Commercial Credit Group Inc.
THERE’S MORE TO EQUIPMENT FINANCING THAN RATES By Julie Murphy, Vice President – Marketing, Commercial Credit Group Inc.
MORE TO
EQUIPMENT FINANCING THAN JUST
THE INTEREST RATE! When discussing an equipment loan, many companies begin with the question, “What is the interest rate?”. What most people don’t understand is that interest rate is actually a very small component of overall financing costs. And cost isn’t the only piece of the financing puzzle. In the world of construction equipment financing, relationship often plays a much bigger role than interest rate or monthly payment. Almost Any Company Can Lend Money Let’s be honest. There are a LOT of companies that offer equipment financing. These include: • Captive finance companies (finance arms of equipment manufacturers) • Independently-owned finance companies • Banks • Online lenders And within each of these classifications, there are many options. Some lenders have more experience in the construction industry than others, and understand the industry, the business, and the equipment. Many lenders require personal credit scores to approve an equipment loan, much like they would with a personal loan. Additionally, there are various types of loan structures available to contractors. Some lenders only provide equipment purchase loans and/or leasing. Others also offer refinancing, debt consolidation, or cash-out (working capital) loans. A machine acquisition can be straightforward, requiring a small down payment and simple loan 28
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structure. Larger purchases could involve refinancing of existing assets, cash out for accessories purchases, and an equipment loan to acquire the new machine. Lenders familiar with this type of deal structure will already have the needed processes in place to ensure a smooth transaction. The type of loan needed is dependent upon the needs of the company, and these needs change over time. It’s important to match the lender to your overall financing needs. Committed to the Industry As with many industries, construction can be cyclical and seasonal. In the good times, money is plentiful and lenders are abundant. In the down times, many financing resources retreat from the market. In the aftermath of the 2008/2009 financial crisis, funding for the construction industry became scarce. Companies shuttered, equipment remained idle, and many banks and lenders pulled out of the market. They weren’t willing to take the risks associated with the slowdown. This made it even more difficult for the contractors that were operating to obtain funding to help them through the slowdown, and not just for new equipment purchases. Lenders that have experience with the industry, understand the cyclicality, have a greater percentage of their business with contractors, and are long-term players. Developing a relationship with this type of lender can be essential to a company’s ability to navigate all economic cycles. C A LCO N T R AC TO R .CO M
