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 “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.

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.

The misconception is the lowest rate is everything. And it’s not even close to being everything. In fact, I would argue that in the amounts we generally finance (typically between $5,000 and $500,000), the rate is, at best, the fourth or fifth most important thing, behind collateral, several restrictions, and terms.

In fact, I know someone is quite knowledgeable about business when their first question is, “What are the collateral requirements?” or “How flexible is the repayment structure?”. People newer to business typically lead off with “What is the rate?”

Here’s a quick example: John and Mike both borrow $85,000 for a delivery truck. John’s rate is 7%. Mike’s is 8%. 

John’s 5-year payment is $1683.10.  Mike’s is $1723.49.

So on the surface, John’s payment is roughly $40 less per month, or $480 a year. Multiply that by five years, and that comes to $2400. 

Ok, it’s not chump change, but it’s not that big of a factor over five years, either.

But, in John’s loan, he had to put up his house as collateral, as well as having a lien on the truck. That’s why the rate was lower – lessened risk to the lender.

In Mike’s delivery truck loan (written by Crest Capital of course), the truck lien itself was the only collateral. 

John risked his home for $2400 over five years. Did he really get a better deal? 

I don’t think he did. Most people (and any spouses/family members also living in that house) would agree. 

As I go through this entire series, we’ll run into a number of these “tradeoffs”. I’ll highlight them with a Tradeoff Alert. 

As this upcoming series will show, there’s a lot that goes into a rate, and there are tradeoffs. And when it comes to small business borrowing, the lowest rate is usually not the best deal.

Not to pat myself on the back (ok, I am), but I was pretty darn prophetic. That’s exactly what happened. But hopefully, the cycle is coming to an end. We recently saw our first rate cut in what feels like forever – 50 basis points was the number.

But what does the rate cut mean for the economy? Does it mean inflation has been tamed and won’t come back? Does it mean the cost of borrowing will come down? Does it mean we’ll never see another rate hike?

The answer to all of those questions is impossible to nail down. And none of them will involve a speedy resolution. 

Inflation has proven sticky, and while rates of increase have slowed, the cumulative/compounding nature of this prolonged inflationary period means that price levels are now structurally and substantially higher than pre-2022 baselines. The reality is even in the best of times we have inflation. The cost of goods will still increase annually, just like they always have.

Will borrowing costs come down? Not as fast as everyone would like. While lenders’ rates typically follow the Federal Funds Rate directionally, the relationship isn’t as straightforward as many might expect. Lenders adjust more slowly, cautiously, and incrementally than the Fed. A 50 basis point Fed rate cut doesn’t mean an immediate equal reduction in lending rates. With the higher default rates across lending sectors in 2024, lenders will likely reduce rates more slowly than Fed cuts as they weigh multiple factors beyond the Fed’s actions. Borrowers shouldn’t expect quick or one-to-one reductions in lending rates following Fed cuts.

Will there ever be another rate hike? History suggests it’s virtually certain. While the timing is unpredictable, our economic cycles have always involved periods of rising and falling interest rates. 

So what do these rate cuts mean for you? The immediate impact may be smaller than you hoped, but if you need equipment now or eyeing a great deal, go get it. Current lending rates are likely to be around for a while, and prices will still go up. Waiting always costs you.

If you thought the bank saying “yes” when they gave you the loan was the end of them looking at your company’s finances, think again – it’s not. Written into virtually every bank loan contract is a clause that gives the bank the right to make a borrowing company “requalify” for the loan annually. And if the bank doesn’t like what it sees, they reserve the right to call in the entire loan immediately.

That’s scary. Especially since the last two clauses we discussed – the blanket lien and the compensating balance – means they can collect immediately. They can fully take that compensating balance they insisted on, and then they can seize any of your assets to satisfy the rest. That could cripple many companies. 

The really odd part is you need not default on the loan for this to happen. You could be making all your payments on time, but if your overall financial picture degrades, the bank won’t care that they are still getting paid on time. They will instead say “you don’t qualify for this loan anymore”.

The thing is, a temporary drop in any company’s finances can happen. For example, maybe you lost your largest customer, and while your sales team is working hard to replace that revenue, your numbers are temporarily down. Or a bridge on your main road fails, resulting in an unavoidable-but-unfavorable-for-you detour. And it’s going to take six months for much of your retail traffic to return. Or a hundred other reasons revenue and profits temporarily drop. It happens – that’s business.

So imagine something “temporarily bad” like the above happens, but then the bank makes it 100x worse by calling in your loan(s). Talk about pouring when raining… 

This is why yearly requalification is such a scary bank clause. It sits there innocently in the fine print, but when it does emerge, it’s always at the absolute worse time.  

So what can you do about these bank restrictions? We’ll talk about that next.

A compensating balance is when a bank requires a business to keep a certain balance amount in an account with them. This balance amount is typically 80% of the equipment loan.

The key factor is this is it’s a required minimum balance, meaning the balance cannot fall under that 80% amount. In other words, it’s money that is technically yours, but it’s kind of not, because it’s locked up and you can’t use it. 

In addition, it’s very likely this money will need to be in a typical business checking / business account that’s paying next to nothing. No bank is going to give you the special “36-month CD rate” on your compensating balance.

So here’s what you end up with: a big chunk of your money NOT working for you, that you cannot use either. Instead, it quietly sits there, just in case you decide to default.

This brings up a very valid point. If you can’t use the money in the account, whose money did you actually borrow? If you answered “it’s like I borrowed my own money” you’d be right. That’s exactly what it is, in fact.

Many companies don’t even realize this happens, because they often use their own bank for equipment financing. So they have money in the bank anyway. Even if they are aware of the compensating balance the loan officer may say “it’s no big deal – you already have your money with us anyway”. 

But that’s not the point. The point is it’s money you cannot use. And honestly, money that you cannot use but also isn’t growing is pretty useless, and not a good business practice.

If you value financial flexibility and spending your money the way you wish, look for a lender who does not use compensating balances, like Crest Capital. We don’t care what you do with your money. After all, it’s yours, and you can spend it any way you like. 

THAT’S Freedom!  

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! 

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. 

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