Of course the big news was the failure of two Silicon Valley banks. Although looking at the reasoning and details, this is far from a crisis, and more of an unfortunate circumstance (overly simple explanation = rising rates made the bank’s safe investments not worth as much short term).

But for me, the more noteworthy part was what happened in March’s Federal Reserve meeting. The Fed ended up raising rates again. Of course, it was a small increase (25 basis points), but it signaled some interesting thoughts if you’re into reading the economic tea leaves: banks in general are just fine, and they are NOT going to back off trying to tame inflation.

Think about this – the two bank failures were at least partially attributed to rising rates. And the Fed’s response was akin to “yea, it’s unfortunate for these two, but it happens. Now, about inflation….”    

In other words, the Fed obviously feels it was a perfect storm of particular investments and widespread withdrawals that contributed to these failures, and it’s more an anomaly than a trend. 

The second thing is, even with the talk of “maybe they should back off” the fed essentially said “nope, taming inflation is too important” (I am embellishing and paraphrasing of course. Nobody said these things. But the actions make this conclusion a pretty logical one.) 

I’ve been saying for a year now that rates aren’t going to return to previous 2021 lows for a long time, and this cements my belief further. I do feel we might be getting close to peak rates, but I don’t see cuts for quite some time.

Now that I’ve done rates to death, let me discuss one other thing – the talk of a possible recession…. 

I don’t know about you, but I’ve been hearing this for an entire year now. I’m beginning to think this is going to be a perpetual thought in our 24/7 social-media-driven news cycle, and people say it just to say it. As I’ve alluded to in a few recent posts, demand is still here, people still want goods and services, and the jobs outlook continues to be strong – there are more jobs than workers to fill them. I think we’re going to level off nicely, without a recession. 

So in the end, my outlook is considerably brighter than the news. Maybe you should come here more often!   

All too often, companies enter into financing and leasing agreements with all kinds of draconian covenants and restrictions in the fine print. These restrictions (like blanket liens, minimum bank balances that must be kept, and requalifying for the loan annually) can severely limit a company’s operations, and yes, cedes control over assets to the lender. 

Here’s the thing with these restrictions: they are there to protect the lender, and allows them to offer a lower rate than a lender that doesn’t have restrictions. For example, a blanket lien ensures that if a borrower defaults, the lender can come in and “sell it all” to recoup their money. 

So today, in late 2022, when rates are rising, it’s likely that many borrowers are going to look a little harder at the rate. But I PROMISE you this: the lowest rates you find will also include these restrictions. So please be aware of that. 

Your credit score won’t matter, and your relationship with the lender won’t matter. It’s lending algorithms – the lower the rate, the higher the restrictions. It’s the way the lending industry works. 

To give an example, my company, Crest Capital, does not include these types of restrictions. And we can do this for two reasons: we only lend to good credit companies in stable industries, and our rate, while near the bottom, is not THE bottom. And while we’re not for everyone, our customers find our rates and terms very favorable to how they want to operate. 

The bank will have a lower rate, and they’ll want control over your assets in return. Is that a good trade-off? That’s not for me to answer. But in this environment of rates going up, I do feel the need to post this and make companies aware of the relationship between rates and restrictions – the lowest rate will always have the highest restrictions. 

Many predicted these hikes, and if comments by pundits and economists are to be believed, rate hikes will continue for the foreseeable future. 

That said, rising interest rates are not all doom and gloom. In fact, savvy companies can make it work for them. And that’s because, all else being equal, the Fed raising rates works both ways. Yes, you pay more for the money you borrow, but you also generally earn more on your money in the bank. 

Note: I do realize the “value of a dollar” factors into things in a big-picture sense, but this would be true regardless of where your money is, so I prefer to focus on raw numbers – the number you pay out, and the one you get paid. 

This can work well for you in several ways, and honestly, it mixes quite well with equipment financing.

Locking in fixed-rate equipment financing now (while keeping your own money in the bank) can work out well when rates go up. Not only are you already locked in at a lower rate on your payment, but the money you kept in the bank is now earning more. This could be substantial as the dollar figures (and rates) rise, but at any level, paying a lower rate out while earning a higher rate in has no downside.

This also works very well with Section 179. If you take a full deduction, the money from the tax savings stays in your bank account. As rates rise, just by sitting there, that money works harder in a raw numbers sense. I realize some companies may still like to depreciate annually, but in a “rising rates” climate, many will feel it’s more advantageous to take it all in one lump sum and let those higher rates do their thing.  

Rates going up are not smiled upon by businesses, but they are an unavoidable fact of life right now. And with a little planning, you can definitely make this work better for you. 

Lock in low, keep your own money in places that get higher rates, take deductions, add the deduction money saved to the “keep” pile, and keep reading The Lease Guy! 

When lenders finance equipment for customers, there is a concept called PMSI. I want to spend this blog explaining what it is.

To start, PMSI is an acronym for “Purchase Money Security Interest”, and is very important for lenders, especially those who finance equipment purchases.

Essentially, what it means is the lender who pays for the equipment has first claim on it in a loan default / repossession scenario. For new equipment, as long as the financier pays the equipment vendor directly and files a UCC within 20 days, PMSI is automatically established. This is how most equipment financing deals work – the lender pays the manufacturer for the equipment directly, and the customer pays the lender back.  

This is very important in business. If you’ve read this blog over the years, you know I talk about bank loans and blanket liens quite often. The purpose of PMSI is to help protect lenders against future liens (such as blanket liens). So even if a bank throws a blanket lien on a company, the original lender still has first claim on the particular piece of equipment they funded (which is the way it should be.)

There are a few instances here, however, that sometimes need further time and work. The first one is the type of deal where a borrower actually pays the vendor for the equipment, and the lender immediately reimburses them. Ideally, PMSI works the same way, but the burden of proof shifts to the lender to say “we paid for that equipment indirectly”. This is usually not a problem assuming the equipment is new (all it needs is perhaps another form stating that the funds were used to buy the equipment, albeit indirectly, along with original paperwork and evidence of payment.)

But in the case of used equipment, it can get sticky. This is because previous lenders may have already established PMSI and/or may have blanket liens, and nobody can be 100% certain the piece of equipment is “clear” of liens. There is risk involved for the buyer because the buyer may not actually have clear title (that’s why most lenders simply will not loan on used equipment because the buyer can’t always prove clear title is being passed by the seller). This is easier when the seller of the equipment is the original owner, has an original bill of sale, has no liens, and the buyer is going to become the second owner. Or the equipment is a titled vehicle – that’s easier to trace former liens as well (note: I’m repeatedly using the word “easier” here, but the examples above are still more work than a straight “buy new” deal).

Lien issues can get really complicated when the equipment has had multiple owners, or the original bill of sale cannot be procured. This takes a lot of work (and increased costs) to try to figure out if the equipment is free of liens (and no one can be 100% sure). There are too many steps to go over here, but let’s simply say it can take days of waiting for answers, and be costly in the time spent.

UCC filings are more complicated than meets the eye. And 100% of the risk is ALWAYS the buyer’s burden (the lender is not responsible). Lenders may attempt to assist the buyer in order to better protect their loan with a first position on the collateral, but identifying and releasing any liens are the responsibility of the seller. Caveat emptor, buyer beware when it comes to used equipment.

True story:

Once, at a trade show, I was talking to the owner of a regional retail/service chain (12 stores in all, plus a small warehouse) about soft cost financing. We got to talking about “training”, because that’s one of the soft costs that a good equipment financing company will finance.

He told me he bought a fairly robust point of sale system, complete with shipping and inventory features. But the bank wouldn’t finance training (they didn’t even finance the entire price, but that’s another story), so he instead went with the included bare bones one-day seminar, and not the week long, hands-on training option.

The result was while the system was easy enough to pick up at basic level, key advanced features were glossed over. One such feature was real-time inventory (as opposed to the daily/weekly/monthly reports they ended up using for the first year.) He estimated that simply using this advanced feature from the beginning would have resulted in more efficient ordering and inventory turnover. In short, learning about this would have paid for itself. If only the bank would have agreed to add training to the financing…

If it’s available, financing training with any equipment purchase can be a very smart move. Obviously, not everything you purchase will require training, but for computer systems, point of sale systems, some more advanced machines (like CNC Machines), financing training can be a very cost-effective move. Especially since the cost of the training is stretched out over years – for most deals, adding training to monthly payments amounts to a few extra dollars, which makes it a no-brainer.

An addendum – we helped my trade show contact with financing other products, and the “deal closer” was the fact that we financed soft costs. It makes those extras and add-ons very attractive, and easy to buy. So whether it’s maintenance agreements, training, or other soft costs like delivery and setup, a good equipment financing company will happily include it in any deal.

I’ve recently written about the strong small business economy, and improving your company. But I realized my thinking was somewhat limited in what I was suggesting.

For example, I was discussing adding machines, trucks, etc., and combining such with equipment financing and Section 179. Now, while those are perfectly good ways to improve your business, a strong economy, combined with excellent equipment financing rates and a robust Section 179 deduction can mean improving your company in some less “obvious” ways.

To give an example, is your business one that has a waiting area, either for customers or corporate visitors? How is that waiting area looking these days? Can it use some freshening up? I’ll bet it can, because a waiting area is not something that is directly tied to revenue, so it doesn’t get thought of very often. Yet it will influence how your company is perceived, and ultimately will be reflected in the bottom line (albeit indirectly.) Some new seats, couches, and televisions / vending machines can make a big difference, and right now is a great time to do this.

Conversely, your company’s exercise area (if you even have one) is a place that could probably use an update. And if you don’t have one, now is the perfect time to put one in. Study after study has shown this not only helps in overall employee happiness, but it also has a positive effect on your employees’ overall health. And happy, healthy employees better contribute to your bottom line.

Employee lounge / break area / cafeteria – again, these are areas that don’t directly tie to revenue, so sometimes they get pushed aside. But these are great company upgrades to make when revenues are strong and equipment financing rates are low. Plus, most of this equipment qualifies for Section 179, meaning you can deduct the entire cost.

So yes, improving your company doesn’t always mean buying new production machines. An exercise room and a vending machine (that hopefully sells healthy snacks) are improvements that can pay dividends for years.

Here we are in 2018, and you know what that means: another edition of Fletch Predicts!

I always do sports, and I was on a roll for a while. I predicted basketball and baseball right in 2016, and then I nailed the 2017 Superbowl – three in a row! Things were really looking up, but then I crashed back to earth, and haven’t hit on anything since. But that never deterred me – let’s get to it for 2018.

Starting with the Superbowl – there are a few teams that look strong: you have the Patriots, who are always there. The Eagles are surprising, and they may have an old NY Giant vibe, when a backup quarterback named Jeff Hostetler led them to a Superbowl win against the Bills in 1989. Can Nick Foles do the same for Phili?

But I’m going with an unconventional pick. I like the Minnesota Vikings to become the first team to play the Superbowl on their home field. They will play the Pittsburgh Steelers in a rematch of the first Superbowl a young Fletch watched start to finish! And this time, the Vikings will win!

Hockey – to me, that’s the hardest sport to predict, because it all depends on momentum and the hot goaltender. Right now, the Tampa Bay Lightning look very strong. Let’s go with them.

Basketball… I like the Houston Rockets to make a big leap, and grab the title. They will play the Celtics in the finals. LeBron finally gets to rest in late spring.

Baseball – all NY Yankees, all the time. They already had a modern day Murder’s Row brewing with Aaron Judge and company, and adding Giancarlo Stanton to the mix may just set a record for home runs in a season. It should be fun if you’re a Yankees fan, and, of course, for you Yankee haters, there’s more to hate!

Now that sports are done, let’s go into the economy: As you know, H.R.1, The Tax Cuts and Jobs Act, recently passed, and while the full effects on everyone won’t be known for a while, I like it for businesses, and I do see a steady economy for the next year. The business climate is quite good, and confidence is high, so that always helps. 2018 should be a good year for most industries and companies. And Section 179 will be there all year, sitting pretty at $1,000,000, thanks to a nice bump from the above-mentioned bill.

I’m not sure what to make of the Bitcoin phenomena, and I can’t pretend to even fully understand it, but it and other Cryptocurrencies deserve watching. This is on my “need to know” list for 2018. Put it on yours too.

Last year, I thought Virtual Reality would make big strides, and gaming companies like Microsoft and Sony proved that prediction accurate by embracing that technology in a big way. I also thought 3D printing would be more mainstream, but it hasn’t quite caught on as much yet. But it will – it’s inevitable.     

So there you have it – some predictions for 2018. I hope you had a great New Year, and are ready to hit the ground running!

Every year or so, I do a “what’s hot in equipment financing” post, typically followed by a “what’s not so hot in the world of financed equipment”. And in these posts, I highlight industries that are rising / falling, based on what I see in equipment lease applications.

This year will be a bit different. Because right now, it’s *all* hot. Even industries that typically fall in my “not” column (retail, offset printing, publishing, etc.) are as strong as they’ve been in a long time. Again, as a caveat, this is going by the credit applications that cross my desk – Fletch is not an economist.

But really, it has been this way since the election. And I mean, the very next day, things took a noticeable spike upwards.  

So what happened? Well, I’m loath to discuss politics here, and I know there are strong feelings on both sides, but I will say this uptick, in my opinion, is generally attributed to small business casting a vote for fewer regulations. There’s a definite perception that one political party seeks to increase regulations, and one party seeks to reduce them. I am not saying this is true – I *am* saying that’s the perception. And it doesn’t take a rocket scientist to figure that out.

I personally know some small businesses that were dumbfounded at the amount of paperwork something like the Affordable Care Act generated. Again, this observation isn’t an endorsement or condemnation of the act itself or the larger question regarding the need for healthcare reform – it’s simply hearing from the small businessperson about having a mountain of paperwork. One landscaping / snow removal customer told me about how he had to pay his crew differently for winter snowstorms due to hours reporting – variables like storm strength and how long his crew was out clearing it were negatively impacted by the ACA, adding a complicated layer to his operation.

So to me, this uptick was about businesses feeling like they will be a little less constrained over the next four years. However that works out, I can tell you that right now, it’s all “hot”.

Do you know why it doesn’t get all that much press? Because there aren’t a whole lot of lenders that embrace used equipment financing. And since I work for one of the few who do, I’m almost puzzled as to why (note: long time readers know I never really plug “my” company in this blog, but based on my URL, it’s not hard to figure out where I work. But to be honest, I’m proud to work for one of the few equipment financing companies that do this, so I don’t mind mentioning it.)

But really, what’s the deal with this? Used equipment financing shouldn’t be hard to find. So why is it? Is it because used equipment is… well… used? I don’t understand that reasoning. Sure, there are plenty of “held together with duct tape” machines out there, and yes, nobody (not even my company) will want to finance those. But in this day and age, that’s almost the exception – there are countless pieces of used equipment out there that have years and years of life left. Many machines, vehicles, and other pieces of equipment are made exceptionally well these days.

And that’s leaving out equipment that doesn’t have moving parts. Do you know how long a desk can last? A loooong time. In fact, the desk I’m sitting at now will almost certainly outlast me (note to my boss and Mrs. Fletch: don’t get any funny ideas!) But things like desks, conference tables, cubicles, shelving… all of those things have a robust secondhand commercial market. And a robust used equipment financing company helps quite a bit.

One last note: Section 179 is fine with most used equipment. So not only can you get used equipment leasing / financing, you can also most likely take a deduction on it.

Ok, I’m getting nervous. Time for a new desk.

Financing trailers is a big part of what an equipment financing company does, so they warrant discussion in my “why financing <equipment name> matters” series.

Trailer financing (or trailer leasing) happens two ways – either with a vehicle at the time of sale, or as an aftermarket addition to a company’s equipment. Both are popular, but we probably finance aftermarket trailers more often. This is likely due to companies needing different trailers for different needs at different times. Hey, flexibility is what it’s all about. If a company already has vehicles and needs a new trailer (or perhaps expanded services, requiring a different type of trailer), the place they bought the vehicles may be no help in financing a trailer. So that’s where an equipment financing company comes in.

The types of trailers financed are widespread – pretty much anything pulled behind a vehicle is called a “trailer” (if you think about it, it’s the literal definition of the word.) We have utility trailers, side dump, tilt, flatbed, low-boy, drop-deck, gooseneck… all kinds. Plus all manner of specialty trailers, like logging, horse, tank… all of those are financed or leased.

So yea, that’s why trailer financing matters – and it’s something more companies should be aware of, because standalone trailers are financed all the time, for virtually any use.

But there is one case where an equipment financing company doesn’t finance trailers, and that’s in the case of a transportation company / owner operator. Again, the type of trailer doesn’t matter (we finance the trailer part of a “tractor trailer” all the time), but in how it’s utilized. A transportation company financing trailers more or less falls under “fleet financing”, which we don’t handle.

Making the above clearer, we’d finance a flatbed trailer for a manufacturer who wishes to have their own delivery rig, but not for a transportation company wanting the same trailer. Make sense?

In a nutshell, that’s trailer financing. At some point in the future, I’ll probably discuss the different types of trailers, as there are so many kinds (and maybe I’ll throw you a curveball and ask if you saw the trailer for that new action film!)