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. 

Used heavy equipment financing is something Crest Capital has done for more than 30 years and remains one of our core offerings. We finance heavy equipment for both equipment purchased from a dealer, and we also finance private party used heavy equipment sales. In some cases, we even financed a piece of equipment when a company bought it new, then six years later financed the used sale for the new owner.

One big reason used heavy equipment is a robust industry is that most pieces of heavy equipment are not as impacted by technology as much as other types of equipment. Of course I’m not saying advances have not been made – today’s heavy equipment offerings are definitely better than yesterday’s – but the advantages may not be immediately noticeable, especially when it comes to the core work. An older backhoe can generally hold its own against a newer model for most backhoe-related functions. An older dump truck can still do what a dump truck is supposed to do – hold and dump its cargo. The interior, engine, and creature comforts may differ radically, but the “hold and dump” parts will be similar. A profitable, growing construction company can certainly find use for a used dump truck.    

There’s almost nothing I like better than talking to someone about financing used heavy equipment. I like construction people in general, and there’s always some excitement in the air when a used backhoe, dump truck, skid steer, or similar is changing hands. And I enjoy it when businesses are happy about getting new-to-them equipment and seeing a profitable future.

If you’re in the construction industry, you can probably look back and feel an affinity for a certain piece of heavy equipment you no longer have. It may not be today’s shiny new model, but I’ll bet you’d like to operate it one more time!

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.  

One thing that is sure to remain is companies rushing to get a Section 179 purchase or three in before the deadline. And as I’ve written in the past, that could be spotty depending on what you are buying.

** For those who don’t know, Section 179 is a business tax deduction that allows you to write off the full price of eligible equipment, up to a little over one million dollars. It’s a big deal.  

Remember the deadline requirements with Section 179 – your eligible purchase must be bought and put into service by midnight 12/31. That second part (put into service) could trip some companies up. 

The post-pandemic supply chain crunch is very real and is affecting countless industries. The domino effect is strong as well – even if you think your industry isn’t directly affected, a hard-to-get computer chip might be required to make the widget your industry relies on. Or your non-affected goods might sit in the container at the port weeks longer than usual. You’ll get it, eventually, but maybe past the deadline? Nobody is immune.

There are two suggestions if you are reading this now (November 2021) and still haven’t bought your Section 179 eligible purchases for the year:

1. If you can be guaranteed delivery by 12/31, buy it right now. As in today, not tomorrow. If you are paying cash, great, go do it. If you are financing, get your financing lined up immediately (hint: we can help). Getting it now can make a big difference in delivery. 12/31 is coming fast.

2. If delivery by 12/31 is iffy, maybe consider used? A preowned piece of equipment has the advantage of being right here, right now. If that works for you, definitely consider it. 

You can also wait until next year, but that doesn’t help your 2021 either. And for many companies, 2021 isn’t going to be slotted into the “our best years” list, so getting a nice tax deduction at the end is desirable. 

Section 179 is ready and waiting. Use it.

And almost right away, my brain kicked into “and getting used equipment instead alleviates that” (since Section 179 eligible equipment can be new or used.)

So let’s talk about used equipment a little, specifically the advantages of used equipment over new (note: this assumes used equipment in decent shape and still useful in a technological sense.)

Used Equipment Is Less Expensive – You will always save money with used equipment over new. And in many cases, the used equipment is still quite relevant when compared to new. Sure, a used computer with a CRT monitor can be borderline useless due to rapid technological advances, but a used dump truck or bulldozer can typically do the same job as a new one can.

You Can Take Delivery of Used Equipment Right Away – This is a big benefit, as exemplified by my last post. Used equipment is already assembled and complete, and more importantly, it’s simply “there”, meaning you can take immediate delivery of almost any used equipment purchase. Anecdotally, I know someone who must wait several months for a new piece of equipment that needs a delayed chipset. And I know someone else for whom we financed a used skid steer last Friday, and he’s undoubtedly using it as I type.

You Can Finance Used Equipment – We will happily provide used equipment financing for most business equipment. Even private party used equipment purchases can be financed, which can be a big help to a lot of small businesses (tooting our horn here, because not everyone offers this.)

Used equipment has always been popular with small and mid-sized companies. And in 2021, the “we can use it immediately” aspect is another clear checkmark in the “advantages” column, because, assuming the equipment itself is eligible, your Section 179 deduction is safe. 

It goes back to when I was a kid. As I’ve mentioned in previous posts over the years, I was the guy with the Tonka® trucks. So I kind of gravitate to heavy equipment, construction machinery, and related. Usually when we finance a piece of construction equipment, we get information on the make, model, specs, a picture or three, and similar. Even now, in my adult years, I imagine these immense machines, with giant tires (or maybe even tank treads) moving, pushing, and shoveling earth. I won’t say whether I have a toy truck or three in my desk drawer or not. And if I did, I’m not going to say whether they come out at lunchtime…

One thing I do like is the number of companies that come to us to lease a dump truck or finance a backhoe. In fact, over the last few years, heavy equipment financing has really taken off as the economy improves, and Crest Capital has sort of become known as a prolific heavy equipment financing company (amongst other types of industrial machinery – CNC machines still lead the pack).

Recently, a client mentioned financing and the holidays, and is where I got the title to this post – he said “I felt like the bank was Scrooge, with a long list of legalese. My wife asked me what I wanted for Christmas, and I actually blurted out something like ‘I want a heavy equipment financing company that doesn’t make it hard’. Well, my gift to myself was I found you, and my wife is probably getting me the camera I wanted, so it’s a good December.”

That’s what I like to hear. Now if you’ll excuse me, I have to check my desk drawer before I make my Christmas list…

But first, let’s go back to the sandbox, and an eight-year-old Fletch. I loved “heavy equipment” toys as a kid. I’d have my Tonka trucks, and I’d spend hours digging, building, and pushing dirt around. And my favorite truck? It was the mighty dump truck! Because it could hold a lot of dirt and mud, and was also large enough that I could reach my fist in and grab a handful to throw at the neighborhood girls (full disclosure – this was not a part of adult Fletch’s dating ritual. Mrs. Fletch will attest to this.)

Anyway, whenever we finance a dump truck (used or new), I think back to those times in the sandbox and smile. And we’ve been handling a lot of new and used dump truck financing these days.

I think one of the reasons companies are leasing dump trucks so much today is partially due the very nature of the vehicle. A dump truck has only one real job – to haul lots of stuff (or mud for my eight-year-old self). Dirt, gravel, debris, junk, whatever – a dump truck moves it from point A to point B, and dumps it. Where a piece of heavy equipment like a backhoe can have a myriad of uses, a dump truck has one main function. That makes it a little more specialized. And it’s my contention that it’s always best to spread out the payments for a specialized piece of equipment.

To expand on that previous thought, a dump truck is very necessary for any construction company. But because it’s so specialized, it’s only used in certain parts of a job. Thus, in an “hours of use vs. price” aspect, a dump truck will take longer to pay for itself than a backhoe will. After my mud-throwing days, a young Fletch worked on a construction site for a bit. The backhoe ran almost daily. The dump truck was used 2-3 times a week (and sometimes sat unused for a week). That’s simply the nature of the vehicle.

And this is why new and used dump truck financing makes total sense.