokers are sending their applications. Utilizing the aforementioned ‘shotgun’ approach might expose the deal to more chances for approval, but it also raises red flags with a lot of lenders. For starters, it creates the impression that the customer is seeking out a lot of equipment at once. Because brokers package submissions differently, a more generic submission or a disparity in price could be incorrectly characterized as an additional ‘split’ transaction. Moreover, this strategy creates some doubt as to the credibility of the transaction and causes the lender to weigh statements from all of the brokers in making their decision, which can lead to an applicant being portrayed in an unfavorable light.
Lenders must have a permissible purpose to access a customer’s credit report per the Fair Credit Reporting Act. Most vendors and brokers use language in their credit release (next to the signature lines on the application) allowing this permission to be ‘assigned’ to the agents of the broker. Thus, when a customer signs a single application, their credit can be accessed by anyone who gets the application third hand and has the permission of the original party the customer applied with. The best way to prevent this from happening to require the vendor or brokerage to state in writing who they are submitting each transaction to. Don’t leave it up to them to simply ‘find a place that will approve you.’ Rather, take charge and ask to be involved in the process. Otherwise, you could be dealing with some red flags that will take a while to come down.