You see a lot of contractors doing this in the winter, because all that’s really required is a heavy-duty pickup truck and a plow. And every contractor already has their heavy-duty truck. So just slap a plow on it, and you’re in business.

My buddy, who already owned a successful tree company, was like this. Until he decided to take it up a notch. See, he felt the plow was limited – it pushed snow, but that often presented a problem for companies, as huge mounds of snow in the parking lot created ice melt for weeks. Plus, plows can cause damage.

No, my buddy wanted to offer an upscale snow removal service and use a commercial snowblower. One you could drive, with a heated cab and the capability to throw feet of snow 10-20 yards. It would do a better job in half the time.

Problem: these things are expensive. Like $200k. 

But he went out and gauged interest, and found there was plenty. He took his shot and financed it. Two winters in, the machine had more than paid for itself, and he’s thinking about another. 

This is growth, folks. This is how it happens. And, unless you happen to have $200k sitting around doing nothing that you can spare, it’s not possible without equipment financing.

The positive benefits of acquiring and deploying new (or new to you) equipment, especially equipment that directly generates revenue, cannot be understated. New machines, new vehicles, new software – these are the catalysts that help a company grow. 

Larger companies know this – they finance equipment without a second thought. They know that’s how business works, and that financing and debt are normal. But for many smaller companies just starting that growth stage, it can be scary. That’s because we’re often taught as kids that debt is bad. And yes, if we’re talking consumers with big credit card balances from eating out, sure, let’s avoid that.

But for your business? You almost have to finance equipment if you’re planning to be around a decade from now. Because if you wait and wait and wait until you can finally afford to pay cash for that new equipment, two things have happened – you forever lost growth opportunities while your capabilities were maxed out, and your “quick to finance” competition has grown exponentially, and can offer considerably better service than you. No, they weren’t “lucky” – they fueled their growth with financed equipment.

Waiting to pay cash for equipment is like a slow death spiral in business. If you see opportunity, grab it – fortune favors the bold. And it favors those willing to finance. 

It’s been more than three years since I did a series on reasons to finance equipment, so it seems like a good time to revisit the topic. It’s good to do this every few years, as the economy and marketplace undergo constant change.

To give one good example, many companies put off financing equipment in 2022 (the last time I did this) due to rising rates. And yes, rates rose a lot that year. But today’s economic landscape is much different – rates are holding steady, with most experts feeling some minor cuts are far more likely than rates going up. 

Anyway, it’s a good time to finance right now, and in this next series of posts, I’ll go over reasons why. Off the top of my head, here are a few topics you can expect me to discuss.

Reasons to finance equipment in 2025:

• Growth – Get the equipment you need right now.
• Preserve Capital – Keep your own money for emergencies.
• One-of-a-Kind Deals – The excellent used market warrants further discussion. Don’t miss out.
• Predictability – Use fixed rates to predict costs and expenses.
• Tax Advantages – Both financing and leasing have tax advantages.
• New Technology – Take advantage of new technology immediately.
• Competition – Keep up with competitors or (even better) lap them!
• Pay With Tomorrow’s Dollars – Today’s money is worth more than tomorrow’s. So getting needed equipment today but paying with future dollars is a strong move. Especially with fixed payments.

I can talk equipment financing all day, so I like this particular topic a lot. I also like giving reasons, partially because most of us are taught from a very young age to avoid debt. But using debt, particularly equipment financing, is not only a very healthy and smart business tactic, it’s often THE catalyst to growth. But I’m jumping the gun – that’s for my next post.

Stay tuned folks – more to come!

The first is rates. I’m not a fortune teller, but I have been pretty spot-on with my rate predictions over the past three years. And currently, we seem to be at a crossroads. After a year-plus of large hikes, then a few rounds of small cuts, things have leveled off. The truth is, we’re not likely to see any more cuts for the foreseeable future. In fact, depending on how things shake out the next few months, we could even see another hike before we see another cut. 

Basically, what I am saying is today’s rate is likely going to be your rate for quite some time. And with a fairly uncertain world economy right now, locking in a fixed rate on something you need is a smart thing to do.

Second reason: Used equipment inventories are bursting at the seams. Every single pre-owned equipment dealer and auction house we talk to has seen their used equipment inventories swell over the last few quarters, and they are looking to pare down. There are several economic reasons for this that go all the way back to the pandemic and supply chains, but the fact is right now, the glut of used equipment available is unsustainable for dealers. 

What this means for business owners is there are some fantastic deals on all manner of used equipment – used vehicles and used machinery in particular.  If you have a need for something, definitely consider a used model – you will likely be pleasantly surprised at the value you can get. And yes, you can finance used equipment and lock in a great rate right now. 

I always say it’s a good time to finance equipment (because it is), but right now, Q1 2025, things are especially attractive, and business owners should take advantage.   

I say that because in this series of “how do lenders arrive at interest rates?”, I’ve talked about different factors that affect the rate you pay.

But where does that rate originate? It doesn’t start at zero (after all, money is never free).  

In general terms, most lenders will utilize existing benchmark rates as a starting point. Then those benchmark rates get adjusted upwards using all of the factors I’ve discussed in previous posts (e.g., equipment type, collateral, credit scores, market conditions, etc.) In other words, a starting point using a benchmark rate is established, then your loan parameters go down a conveyor belt (so to say) comprised of all the other factors I’ve posted about, each one possibly affecting the final rate you pay. 

So what are these benchmark rates? Let’s take a quick look:

The Federal Funds Rate: This is the most common benchmark rate, and many lenders use this as a starting point for short (24-60 month) loans. This is the rate banks charge each other for overnight lending (which is assumed to have the least amount of risk). The Federal Funds rate is the one most people know about, because that’s generally the rate that’s talked about when the news says “The Federal Reserve raised/lowered rates 25 basis points”.

ICE Swap Rate: This is the rate where banks will swap interest rate payments. It’s a useful tool to help banks manage risk and volatility. For example, Bank A may have excessive variable rate loans, while Bank B has an abundance of fixed rate. Both would be better off with a more balanced spread, so they swap interest payments on some of them. The Ice Swap Rate is the premium they pay for this swap. There are different ICE Swap rates for different time periods, and for consumer lending purposes, the longer ICE Swap terms are typically used as a benchmark for longer-term loans.  

SOFR (Secured Overnight Financing Rate): This one is increasingly used for variable-rate loans. This is the overnight lending rate using US Treasuries as collateral. It is calculated daily by the Federal Reserve, so it’s always current and relevant to the economy, and since it utilizes treasuries, it’s considered quite stable. When rates are going to change in a loan, SOFR makes for a good starting point.

Treasury Yields: Long-term loans can be tricky. Since predicting the future is hard, we can’t know what economic conditions will be in a decade or more. But our best guess can come from what the US Government is comfortable with on treasuries.  So, Treasury Yields may be used as a baseline for longer-term loans.  

There are lenders that may use other benchmarks, but in general terms, these four should cover most loans and terms. 

Now, it’s very important to remember that these are only baseline rates.  They will always go up based on risk. And while most of us like to think we personally are good credit risks, the truth is, risk-free lending is impossible. So the baseline rate is always going to go through the gauntlet I’ve previously written about. Even lending to billionaires carries some risk. Trust me, Bill Gates himself would pay higher than the federal funds rate if he borrowed money.

I hope this post gives you at least a basic insight as to where rates begin. If you’re interested in seeing some of these rates, here are a few links:

Federal Funds and SOFR

ICE swap rate (requires a license subscription)

Treasury rates are available at the treasury website

I say “finally” because to many people, the credit score is the be-all, end-all of borrowing. And it is true that credit scores and related risk factors are important, but not always in the way people think.   

I look at credit scores and related two ways: in one way, they can be a gatekeeper. Lower than, say, 650-700, and many higher-quality lenders are going to turn potential borrowers away without considering anything else. This is why many people consider them super important (and they are).

But in terms of affecting the rate, we have to already assume a borrower has met this minimum threshold. So from that point, all of the other factors I’ve already discussed have approximately equal or even greater impact on the rate.

Here’s why: while your credit score is impactful, not all credit scores are created equal. Two different credit reports each with a 700 score could have very different paths to get there. Maybe one has a thick file with 20 years’ worth of history and the other has a thin three. The 20 years speaks a lot louder. 

But it’s not just FICO scores. There are several other scoring systems like D&B’s PAYDEX, SBRi, Experian’s Intelliscore Plus, Equifax’s Payment Index, PayNet MasterScore v2, and even FICO SBSS for small businesses. Many lenders will also use public records (suits, liens, judgments) in not only making decisions, but helping to determine a rate. 

Any or all of the preceding reports and scores are utilized by most commercial lenders on most loans. For Crest Capital, we utilize many of these in our application-only loan process (deals $150k and under).  

But besides scores, what else could affect your rate? There are a few other overall factors that most lenders will look at with almost any type of loan:

• Industry Risk – Certain industries are riskier than others. For example, the restaurant industry is extremely volatile, with new openings experiencing an 80% five-year failure rate. However, over that same five-year period, the self-storage industry has a low 8% failure rate. So, all else being equal, who would you rather write a five-year loan for? And who should get a lower rate? No brainer, right? All industries have a risk factor, with the more stable ones typically getting better rates. In fact, many lenders won’t even engage with riskier industries.

• Economic forecasts – There’s always a bit of a crystal ball with lending. How is the economic forecast? Nationally? Industry-wise? Locally? These are all going to matter.

Hopefully, this blog has given you a good insight into how credit scores and other factors can affect your rate. If you want to learn a little more about Crest’s process and what we look for, check out our Equipment Financing Credit Requirements page.

Defaults are when borrowers, at some point in the loan’s life, cease making their payments. For this post, the reasons why are immaterial – at the end of the day, all that matters is the lender is out not only a (sometimes large) portion of the money they lent, but they are also out of the expected revenue from the interest. Since most businesses use some form of projected/expected income to operate, this is doubly bad for a lender. And no, “writing it off” does not make a lender whole by any stretch.

But it isn’t just the money/revenue lost. Most of the time, there was some form of collateral involved with the loan, which now must be repossessed. This costs money, as someone has to be paid to collect it. One other issue here: Since the borrower is generally in some kind of financial straits, this is typically not a pleasant experience. 

In addition, in most cases, the collateral does not make the lender whole. They still need to sell the item, and they almost never recoup even close to what is owed.

There’s another aspect to defaults that often goes unnoticed by those outside the lending industry: how defaults make a lender look to regulators. Too many defaults will often bring increased regulation on the lender, and increase their capital requirements. Nevermind that perhaps the defaults were an anomaly and not really the lender’s fault. That won’t matter to the regulators; to them, the lender is writing too many risky loans and will be treated as such.

Lenders use an immense amount of data to qualify borrowers, and, much like the insurance industry, attempt to predict default rates based on various lending criteria and borrower/loan profiles. Now, of course, lenders can’t predict which specific borrowers may default, but they do have to honor what the data tells them about the aggregate. These predicted default rates are factored into the lender’s overhead and become part of the rate equation.

Despite the lender’s best efforts and the borrower’s best intentions, defaults in the lending industry are inevitable and must be accounted for.

One thing that’s helpful in understanding this is to look at money lending as an investment for the lender. If it’s a private lender (like Crest Capital), the lender is lending its own funds. And the rate they charge for the risk they take must significantly surpass whatever they could earn safely. 

To see this in action, look at treasury notes. Right now, a 5-year treasury note is paying mid-4’s to close to 5%. So a lender can put their money there with no risk at all. Why on earth would they ever lend it to anyone for even close to that? The answer is, they wouldn’t. Nor would you. Makes sense, right?

Now look at lenders like banks. Banks (generally) do not use their own capital for lending – they use depositors’ capital, which they pay interest on. So whatever they charge has to make sense financially here, too.  And while individual loans and circumstances could be different, in general terms, any lending needs to be well above what they are paying in interest – it’s the only way a lender can survive.

Next we’ll talk about overhead. Like any business, lenders have overhead, from property taxes to the electric bill and more. But what isn’t known is the sheer amount of legwork required for some loans.  Some of the more exotic loans take a lot of paperwork and back and forth. And any smart lender will do at least a little UCC homework on a used equipment financing deal. This costs time, which equates to salary/money.  

Capital requirements are another “cost of money” issue. Lenders are required to keep a certain percentage of capital on the sidelines (earning next to nothing), and different loans can have higher capital requirements, especially if they are of the riskier type. 

We’ll be going over defaults in detail in another post, but defaults DO factor into the overall cost of funds as well.  

No way around it – money costs money, and it’s going to be reflected in the rate a lender charges.

Another year is in the books. I like doing these posts as it’s fun to look back and see where I was right and wrong. My hit rate isn’t bad at all!

Let’s start with sports. I hit on the NBA last year, and we’ll see if I can do it again. But we’ll start with football.

No matter which team you follow, wouldn’t it be awesome to see a Detroit Lions Superbowl win? That’s my pick – Detroit vs Buffalo, with Detroit winning their first Superbowl.   

(note: I write these a bit in advance, so I hope both are still alive when you read this.)

Baseball… I picked the Braves last year. It seemed like a good pick, but they fell way short. But I am stubborn and am picking them again.

Basketball – let me make a bit of a dark horse pick here: the NY Knickerbockers! 

Hockey: The Carolina Hurricanes storm in and take the cup! That’s the way I see it.

For business, I see 2025 much like 2017. In the Donald’s first term, small businesses did well due to his favorable business policies. I see that happening again, and as a lender, I see lending and borrowing increasing as businesses look to grow. The S&P 500 seems pretty unstoppable as well, so I think 2025 should be a good year for most of us.

Rates will slowly come down as well. We will see a few cuts, but I would temper any expectations the Federal Funds rate will return to near-zero levels. I have my doubts we’ll ever see that again, and the low we hit next year (let’s say by autumn) may well be our “new normal.”

On the world stage, I am hoping to see a less volatile world and conflicts in Europe and the Middle East subsiding. That would help the economy as well.

Technology will continue advancing, with AI becoming an expected part of many of our devices and applications. 

I also feel, however, that we’ll start to see the beginnings of a shift, as AI makes a lot of white-collar work easier, with fewer people required. Where that leads, I don’t know – I can only predict this stuff, but I can definitely see the beginnings of a world with fewer jobs than people who want them. But we’ll figure it out – we always do, and almost all technology results in a net gain for society, and I feel AI will be no different.

Ok, there you have it – Fletch predicts for 2025. I hope you have a great New Year and that the days and weeks ahead shine bright.

At the risk of being a bit basic, let’s understand what collateral is – it’s something of value that a borrower puts up to “secure” a loan. And if the borrower defaults, the lender can take and sell the collateral to help satisfy what is owed. 

So a loan with collateral is a “secured” loan, and one without collateral is considered “unsecured.” For example, most credit card lending is “unsecured”.

In many types of lending, the collateral is usually the item the loan is being used for. This is especially true in consumer lending. A car loan or a mortgage is typically secured by the car or home itself, and the lender will “repossess” them if the loan is defaulted on. 

Now, the better and more valuable the collateral, the better the loan terms and rate may be. This is partially why a new, high-end luxury car may have a lower rate than a used car and why a home/land will typically have a lower rate than most auto loans – the collateral is simply more valuable. 

In terms of equipment financing, there are two common collateral types: the equipment itself and what’s called a blanket lien. Let’s look at both:

• The Equipment Itself: Some lenders, Crest Capital amongst them, only require the financed equipment itself as collateral. This means if the loan is defaulted on, the lender can take possession of the equipment. The equipment will have a lien on it, which legally prevents the borrower from selling the equipment. Once the loan is satisfied, the lien is lifted. 

In general terms, “equipment-only” collateral loans are offered to profitable companies with good credit. This is because, in most cases, the equipment is usually worth less than the loan balance and carries repossession costs. So, the rate offered, while strong and competitive, will likely not be the absolute lowest.

• Blanket Liens: Blanket liens are when a lender puts a lien on an entire company, covering all assets. This is extremely secure for the lender, as a defaulting borrower can be liquidated until the entire is satisfied. But it’s a large drawback for the borrower, as every asset the company owns now has a lien on it. This greatly reduces financial flexibility – a company with a blanket lien cannot sell or even give away any asset without lender permission. Blanket liens are used by almost all banks, which is why banks often carry the lowest equipment financing rate.

Tradeoff Alert: Accepting an equipment financing loan with a blanket lien may result in the lowest rate by a point or two but will severely restrict a company’s financial flexibility and operations. If you are unsure about the ramifications of such a situation, ask your accountant.       

Collateral is a necessary part of lending – in short, most loans would not exist without some form of collateral. However, the types and amount of collateral can vary greatly and can definitely affect the rate you pay.

In plain terms, most lenders want to know what you are going to do with the money they lend you. This is true for consumer loans (your personal loans and credit cards – which have no defined use – are going to cost more interest-wise), and it’s especially true with business lending.

The reason it’s especially true in business lending is the intended use of the loan is often related to a borrower’s ability to repay the loan in the first place. Putting an equipment financing slant on it, let’s say a company is borrowing money to finance heavy equipment. The lender (Crest Capital of course) knows the company is going to use this heavy equipment to earn more revenue. All else being equal, that’s much preferable to a lender than needing money for an undisclosed reason.

In addition, if the loan’s purpose is fully disclosed, the lender has an idea of the collateral involved. A good example is a piece of machinery that has a strong preowned market – since the machinery will be used as part of the collateral in almost all cases, the lender knows they can recoup some of their money if things go bad. This will usually result in a better rate.

This is very easy to see on the consumer end as well – this is why loans for things like a house have a lower rate than a car, which has a lower rate than a personal loan or a credit card. The house can be foreclosed on, and the car can be repossessed. But those concert tickets and dinner that night that were paid for by a credit card cannot be recovered. Hence the higher rate. 

Makes sense, right?  In fact, it’s time for our first tradeoff alert:

Tradeoff Alert: All else being equal, funds for specifics with resale value will usually result in a better rate.

Loan term will also matter. In general terms, the faster a lender gets their money back, the lower the rate they are willing to offer. This is why a 36-month term will typically have a lower rate than a 60-month term for the same item. This can sometimes vary when lenders or vendors run specials, but in most cases, shorter terms result in a lower rate.

So there you have it – loan type / intended use / loan term… they will all factor into the rate you pay.