Let’s back up about 15 years – my buddy decided to start a landscaping business, and like many others, basically went the DBA route. One day he was a regular guy with a regular job, and the next he was a business owner. He already had a pickup truck, he borrowed a small trailer from his father, bought a mower and some other equipment from a big box retailer, and went on his way.

Later that summer, he was doing decent, and took on a part-time helper. One day, he sends the helper to the store to get something they needed… and there was an accident. Someone ran into the trailer, gasoline (two 5-gallon containers worth) was everywhere, and some of the hand tools were destroyed (luckily the mower was not on the trailer.)

Turns out it was the other driver’s fault, and the insurance companies worked it all out, but then he got a call from his insurance agent. Basically, they told my friend he was super-lucky. Since the other driver was at fault, their company ended up paying, but if the tables were turned and my friend’s helper was the one at fault… well, that could be an issue. 

See, my friend, like tons of other small DBA-type companies, used his personal vehicle for business. But, unknown to him, he was taking a massive risk – he never got a commercial / business vehicle policy. And the insurance company has little interest in paying out when a personal vehicle is used for business and there’s an incident (never mind the employee driving it). And honestly, you cannot blame them.

For any business vehicle, there are two things that are almost non-negotiable: the vehicle should be registered in the company name, and it must be insured with a commercial policy.  For the record, Crest Capital ONLY works with companies in business for at least two years and will finance the business vehicle in the company name, as well as register and insure it that way as well. This way there are no issues or surprises.

Remember: you don’t get to buy insurance after the fact. When there’s an incident, you either have it or you don’t. No do-overs.        

In the next post I’ll discuss a few details about business vehicle insurance that companies should know about. But for now, just know that you must have it. Anything less is taking too big a risk. 

But there’s another aspect to the economy that isn’t discussed as much, and although this other aspect is a very good thing, it is also part of the very reason for inflation and higher rates. I’m talking about demand.

Quite frankly, demand is the very reason for your company’s existence. No matter what you make, no matter what you sell, or no matter what service you provide, you are filling demand. 

From the companies that I talk to (and it’s a LOT of companies), demand is still quite strong in most industries (ironically, it’s my own industry, lending, where it’s still softer than we’d like). But for many companies, especially in service industries and many types of manufacturing as well, demand is there. Companies cannot make products fast enough, and service companies are increasingly being spread thin. Have you tried to find a reputable contractor to build you a deck? Get in line. My cousin is trying to have an in-ground pool installed – he’s on 2024’s schedule. Yes, a year from now. 

Situations like this are where opportunity springs. Can my cousin’s area use another pool contractor? Yup. Or could the current pool contractor expand (as to maybe prevent another company from cropping up because people really don’t want to wait a year). Yes again.

Take some stock – how is your demand? If it’s high, and if people are waiting, trust me, there’s someone out there right now saying “you know what this area needs? Another <insert service>.” Or one of your competitors is saying “if we add another crew, we could raise sales by $XYZ”.

Think about this – we have “doom and gloom” economic headlines, and a government that exactly nobody is happy with. Yet demand in many industries continues to rise, and the overall economy remains strong, adding job after job.  

If your demand is still strong, it might be time to really think about addressing it. Could equipment financing or vehicle financing help? If so, you know where to go! 

Way back in the early 90’s, a civilian version of the military’s “HumVee” was made available. And it’s big. Real big, coming in at over 6,000lbs. Then GM bought the company that made them, and really started mass producing them in 1998.

So why was this special? Well, first of all, it’s a giant vehicle. But second of all, it created a loophole allowing people to “write off” their personal vehicle under Section 179.

See, Section 179 was meant for businesses and business vehicles. Not vehicles you take to the mall. So when the tax code was created, a 6,000 lb GVW (gross vehicle weight) was instituted. This was sufficient at the time, because there were no passenger vehicles that big (that’s three tons, folks). Then the Hummer came along…

Savvy consumers caught wind of this. Many people reasoned, “hey, if I need an SUV anyway, why not buy one a little bigger and get a sweet deduction?” So Section 179 became known as the “Hummer Tax Deduction” or the “Hummer Tax Break”.

Fast forward a bit – other vehicle manufacturers caught wind of this, and started producing their own massive SUV’s. And today, they are everywhere. In fact, I’ll bet there are probably 40-50 models that qualify for Section 179.  And oddly enough, none of them are Hummers (new ones, anyway), as production was ceased in 2010.

As of now, the 6,000 GVW is still in force, and to get the deduction, the vehicle must primarily be used for business (you get the % you use it for biz).

You are using it for business, right?

On the surface, it seems a little odd, right? Because there are many, many companies who use passenger cars. In fact, one of the perks for many executives is a “company car”, and many a small to medium business owner has their everyday vehicle as a company car as well.

And that’s pretty much the reason why commercial lenders (like equipment financing companies, and even the commercial arm of the bank) shy away from “personal” style / passenger vehicles (note: Even pickup trucks and normal sized vans are on the “we don’t finance that” list for some commercial lenders.)

See, these vehicles, even if designated for work under the company name, are almost always also for personal use. Even contractors who have a work truck likely run personal errands and bring their kids to the ballgame in that truck. So even if the business buys the truck, it still could technically be classified as “consumer debt”.

This is important, because when financial lending institutions (like banks and equipment financing companies) list their assets and liabilities and overall financial picture, consumer debt carries a different weight and overall risk than commercial debt (note – Section 179, which I talk about often, also treats these vehicles differently. You can’t “write off” your Buick under Section 179.) As commercial lenders, we want no consumer debt.

Thus, for an equipment financing company to finance or lease a vehicle, we want to be reasonably sure that it’s going to be used 100% for business, which means more or less “equipment” type vehicles which really aren’t practical for personal use. For example, you aren’t taking your wife out to dinner in a bucket truck, right? Or bringing the paving truck through the drive-thru?

Although those would be pretty funny – I wonder if Mrs. Fletch would have married me if I showed up to our first date in a dump truck…

Have you ever financed or leased a car or truck? Most of you probably have – they are easily the most popular ways for many people to acquire vehicles these days. Let’s talk about the differences between the two in an overall sense.

When you finance a vehicle, somebody else loans you the full amount to “buy” the vehicle. Typically, the bank does this through an auto loan, but also many vehicle manufacturers have their own financing companies as well.

Either way, it’s the same – the dealership gets paid the full amount by the lender, and you pay the lender back, usually over a term of 4-7 years, with 5 years (60 months) being the most common. The lender keeps a lien against the vehicle (this is noted on the title). And when the term is over, you “own” the vehicle and the lien on the vehicle’s title is released.

With leasing, it’s a little different. You still make monthly payments to a leasing company, but the end goal is usually NOT to own the vehicle (at least on the consumer end – we’ll get to that in another post). What happens with a vehicle lease is you pay for the value of the vehicle that you use. So if you lease a new vehicle for three years, the dealership / leasing company will calculate what that vehicle will be worth, with normal wear and tear, three years from now. You make payments on the difference between today’s value, and the value three years from now, (when most consumers trade it in, and lease another car.)

The preceding is why there are mileage limits on leases – the leasing company needs to have a good idea what condition the car will come back in. They basically say “ok, return this in three years, with less than 36,000 miles, and assuming normal wear and tear, it’ll be worth $xyz”.

Technically, there is a buyout at the end of the lease, where you can own the vehicle if you really like it, but for most consumer vehicles, this doesn’t happen. The goal of leasing is to always have a “new” car every three years or so. Mrs. Fletch does this – she’s always driving a new leased car. Yes, we always have payments on her car, but we never have an 8 year-old clunker in the driveway (well, she doesn’t. Me on the other hand…)

Note the above is a broad based description of the two. And the above is also based on the consumer end of the spectrum – I’ll talk about equipment financing companies and leasing vehicles (financing too) in the next few posts. Maybe even some Section 179 stuff, too!

Anyway, here are some more industries that are “hot” in leasing equipment:

Vocational Vehicles are hot. What I mean by “vocational vehicles” are trucks and such owned / used by companies that aren’t “transport” vehicles. In other words, not 18-wheelers / tractor trailers (in fact, not to spoil the surprise or anything, but 18-wheelers will probably make an appearance on the “not” list).

But yes, other types of work vehicles are fairly hot right now. Cube vans, dump trucks, specialty work trucks, heavy equipment… all doing ok. Even food trucks and ice-cream wagons are holding their own (so don’t worry kids, the ice cream man isn’t going anywhere.)

The last industry I’ll mention as being on the “hot” list are trade contractors. We’re seeing increased applications for roofing equipment, waterproofing equipment, remodeling tools, etc. The reasoning here is we are in the spot of the economy where it’s not really good enough for people to move, but it thawed just enough for them to say “you know, let’s get that leaky roof fixed” (or perhaps look around and say “it’s cheaper to make this house the house we want instead of buying new.”)

Whatever the actual reasoning or conversations that take place, it’s clear that the skilled trades are definitely on the upswing, despite the lack of new construction in an overall sense.

So there we have it – to recap the last two posts, we have agricultural equipment, landscaping equipment, vocational vehicles (non-18-wheeler), and construction trade equipment. Those are your “hot” industries / products in equipment financing. Next, we’ll take a look at what’s not so hot (and you know I’ll throw in a Section 179 post in there somewhere as well.)