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
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
