I also talk to many small business owners who feel the same way – they go to their bank who “specializes in small business lending”, and they are told the minimum loan for the special program is $250k. That’s great and all, but the 10-person landscaping company or 8-person accounting firm was only looking for $65,000. 

For us at Crest Capital, most of our customer base are companies that have between 5 and 75 employees. Yes, some are larger (and even a few are smaller), but that’s the market we serve. So when we say we’re a small business lender, we really mean it.

This is important to discuss from time to time, because of what I mentioned previously. A 12-person company goes for a loan, and it’s implied the company is too small to get favorable rates and terms. Nevermind that their revenues well exceed a million dollars a year, they have excellent credit, and the loan will help them grow even more. 

There’s another small layer to this that I want to mention. The person who owns and runs that 12-person company doesn’t think it’s “small”. In fact, that business is probably one of the biggest things in his or her life. They may have spent decades building it up. 

Even further, of those 12 employees, six of them earn full-time salaries. There are four different families whose mortgages depend on that business. Nine college educations will be at least partially paid from this business. A bunch of automobiles, hundreds of meals out, vacations, and countless dollars wasted on “silly” hobbies (according to spouses)… all of it the result of this “small” business.

No, there is no business “too small” for financing. 

As long as a company is successful, has a few years under their belt, and revenues (and credit) are good, equipment financing is available. Quicker and easier than you think, too.    

To first set the stage, I was recently discussing vehicle leasing and financing and similar, and what type of vehicles an equipment financing company finances. And “finances” is the optimal word when it comes to vehicles. These days, companies like mine sometimes shy away from outright leasing vehicles, preferring to finance them instead. Why is that? Because in a typical lease, the leasing company is listed as the registered owner. In a vehicle financing deal, the company that is purchasing the vehicle is listed as the registered owner. This is a big difference.

First of all, most companies actually want the vehicle in the company name. Taxes, assets, etc. It just works better for most companies that way. But the second reason we’d rather finance than lease vehicles is the liability factor, which brings me to the recent phone call.

We got a call from a sheriff in Virginia who was looking to collect on a parking ticket. Well, we’re not in Virginia, so at first, we were a little puzzled. Then it becomes clear that the parking violation was made by a client of ours, in a vehicle leased to them. Technically, we’re the “registered owners” of said vehicle. So when our client (mistakenly, of course) forgot to pay the parking ticket, we got the call. The happy end is things got straightened out, our client paid the ticket, and all was well. But it illustrates why an equipment financing company would rather not get involved in leasing vehicles (at least common leases. We do engage in TRAC leases [terminal rental adjustment clause], but discussing that is an entirely different post, or series even).

Hope you are all enjoying your summer.

Personally, I think they are looking for stock tips or such (because it does seem that when a particular industry is “rising” in equipment financing, that industry in general does well in an overall sense – and vice versa.) But, and this is key, I can only speculate on what an industry in general is doing, and not any individual company (meaning don’t corner me at the party asking for stock tips.)

So with that, let’s explore a few industries that are currently hot in terms of equipment leasing / equipment financing:

The biggest surprise to me this year is that agricultural equipment seems to be a hot item for companies. Things like farming equipment, dairy equipment, machinery and equipment for storing produce, staple goods… that kind of thing. I’m not a sociologist or economist, but I would guess as populations increase (which they have been), food becomes even more important. Plus, even though the economy isn’t as robust as we’d all like, it is better than the previous several years, meaning “eating out” is likely on the rise. Regardless of the reason, though, agricultural and farming equipment is definitely hot right now.

Another “hot” item (or items) as of late is landscaping equipment. Everything from commercial riding mowers to cherry-picker trucks for tree companies to hand held equipment like commercial gas powered trimmers and the like. This is a little less surprising to me because it’s an every year seasonal thing – landscaping equipment is always “up” once spring hits around the country. Partially because those old mowers are started for the first time in months, so if they are going to break, now’s the time.

So there we have two industries that are moving upward. We’ll go over two more “hot ones” in the next post, and then we’ll look at what’s “not hot” in equipment financing.

The truth is, every equipment financing company has an equipment financing portfolio. That’s because an equipment financing portfolio (maybe to save my fingers from typing, I’ll just call it an EFP from now on) is essentially all of your equipment financing contracts. Just like you have a portfolio of stocks, we have a portfolio of equipment financing investments. Make sense?

So I’m not revealing anything earth shaking here – taken as a whole, when we make reference to our EFP, it is nothing more than viewing all of our equipment financing deals in aggregate. The “investment” is the money we lent, the “growth” is the (low) interest we charge on our equipment loans and leases, and the “performance” is the overall repayment vs. default ratio. Simple, right?

So what can we do with our EFP? Well, the most useful thing is to get a few people who are good at analyzing things to look at the EFP and discover trends. For example, my last two posts were about what’s hot and what’s not in equipment financing. We get these things from analyzing our portfolio. It’s not enough to say “this industry isn’t borrowing as much as it once did”. While that might be useful, it’s also obvious (heck, for a time, nobody was borrowing).

With the EFP, we can look deeper and say “this industry’s payment trends seem to be getting slower…”  And once we start looking deeper, the (boring) analysts will say “ok, let’s look at repayment vs. time in business” or “let’s combine time in business with certain industries and see what it says”. Then they can really cut loose and throw all caution into the wind by combining time in business with industry with customer’s industries and a CEO named Marvin…” can you see why I find them boring?

But seriously, boring or not, the data crunched from an EFP can help us make decisions on who we should target for equipment financing, and which industries may command a lower interest rate because of solid repayment trends.

I hope you found this little definition interesting. And please, no e-mail about me (who gets all excited about Section 179) calling anyone else boring. I already know I’m a walking contradiction!

Now that 2010 (and a new decade) has begun, I’ve definitely noticed a stark difference from last year in regards to “the mood” of the business world (because I’m in the equipment financing business, I definitely have my finger on the pulse of small and medium sized businesses.)

Last year, there was a ton of fear – what was going to happen / where was the economy going / would banks fail / were we going to collapse? These questions were all on the minds of people, and let me tell you, in some cases, business ground to a complete halt. When you fear economic collapse, you’re not spending anything.

Now, of course, nothing near economic collapse happened (it’s almost laughable when you really think about it). In fact, we went through an old-fashioned recession. Something we’ve done before. But, and this is key to remember, this was the first real financial crisis of the internet age (I don’t count the 2000 dot com bust, as we were far from fully wired then). This time, everyone knew everything that happened, and everyone had an opinion. The hype was out of control, and helped what appears to be a self-fulfilling prophecy.

Now it’s a year later, and there aren’t any more fears of collapse. Equipment financing and equipment leasing still aren’t back to where they were pre-recession, but we’ve definitely seen the bottom. And it’s thawing, ever so slowly. It seems the people who are still around are taking a deep breath and thinking “Looks like I survived… ok, what now?” And “what now” quickly turns into “let’s continue on” (and continue on hopefully means a call to Fletch to lease equipment.)

It’s interesting to see the change – the absolute dread of a year ago has vanished, and has been replaced by the resolve I mention above, and also a hefty dose of political arguing (who’s to blame? Him? Her? The Right? The Left?) I guess my point here is to observe what I see as interesting, and to point out things are never as bad as the hype suggests.

If you’re reading this, you’re still here. What now?