First let’s talk about liens in general. In business/lending, a lien is when a lender claims the right to property belonging to the borrower until the debt owed by that borrower is discharged.

The mainstream talk on liens is usually related to vehicles. You don’t pay your car loan, and your car gets repossessed. And you cannot sell your car until the loan is paid off, and the lender discharges the lien. And of course, you should never, ever buy a car with a lien on it.

But liens can extend to any piece of tangible equipment. Very often, if you borrow money to buy a piece of equipment, the piece of equipment itself will have a lien on it. And that’s expected and fair.

But what a blanket lien does is it blankets your entire company with a lien. This means everything your business owns has a lien on it. So if you borrow money from the bank to buy, say, a new delivery truck, they will put a blanket lien on your company so everything your company owns will have a lien on it. Not only can you not sell that new delivery truck, you can’t sell the old, long-paid-off one either. You also can’t sell any machinery, tools, or anything else. 

Technically, you can’t even give anything away. Maybe you want to give your old office computer to your nephew… better check with the bank first. Because legally, they have the rights to that computer. I’m not saying they would deny that, but that’s not the point: legally, they can. 

Blanket liens are pretty cut and dried, and very enforceable. They also smother your company because you cannot sell anything without the bank’s permission (and no astute buyer will buy anything with a blanket lien in place). This severely restricts your finances and your flexibility.

It’s always my standing recommendation that you avoid lenders who use blanket liens altogether. But if you must use a particular lender who employs them, try and negotiate that clause away (it’s probably futile because it’s rock-solid protection for the bank, but you can ask.) 

Next up – compensating balances. 

If you read this blog, you’ll see I hit this topic a few times because I feel it’s an essential part of any business. But what spurred me to write today was reading an old blog from five or six years ago about always selling on a payment. 

I believed it wholeheartedly then, and I believe it now. Saying “You can have this for $1326 a month” is a lot easier to take than “It’s $75,000. Will that be cash or check?”

You can think whatever you want about auto dealerships, but they are the absolute masters of closing sales. And they learned the ultimate lesson decades ago: always sell on a payment. Always. 

Of course you will get that one customer who doesn’t need financing and wants to know the total cost, but the fact is almost everyone else buys a vehicle on a payment. 

It’s the same with your company and what you offer. Even if your customer doesn’t ask you about financing, I promise you a considerable percentage of them, likely well over 90%, are thinking “monthly payment”, even if they say nothing to you about it. They are going to Crest Capital, they are going to the bank, they are going to their rich-but-obnoxious uncle… they are going somewhere, and will make monthly payments.

But there’s another customer you never got to really talk to. Know why? They ultimately bought from your competitor because your competitor made it easy. Your competitor made it so they didn’t have to go to Crest or banks or uncles they really can’t stand… your competitor partnered with someone (maybe even us) to offer equipment financing right there at the point of sale.

Your competitor understood that offering financing cost them nothing. Your competitor understood that offering financing was ridiculously easy, and it involved no work on their end at all. Your competitor had “only $XYZ a month” right on their website. 

Your competitor made the sale. You never even had a shot.

Compete better. Offer financing. If you need help, we’re ready.

Recently I posted about financing equipment and how a lender saying “yes” is very validating to a business owner. It means their visions of growth were real and that a lender looked at their company and agreed it was time to grow.

Well, I want to take that same thought and go back in time a few months. When does that business owner realize it’s time to grow? What is the catalyst?

To us, as equipment lenders, the answer is pretty obvious. It’s when you realize adding or upgrading a piece of equipment is both necessary, and more importantly, profitable.

It’s when the phone rings and someone wants to do business with you but doesn’t because you can’t meet the demand. Maybe they needed land clearing and you couldn’t schedule them until next month… but if you had another backhoe, you could do it tomorrow. 

Maybe you’re hearing customers would like better/faster delivery than the third-party service you are using, and you realize that your own delivery truck could change everything. 

Maybe there’s a new medical process in your discipline, but your office doesn’t have the new device yet. It’s expensive for sure, but the phone is ringing off the hook. Some quick math says the revenue it adds will pay the monthly payment twenty times over. That’s what we call a no-brainer. 

I’ve outlined only a few industries above, but you get the point – whatever your business is, there’s an excellent chance that adding equipment is the first way to scale up. I would say “adding people” also, because more people are usually needed to run the additional equipment… however, we’re an equipment financing company and not a personnel or temp agency, so let’s stick with the gear and leave the people stuff to others! 

But it occurred to me that every equipment financing client, whether it’s ours or someone else’s, at some point in their company history financed equipment for the very first time. 

And for those companies, it was likely a daunting step, filled with hopes, dreams, quite a bit of trepidation,  and more than a few sleepless nights of “should I or shouldn’t I?”

So this post is for you, first timer! Or those who remember their first time financing equipment. Because it’s not only a BIG step, it’s a necessary one for success.

That’s where I’ll start: if you are going to grow and succeed, financing equipment will be a regular part of your operations. It is simply not practical to pay cash for everything you need as you grow. The largest, richest companies on the planet use financing to purchase equipment. You are hardly alone in using monthly payments to invest in your company.

Secondly, be happy and excited. Remember that you are financing equipment because you are growing, and you need it to produce revenue. 

I do understand that moment when you go beyond the beginning stages and start to realize success, and it dawns on you that you need “bigger / better / more” in terms of equipment to keep up. Borrowing funds for equipment purchases can make one anxious, but always remember that you are borrowing because of your success. 

Here’s a neat thought that may make first timers feel better: For most companies, the initial piece of equipment financed is almost always tied to revenue – production machinery, a vehicle, new tech to offer another service, etc. So knowing that, some quick math may help. Take the expected monthly payment, and determine how long the equipment will need to earn that in revenue. I’ll bet we’re talking a matter of days or even hours. It’s a good way to look at things. Why waver on financing a piece of machinery when it can earn its payment and likely a whole lot more every month?

First time jitters are common, whether it’s your first day of school, your first kiss, or financing that first piece of equipment. But they all have something in common – we look back at them and smile, wondering why we were so anxious in the first place.  

I’ve been on a pretty good roll – AI was the buzzword for 2023 just like I thought it would be, and I hit on one sports pick too. And rates pretty much did what I predicted as well. Now onto 2024. 

Sports first: for football, let’s go with a rematch of a super bowl of my youth: San Francisco 49ers vs. the Miami Dolphins. It’s not Dan Marino vs Joe Montana this time, but it should be fun. And in a reversal of last time, a Miami win!

*Note that I do write these a little ahead of time, so I hope both are still alive when this publishes!

In Baseball, I picked the Braves last year, and they rewarded me with a great regular season that crashed and burned in the playoffs. But not this year – this year our locals take it! For an American league finalist, let’s go with the Baltimore Orioles to take the next step and make the world series.   

Basketball… I hit with Denver last year, but this year I am going old school Celtics. They’ll beat Denver (who makes it to the finals again.) 

Hockey – the hardest to predict. The NY Rangers look mighty strong though, so that’s my pick. Let’s go with them vs the Vancouver Canucks in another old-time rematch.

Ok, onto economics: Rates are going to start to come down in 2024. How many rate cuts remain to be seen. The Federal reserve has said perhaps three, but I’m going to put a little caution there and say two. Last spring and mid-autumn.

I also expect the US economy to be fairly stable, assuming world events don’t get out of hand. I also think our presidential election in November to take a week to resolve. That seems to be the way moving forward. Hopefully you’re happy with the result! 

Ok, enough politics – onto more fun stuff. AI is going to continue to dominate, as it changes everything. We’re already seeing this in search engine results. I do expect a little pushback though as we become increasingly uncomfortable with certain aspects of it. For example, I just saw a new AI technology from NVidia that makes it so your eyes are always looking at the camera during a video call. Yea, neat… but also not real. So are we ok with what we are seeing not being real? It’s a weird area for sure. But I do expect the “fun and useful” parts of AI to be more prevalent than the creepy ones. 

We’ll also start to see AI combined with robotics, which will reshape entire industries. I was talking with a friend who paints houses, and he mentioned how hard steep roofs can make painting.  Then he said “I can’t wait to buy an AI controlled drone to do it”. It doesn’t exist yet, but he expects it to come. Maybe not this year, but we’ll start seeing things like that more and more.    

I’m pretty optimistic about 2024, and I hope you are too. If you look at how things truly are, and not how they are portrayed on social media, there’s a LOT to like. 

Bye 2023 – it was real. Hello 2024. Let’s do this.

2022 was the year of inflation and interest rate hikes, both of which I’ve discussed at length in this blog. But there’s no getting around it – high inflation and rising interest rates (which are rising to combat said inflation) have affected every business out there. 

So with that in mind, here are a few year-end strategies that can help your 2023 start off right. 

1. Remember That Rates Are Likely to Keep Rising

I’m confident that the rates we have right now will be lower than any rate we see in 2023. Hopefully we won’t see several 75 basis point increases in a row anymore, but the scenario of “no 2023 increases” is extremely unlikely. And decreases are even more unlikely. 

This means you really can’t afford to hold out for lower rates if you need to replace machinery or make improvements. Because you will be holding out for a looong time. Which brings me to… 

2. Do More Than Your Competition.

Think about cyclists racing – the prevailing thought is you separate yourself from others on the difficult hills, and not the flat ground where it’s easy to ride. It’s the same right now for businesses.

In a booming economy with low rates, everyone can be a competitor. But it’s in the more difficult economic times that companies really make strides and pass others. Let everyone else turtle because rates went up a point or whatnot. Demand is still strong for most industries, and the companies that can best meet that demand will be the winners once the economy turns (and it always turns).  

3. Don’t forget your Section 179 deduction. 

Listen, I know taxes and “the IRS” are the last things you want to hear right now, but hidden within those words is the single best business tax deduction possible: Section 179.

Almost every piece of tangible equipment you bought for your company in 2022 is likely eligible for a full Section 179 deduction. And the deduction is good up until $1.08 million dollars of purchases is reached. 

For small businesses, that prettymuch means your entire years’ worth of equipment purchases can be deducted (as opposed to depreciating a small amount each year). Depending on your revenues, that can make a massive difference in your bottom line right now. And what company out there doesn’t need the money right now?

2022 was not easy by any stretch. But we’re all still here and 2023 is coming no matter what. This is what we have to work with, so let’s make the best of it. 

Happy New Year everyone! 

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. 

Honestly, B2B credit criteria can be complex because the answer is extremely varied, and depends on the business type, time in business, the company’s credit history (e.g., how much credit is in the business name itself), and more. 

There is no one source or definitive answer – depending on the company, we (and other B2B lenders) may look at a combination of any and all of the following: The “big 3” credit reporting bureaus (Equifax, Experian, TransUnion), Secretary of State databases, D&B (Dun and Bradstreet), LexisNexis, Thomson Reuters, Paynet, and others.  

Within these, there are a host of different types of scores that can come into play. To give an example, each of the Big 3 bureaus maintains business data and issues their own version of a business credit score; D&B has a Rating, Paydex score, Delinquency Predictor Score, Financial Stress / Failure Score, Supplier Evaluation risk rating, etc. And in the absence of a solid credit history in the company name, the principal’s personal credit scores will get an increased look. 

See why this is a complex topic? It’s not as easy as getting a FICO score and thinking that’s the number. Far from it.

Oh, regarding FICO, I need to clarify that there is no one FICO score either (this is a common misconception).  There are actually many. 

FICO scores are a component of various data supplied by the “big 3” bureaus, and 

is based on algorithms developed by the Fair Isaac Corporation (hence FICO). The tricky part is various versions of FICO exist because Fair Isaac customizes its calculation methods individually for each of the 3 bureaus (which may be further separated via specific data), each bureau modifies the score based on its own workings and  individual customer, etc…  again, there is no one score to rule them all. 

The bottom line is a LOT of data from many sources is used to evaluate credit history for B2B lending. There’s way more to it than meets the eye.

And you thought I just wrote blogs all day!

The short answer is “no, not for us”. There are lenders that have changed their requirements (specifically lenders that already took on high-risk loans), but Crest Capital’s requirements are exactly the same as they were pre-Covid.

And with that said, this is as good a time as any to go over our basic credit requirements. We’re an equipment financing company that specializes in working with successful small and mid-sized businesses looking to grow. 

So what does “successful small and mid-sized businesses looking to grow” mean in a nutshell? It means:

• Two Years in Business. No less, and no exceptions. Our favorable rates and restriction-free terms are specifically tailored to companies who have stood the test of time. 

• Demonstrated Revenue and Profit. Again, we have the most favorable rates and business-friendly terms in the industry. But we can only offer those because our customers are already profitable. They don’t see the loan they take from us as a “risk” like a recently minted business with no revenue would. Our customers already generate sufficient revenues to make the monthly payments. To our customer base, financing equipment is a smart business growth strategy rather than a way to address a lack of revenue. 

• No bankruptcies in the past 7 years.  Pretty self-explanatory. And again, no exceptions. 

• Industry. We work with almost all industries except owner-operator tractor trailers, and we generally do not work with the food-service industry either. The good news is both of these industries have their own specialized lenders.

Note – the preceding requirements are a baseline for a blog post, and do not guarantee any approval.

As I stated, our customers see financing as a component to growth. A brand-new entity typically needs financing to simply exist, and there are lenders that specialize in that. On the flip side, our customers need financing to grow. There’s a big difference. 

We like to say “we help successful companies become more successful”.  It’s how we were pre-Covid, and it’s exactly how we are now. 

That said, it does feel strange doing this in the middle of the COVID-19 crisis. So it’s with an addendum: I’ll talk about a few industries that are doing well right now, because good news is… well… it’s good! And welcome. 

But I will not be doing a “not hot” post. Because not only would it be influenced by this crisis (kind of hard for retail to get off the “not” list when most of them are closed), it simply seems out of place right now. 

Let’s take a look at a few industries that are still buzzing:

Construction – Work generally continued at buildings under construction at the start of the crisis. Also, many companies took advantage of empty offices and are having improvements done.  

Landscaping – This is an outdoor industry where people can stay spaced apart, so it’s no surprise that things continue. Plus, it’s spring, and the grass and weeds do not take time off. 

Paving – We’re seeing the paving industry jump. Many municipalities have taken advantage of emptier roads to get paving projects done, and again, many businesses see this as the perfect time to get the parking lot redone. 

Computer Hardware / Software – More “work from home” means more hardware and software is needed. Some companies even quickly ordered dozens of laptops/workstations for their workforce in one fell swoop. And IT service companies are busy keeping it all working.

Auto Repair – This would seem odd, because not as many cars are on the road right now. But this is also a great opportunity to get a repair done that was being put off. Plus, many folks are keeping older cars instead of trading them in.

Packaging – Online shopping has increased, so it’s natural that the need for packaging has increased right along with it. This also includes corrugated box printing. 

Pretty solid list there. And there are certain parts of other industries are doing well also. For example, while agriculture is down in some places (crops), it has seen increased demand for dairy, eggs, and meat. All most people need to do is look in their own freezers to see why.

Here’s another interesting tidbit – there are some industries that quickly pivoted and bucked the downward trend.  For example, many dry cleaners are completely closed or are seeing revenue down by as much as 75%.  However, we recently financed high-capacity equipment for a dry cleaner located next to a hospital. They needed this equipment to keep up with demand for hospital and police department contracts. In fact, this demand increased so much they had to go to multiple shifts. There are good stories if you look for them.

So there’s my equipment financing hot or not for 2020. It’s a little different than usual, but I feel good after writing it, because it always pleases me to see any industry grow.