Should you rent or purchase your next crane?

Business was good in the construction sector in 2017. That has created steady work and a bright outlook for crane owners, as well as manufacturers, distributors, and rental houses who provide iron.

But crane owners and users have long memories. When it comes to investing in new equipment, scars inflicted by the most-recent recession have some operations still favoring equipment rental over purchasing.

The crane industry offers short-term and long-term rentals. Also, re-rentals between crane rental companies, dealers, and manufacturers, can help companies respond to business opportunities. “Many reasons for renting cranes haven’t changed over the years. More companies now may consider renting as a result of the last economic downturn, which was a difficult time for many companies,” says Harry Fry of Harry Fry & Associates, West Newbury, Mass., a financing and leasing source for the crane industry...

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As we kick off a new year – here’s a brief overview of the basics of credit review - Say “CHEERS”!

C – Cash Flow:  Does your company generate enough cash flow to make the monthly payment? When adding a new piece of equipment to your fleet, lenders will look at your financials to see if your company is currently generating enough cash flow to cover the new monthly payment. This might be current cash flow or added revenue that the new equipment will generate.

H – History:  How long has your company been in business; what is the background/experience of the owners/management team; do you have comparable borrowing history? Lenders will want to understand where your company has been and what you project for the future.

E – Equipment/Collateral:  The collateral is the lender’s security for the loan or lease. The collateral has an impact on the length of term and the rate. A new piece of equipment may have manufacturer rebates or financing, however these programs generally have very short terms and may not be affordable for your company. A late-model piece of equipment may still qualify for the longer terms and lower rates, while an older piece of collateral may be subject to shorter terms.

E – Equity:  Some lenders may want to have some equity in the transaction. The lender wants to see that your company has some investment in the purchase.

R – Rate:  Although most think that this is most important factor, it is only a small part of the overall parts of the deal that you need to take into consideration. Rate, structure, equity requirement should all be taken into consideration when assessing what works for your company.

S – Score:  Your Company’s credit score helps the lender determine how risky the deal is. If your company has comparable borrowing history that has been paid on time, the risk is lower. If this finance request is the highest amount your company has borrowed, the risk is higher.

Now that you understand what goes into the credit process and an approval has been provided, the next step will be documentation. Here is a general explanation of the basic documents and what each document represents:

Promissory Note – this is your Promise to repay the loan. The Promissory note will contain all the basics of the transaction – the rate, the term, the monthly payment. It will also contain the general requirements of the loan such as how your payments are applied, keeping the asset insured, events of defaults and remedies.

Security Agreement – this document provides the information on the collateral that will be used as security for the loan or EFA along with the rights of the Lender, or Secured Party. It will contain a complete description of the collateral, the primary location of the collateral, that the collateral is being used for business purposes, that the collateral is free & clear of any liens. The agreement states that you, as the Borrower, will keep the collateral maintained and insured, properly registered and/or titled. States that the Secured Party has a right to inspect the collateral and will file financing statements on the collateral. All events of default will be delineated with all remedies.

Guaranty – if a personal or corporate guarantee is a part of the approval, a guaranty document will be included in the documentation package. This document sates that, if the Borrower does not make the payments, the guarantor is responsible to make the loan or lease payments.

Pay Proceeds or Disbursement of Funds – this document advises how the funds of the loan will be disbursed 

Equipment Finance Agreement – this document includes the amount of the advance, the term, monthly payment, agreement for lender to have a security interest in the collateral, events of defaults and remedies.

Payments in Advance vs. Payments in Arrears:  Payments in advance requires you to make payment(s) at the time of signing documents. Payments in arrears means your first payment will be do some time after the funding of the transaction, generally 30 days after funding. In some cases, the first payment can be due 45 days or more after funding.

Down payment – refers to an amount of cash/equity that the buyer is responsible to pay towards the purchase of the equipment.

Corporate Resolution and Consent of Stockholders – for a Corporate Borrower, this document outlines the officers of the Corporation and states that the Officers have the authority to execute documents on behalf of the Corporation. A similar document is used for LLCs.

Lease Agreement – this document will spell out all of the general terms of the lease such as use of the equipment, maintenance of the equipment, insurance requirements, responsibility of any taxes due, events of default and remedies, etc. Some lease agreements will include the term of the lease, monthly payments and end of lease options, while other lenders may use a separate Lease Schedule document.

TRAC LeaseTerminal Rental Adjustment Clause – combines all the benefits of leasing with an option to purchase the equipment at the end of the lease term at a pre-determined residual agreed to at the start of the lease. This lease is used for any over-the-road equipment.

Capital Lease – a lease where the Lessee assumes some of the risks of ownership of the equipment and also enjoys some of the benefits of ownership, such as carrying the equipment as an asset and also as a liability, for the lease payments, on their balance sheet. Generally a Capital lease will have a stated residual/buyout at the end of the lease term.

Operating Lease – a lease where the Lessor (owner of the equipment) transfers only the right to use the equipment to the Lessee. At the end of the lease term, the Lessee returns the equipment to the Lessor. The Lessee does not have any ownership in the equipment.

By Tonya Fry (Published in American Cranes & Transport Magazine)

Tonya Fry discusses why, in such an automated world, service and relationships are still what sells, whether you are selling cranes, financing or widgets.

Maybe it’s just me, but are you getting tired of the impersonal way of doing business today?

We hardly talk on the phone any more – its text and e-mails now.

We can buy just about anything we need online, from something as simple as a bag of plastic straws – yes, you can order them on Amazon, and I know because I’ve done it – up to a new vehicle. It will be delivered right to our door and we never have to step foot into the store or auto showroom.

We go to the big box stores and you have to self-checkout and hope that you don’t make a mistake as there will only be one associate to service 20 registers.

We don’t have to go into a bank anymore – we can use an ATM to get cash and use our mobile phones to make deposits.

Although this can be very convenient in our busy lives, it has taken away the personal touch...

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By Tonya Fry (Published in American Cranes & Transport Magazine)

There are currently five major finance issues facing the crane industry today. The best ways to mitigate these issues are to provide lenders a complete credit package, take time to speak directly with your lender, and be sure to keep an open mind. 

The top two issues facing crane companies today in regard to obtaining credit is limited funds availability and maximum risk aversion by credit sources. Since 2008, many banks have either ceased all equipment financing, or those that have not, have severely decreased their lending capacity, especially in the construction industry.

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WHAT IS IT THAT YOU LIKE ABOUT WHAT YOU DO?

The old saying is do what you love and the money will follow. In our case we love what we do by helping companies reach their goals. We enjoy the customers we have met over our 20 years and many, if not all, we consider friends.

WHAT ARE THE BIGGEST CHALLENGES IN THIS BUSINESS?

Like everyone else, the biggest challenge is riding the economic roller coasters.

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By Harry Fry (Published in American Cranes & Transport Magazine)

In 1995, Harry Fry formally left the corporate world of finance and struck out on his own. Twenty years later he is a leader in the realm of crane and lifting equipment financing, known for his industry knowledge and acumen for financing and leasing equipment. “I left the corporate world because we were getting transferred every couple of years or less, and I promised my daughters, once they got into high school, no more moving,” he said. “We started out on our own in January 1995 as an agent for MBCC/Debis (Daimler- Benz Inter-Services). We were formally incorporated in April 1995.”

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By Tonya Fry (Published in American Cranes & Transport Magazine)

Most crane owners understand that even with economic swings, cranes are excellent long term investments. Most companies that are considering adding a crane to their fleet typically evaluate new and used cranes for several reasons. Many of our clients considering adding a crane do so to grow their business, increase revenue or replace an aged machine. Or they may need a crane for a specific job. Since the recent recession is indelibly etched in the memories of many, the new versus used crane evaluation is a frequent exercise by crane owners. Even when the crane purchase can be justified and an immediate need is evident, there remains a hesitation to move forward. Often times, a used crane is purchased because it achieves the goal at a lower cost. However, there are also cases in which a new crane is the better decision, especially when comparing financing.

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By Tonya Fry (Published in American Cranes & Transport Magazine)

Whether you are purchasing cranes or other equipment for your company, or are a dealer recommending financing to your customers, finance sources should not be chosen solely based on the best rate. Instead, customers and dealers need to ask themselves, is this lender the best fit for my business? Rather than focusing on just the interest rate, the lender should be viewed as a strategic business partner who will help grow and enhance the business.

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“Starting out as a small taxi crane service, Harry Fry & Associates has made it possible for us to add equipment to our fleet. We look forward to a long business relationship for years to come. “
Andrew S. - Crane Service, Idaho