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. 

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.

Clauses like blanket liens, compensating balances, and annual requalification are common and written into almost every bank business loan. They may or may not be clearly discussed, and it’s up to the borrower to understand exactly what they are getting into. 

This brings up a simple question: “can I avoid these?”

The answer is not as simple (but it can be – you’ll understand in a minute).  

If you are insistent on using the bank, there may be no way to avoid them. I would always recommend you ask about these and insist the bank discloses them in plain English. Your loan officer might be a little surprised when you mention blanket liens, but they don’t know you read The Lease Guy so we’ll forgive them.

You can ask for these clauses to be dropped, but I wouldn’t get my hopes up. I suppose for the bank’s very best long-term, high-revenue customers they might, but even then the chances are slim. You see, these clauses are part of the bank’s normal operations – they mitigate risk on loans greatly, and this risk mitigation is one reason the bank usually offers the lowest rate. 

A better, and much simpler, way to avoid these clauses is to use a business lender / equipment financing partner that doesn’t use them. Like Crest Capital – we do not use any of these clauses. The only lien you’ll see from us is the standard lien on the piece(s) of equipment we are financing, and that’s it – the rest of your assets are just that: YOUR ASSETS. We also don’t care about compensating balances, and once we say “yes”, that’s that – we leave you alone afterwards.  

Because we don’t use these draconian clauses, our rates will be a point or so higher in most cases. So you have to ask yourself, how much is a point or so of interest worth to you? To us, it’s a no brainer. In fact, to most astute businesspeople, once these clauses are pointed out and dissected, the choice is pretty easy. 

Forgive the obvious plug, but it is what it is. These restrictions are real, they hurt, and we don’t use them. Simple as that.

The company in question is a tree service company, and since he’s become a client, I’ve gotten to know the owner quite well. He started out with a bucket truck, a stump grinder, and a few chainsaws that he got from his father – classic son taking over dad’s business. Dad never got beyond “him and a helper” but his son had bigger ideas.

Fast forward two years: the company finances looked great, and the phone was steadily ringing. He felt he was ready for a leap and decided to get a second bucket truck and a chipper. Adding these would greatly expand his capacity and meet the ever-growing demand for his services. He went to his local bank, and ultimately, was surprised by their reaction.

After speaking with a loan officer, they did agree to loan him money, but there were a few catches. The first was he had to make sure his bank balance never got below 80% of the loan value. As a long-time customer of the bank this bothered my friend, almost like they were locking away his money because they didn’t trust him.  

The second part was they would not loan him all the money he needed. They balked at the chipper, telling him to wait on that. They couldn’t see that he needed it – having that chipper made an immense difference in his level of service.  

He left the bank dejected. Maybe he wasn’t as successful as he thought, and his visions of business growth were not valid. But brighter days were ahead. 

He looked online, found Crest Capital, and we spoke. And it turned out, he was an ideal customer for us – a company in business for more than two years that is both successful and growing. We said yes to both the bucket truck and the chipper. No matching bank balance necessary – quite frankly, we didn’t care about his bank balance. 

Years later, he’s still a customer, and he has several crews out there at once, all with equipment we financed. By all accounts, he’s done well. And would you know, he still mentions how much that first “yes” meant to him. That it validated his visions of success and showed him that successful business partnerships do not have to be completely one-sided. 

How can we help you today? 

Fletch,

I’ve been reading your thoughts about rates but I’ve been holding off getting new gear because I was too scared to borrow when rates were rising. I clearly should have a year ago but that’s hindsight. But today even though I really need some new machinery I’m still hesitant to commit to a long-term loan because rates could start falling. A friend of mine suggested I lease but I’m hesitant there too. Can you talk me into it?

First of all, smart move in asking The Lease Guy to talk to you about a Lease!

But yes I do understand your dilemma and it’s not uncommon. For people who have held off buying equipment the past year, they are almost to the point where they feel like they must stay the course.  

I will say I don’t think rates are going to lower, so you’re probably safe in just financing what you need. But you asked me to talk you into a lease, so here goes:

Get an FMV Lease, which stands for “Fair Market Value” lease. Take it out for 24 to 36 months. This means you aren’t locked in as long as a traditional loan, but most importantly, it gets you the equipment you need right now. And at the end of the lease, you have the option to buy the equipment at the fair market value. If rates are lower and you like what you have, go ahead and buy it. If neither of those things are true, hey, lease another. 

Now, because an FMV lease might be an operating lease, it could be structured so it isn’t on your books as an asset, meaning you can’t take a Section 179 Deduction on it. However, as it IS an operating expense, you can deduct the lease payments on your taxes. While it’s not as big as Section 179, it’s still pretty attractive.

Plus, with the FMV lease, you’re really only paying for the portion of the equipment’s life you are using, which means your payments are going to be pretty manageable.

Lastly, whatever your feelings are, it’s never a good idea to “need” new machinery or equipment, but not get it. It’s hard to competitively operate that way. So if the lease gets you the equipment now, and you feel good about the financials, there’s almost no downside.

Hope that helps! 

I wish I knew the answer, but I don’t. Nobody does. We’ve seen rates rise all year, most recently at the beginning of November. And to my eyes (as well as to most economic pundits), the end is not in sight.

Rates have been rising to combat inflation. But inflation remains stubbornly high, so the thought is the Federal Reserve is going to keep raising them until inflation is tamed. And unlike a scary movie franchise where everything thinks the villain has been vanquished, only to reappear stronger than ever, the Fed is unlikely to lower rates until they are absolutely sure inflation has been handled. No surprises, and no “Scary Economy Part IV, Inflation in Space!” 

What this means is even if inflation peaks, we should not expect rates to start falling immediately after hearing that news. It’s going to take time, and then the decreases will likely be very gradual. 

Ok, so what does that entail for all of us? It means this is the economy and rate environment we must work with. It also means that “waiting” out rate hikes is likely to be a futile, and possibly harmful, strategy. 

Companies cannot afford to sit idle for months and years. They need to replace equipment, they need to offer new services, and they have to keep pace with their competitors. One of the reasons inflation is high is demand is still exceeding supply. There is ample money being spent and commerce happening – in fact, many companies can’t keep up with demand. So now is not the time to turtle up. 

I promise you this: rates are going to come down – eventually. But again, it will be a while before it starts, and (in my opinion) the fall will be gradual. When will they reach late 2021 numbers? Goodness, that could take years. I mean, I hope it doesn’t, but I’m also pragmatic, and in my mind, everything is pointing to more increases.
I’ve mentioned this before, but getting in now and locking in a fixed rate on equipment financing could be a very savvy move a year from now, because we are nowhere near the peak yet.

To refresh, the three I mention most are:

• Blanket Liens – This is where the bank slaps a lien on your entire business, meaning you cannot do what you want with any of your assets. For example, if you finance a CNC machine with a bank, and a year later want to trade in your old delivery truck, guess what? That truck is part of the blanket lien. 

• Minimum Balances – Most banks will require you to keep 80% of the loan amount in the bank, and will not let you go under that. This ties up a large amount of money that you cannot use.

• Requalifying for the Loan Annually – Most banks will look at your finances annually and see if you still qualify for the loan. If they see a trouble spot (maybe a bad quarter) they can call in the entire loan immediately (and since they have 80% of the loan in their vault, collecting is easy.) 

The restrictions mentioned are limiting at any time, but in a slower economy, they can be extremely suffocating.

Imagine that instead of seeing your bank balance as reassuring, it’s only an illusion, because a solid chunk of it must stay in the account to cover bank loans.  

Or picture that maybe since times are slower, you wouldn’t mind privately selling a few older assets you aren’t using… but they have a lien on them, which kills any sale. 

Or still worse, imagine the economy slowing, and you have a bad quarter. It can happen to any business. So the bank calls you and says “we’re going to call in the entire loan now… we’ll be taking that 80% account. Do you have a few more dollars to settle it up today?”

Those might not be the exact words used, but trust me, this can and does happen. And it’s going to happen to companies in 2022. Sure, companies with millions in the bank can withstand this, but small businesses? Not so much.

Here in 2022, one of the smartest things you can do is not let anyone else have control over your assets. This is why the financing we offer can be so important – there are no restrictions. We have an understanding with our small and mid-size business customers: We do financing – you do you. It works for us, and it works exceptionally well for our customers. 

Chuck owns a construction company, and over the last 17 years, has financed equipment four times with Crest Capital.

Chuck’s first deal was in 2005. He was, I think, a three-person company at the time. He and two friends got together a few years prior doing contracting work, and also subbed out to some larger contractors doing major projects. 

One day, they saw an opportunity on a construction site when the general contractor was complaining out loud about his “heavy equipment guy” becoming unreliable. Chuck overheard that, and had an idea. He had a line on a few pieces of “used but good” heavy equipment, and that’s when we met. They financed a backhoe, and… I forget what else. But they were on their way.

Over the years, they came back to us three more times. And the interesting thing to me is how the company and revenues were steadily larger each time. The second time he came to us, Chuck had seven guys, then fifteen, and now he has three crews of six or seven guys, plus some admin staff. He’s a major builder across a four or five county area. 

Each time he came to us, the equipment he financed helped spur his growth. In fact, you could say he hit a wall each time and said “I need more equipment if I’m going to handle the demand”. Or he saw an opportunity – a way to add to his services – and took a leap. 

I’m not going to pretend that the equipment financed was the main reason for growth – I think Chuck and his partners’ business smarts had a little something to do with it too. But the financed heavy equipment sure helped, especially way back in 2007.

Right now, there are people running steady small businesses. And right now, many of them are right on the cusp of growth – someone’s normal supplier is becoming unreliable, or can’t handle the demand, or whatever. They are one overheard conversation away from saying “hey, WE could fill that need if only we had the equipment.” 

Hear about any needs that require filling? If you do, give us a call – we’d love to help.  

Business is all about providing good products and services that are of value to your customer base. But competition is always going to exist – everything you do, your competitor will try to do better (and vice-versa). It’s almost like a sibling rivalry.  

One day, a company is having a meeting, and the VP brings in a brochure for a piece of equipment that will allow them to offer a service they previously could not. For purposes of illustration, let’s say it’s a construction company getting a new hydraulic concrete pump that’s capable of higher reach than most others in the immediate area. And the company strongly feels the area is poised for growth… including vertical growth.

During the meeting, it’s decided that it’s a calculated and worthy risk – based on potential growth, offering this improved service locally will put this company squarely in the sights of developers moving into the area and constructing new facilities. They can cite their increased capabilities when they present a bid, which is always a nice caveat.

One issue – this is a bank account draining purchase. And you know what I’m going to say now, right? Fast equipment financing to the rescue.

The previous example is probably a bit over-simplified, but the general theme is incredibly valid. Companies venture into new areas of service (or product offerings) all the time. And quite often, it’s done stealthily – you want your competition to be as surprised as your market is delighted. Because if you get there first, you will enjoy a time where your competition must play catch-up (if they even can… sometimes they say “ok, let them have that market segment”).

And in the course of these meetings and strategic planning for growth, the most preferred way to get the equipment for any expansion is to finance it. This allows the new equipment to pay for itself over time – in fact, in most cases, assuming the company was right and the new offering is a hit, paying for itself is almost assured. 

Making a bold move to expand your offerings is part of business. And equipment financing is an important part of that.

It was a lot of money for a kid back then. And it made me feel very secure. Money in the bank is a great feeling anytime.

I also wanted a new videogame console. I could afford it right then, but it would have put a huge dent in my bank account. And doing that made me very uncomfortable – what if I needed that money for something else, or an emergency? 

So I made a deal with my father – an advance on a year’s worth of lawnmowing at his business.

I got my console, and I kept my bank account. In essence, I had “financed” a major, bank-account draining purchase. 

While we’re talking much larger numbers (and not videogame consoles), this is the exact thought behind much of the equipment financing many SMB’s do.  Let’s discuss this.

All businesses need equipment. Machinery, vehicles, software, office equipment, computers, and so on. Much of this equipment has a finite lifespan, and it’s continually changing / replaced / upgraded / etc. This means for any successful company, the flow of equipment is ongoing. 

Every company also has a myriad of other operating expenses: salaries, advertising, utilities, rent, taxes, and half million others.  

The “operating expenses” I mention are all generally paid for in cash (liquid funds). And to operate effectively, a company needs a certain amount/timeframe of operating expenses on hand – going month to month is dangerous.

So when expensive equipment is needed (and it will be needed), it makes much more sense to finance it over time. This keeps liquid funds at a much more “comforting” level.  

There’s also another aspect to this – it’s not just operating expenses and/or comfort. Emergencies happen. Having ample cash on hand allows a company to better withstand them. 

What kind of emergencies? Plenty – things like accidents or fires or similar are obvious. But there are more. What if your biggest customer suddenly has issues, and drops you? What if a strike hampers deliveries, and your loading dock backs up? What if there’s a pandemic?  Money in the bank lets you withstand these much better. 

During the early days of the pandemic, businesses borrowed in record numbers and amounts, much of this in the form of immediate equipment financing. Why? Because in the face of uncertainty, it’s better to keep your own cash in the bank and use someone else’s to purchase needed equipment.  

One last aspect to this – tangible equipment generally loses value. While I’d argue that if it’s needed to make revenue (even indirectly) it’s an investment, the fact is, it’s also not an “appreciating asset”. And the smart money says it’s always more advantageous to finance those things and pay for them over time. 

So keep your own money in the bank. If you need equipment, you can use ours.