Besides interest rate increases, the most frequent topic customers and potential customers ask is, “What is the credit like today?”

Due to bank shutdowns, constant media bombardment about a possible recession, and an uptick in fraud, lenders are proceeding cautiously. Are they lending? Yes! However, lenders are asking more questions and requesting more information. So it takes a bit longer to get a deal done.

Here are some of the questions we hear most frequently. Hopefully, the answers will help you be pre­ pared and understand what to expect.

How can a borrower help the process go smoothly?

Tell us your story. We want to understand your background, how you started your company, what you see happening in your market, and what you anticipate your business to do in the year ahead. Provide a complete, legible credit application. Taking the time to complete the application may alleviate some questions once the file is in credit review.

Why am I asked to provide financial information?

There are several reasons that company financial information may be requested:

• The company does not have comparable borrowing (In this case, financial information or bank statements may be requested).
• The requested finance amount is above the application-only limit of $650,000.
• The purchased equipment is new to the fleet and will replace rented equipment. In this case, the financials may show what the company is currently spending on rented equipment, which can be compared to the monthly financing payment.

Next Step

What can I expect once my credit is approved, and what steps can I take to be prepared?

Suppose you are purchasing from a licensed dealer. In that case, the dealer will pro­ vide an invoice with all the pertinent information about the equipment you are buying, such as year, make, model, and serial or vehicle identification number (VIN) for all of the components; as well as the purchase price plus any additional costs, such as sales tax, delivery, title fees, etc. These transactions are typically quicker and easier.

What if I’m buying from a private party?

Due to the lack of equipment, we are witnessing a significant increase in private party or user-to-user transactions. Lending for these transactions can proceed smoothly if you have the correct information and a little patience. You’ll need to provide the same information you would if you were buying from a dealer, plus a few additional items:

We may request a copy of the seller’s original invoice from when they purchased the equipment. This is requested to trace the purchase back to a licensed dealer and, if it is a non-titled piece, to serve as proof of ownership.

If the seller has the unit financed, we will request a current payoff. At funding, we will pay that lender off directly and fund the balance to the seller. We want to ensure the lender receives the due amount and can promptly release the lien.

We will also likely require a sight inspection of the equipment. The inspection ensures that the equipment with the correct VIN/ serial numbers matches what the buyer is buying and is in working condition.

A lien search on the seller will be ordered and reviewed for any outstanding liens on the purchased equipment and any “blanket” liens filed against the seller.

What are Blanket Liens?

These liens are not specific to one piece of equipment. They encompass all the equipment, inventory, etc., the seller owns.

Any lender who has filed a blanket lien must provide a lien disclaimer to ensure that the buyer is protected and that the equipment being purchased and financed is free of these blanket liens.

Generally, blanket filings are put in place if the seller has a line of credit with a bank or has an SBA loan/EIDL loan. All parties need to be patient, as it may take time to get the proper signatures on the required lien disclaimers.

Next Steps for Any Loan

Documentation:  The buyer (borrower) will be asked for a copy of driver’s licenses for anyone who must sign documents. This ensures that the signers’ names are correct and legal.

Documents are sent via email or DocuSign for signatures. Emailed documents may be returned via scan and/or as original copies.

Proof of insurance: Lenders will require the collateral to be properly insured, and the lender is listed as the Loss Payee and Additional Insured.

Review of documents for funding: The lender’s funding department reviews the signed documentation package to ensure all documents are signed correctly and the file is ready to be funded. During this review, patience may be needed. It takes time to be sure all the i’s are dotted and the t’s are crossed. Additionally, corrections may sometimes be necessary, which adds time to the process.

Verbal funding authorization: Once the documentation review has been completed, the lender may contact the buyer and seller to confirm the transaction details and the wire transfer information. If all is in order, the wire transfer will be released.

Use a Professional Lender

When purchasing something as valuable and important as heavy equipment, it’s essential to work with a knowledgeable professional who has experience in your industry and understands your type of business and the specific equipment you need. That kind of knowledge and understanding helps the borrower get the most from their investment and makes the process go as smoothly and as quickly as possible.

For the first time since 2020, the Federal Reserve cut interest rates, and they reduced the rate by fifty basis points .50 Bps, which was a larger cut than the expected.25 Bps. The prime rate is now 8 percent. So, what does this mean to the business owner, and will the Fed continue its rate reduction?

Economists at JP Morgan Chase had been calling for a .50 Bps rate cut since July and were happy to see this reduction go through in September. There is speculation the Fed may reduce interest rates by another .25/.50 Bps at the early November meeting. This reduction will most likely be contingent on further softening of both the October and November jobs reports, CPI, and other inflation measurements (Morgan, n.d.). The rate reduction is great for borrowers as they should start to see the effects of this trickle-down to their lending institutions.

Capital requirements relaxed

In addition to a rate reduction, there was recently an overlooked victory for banks that should greatly benefit the business owner/consumer in conjunction with reduced rates. Regulators have been pushing for banks to carry additional capital as a safeguard for the economy due to potential portfolio risk. What does this mean?

It means that “for every dollar of capital a bank has to tie up on its balance sheet, that’s a dollar it can’t deploy as loans into the economy” (Litman, 2024). Recently, bank regulators agreed to relax capital requirements. Along with the rate reduction, this is a huge win for borrowers as banks may utilize the additional capital to lend. Also, lending institutions typically have a strong push to grow their portfolios in the Q4 to enhance year-end results. As a result, lenders may become more aggressive for new business which may result in lower lending rates for the market/consumer.

Year to date 2024, Harry Fry & Associates, has seen approximately a 60/40 split between customers purchasing used versus new equipment. There are a couple of reasons for this. First, just as prices from eggs to cars and housing have increased, so have the prices on new equipment. Most manufacturers have had yearly price increases since 2020. With both interest rates and equipment prices higher, many customers are hesitant to jump into the purchase of brand-new equipment. Therefore, they are opting to consider used equipment instead of new. From a customer’s perspective they may consider the old adage, “shiny old/ shiny new you get the same rate”, typically. (Of course there are other factors they consider.) However, lower demand/supply of new equipment creates less availability of used equipment. Yes, a vicious cycle.

Second, regarding new equipment, most are aware manufacturers are still behind on their normal production numbers/ goals with allocations being limited to dealers/distributors for some models in 2025. Even though some materials in the supply chain are easing, the continued issue is the lack of skilled labor.

The lack of skilled labor is a post-COVID problem that may be difficult in the short term and may take years to resolve. During Covid, we all saw many quality, skilled workers permanently exit the labor force, and not enough new workers have replaced them.

A delicate balance

During the recent SC&RA Workshop in Arizona, we realized the desire and demand remain positive and optimistic. Even though many owners are keeping an “eye on the sky” (aka: the economy), they want to make sure they have the appropriate equipment without “strapping” themselves financially.

The bottom line is that the prime rate is at 8 percent, and while rate reductions may be in our future, we may not see the significantly low interest rates we have been accustomed to. These low interest rates were typically in response to an economic or global crisis. In perspective, if you had a $500,000 loan at 8 percent for 60 months, the payment would be approximately $10,140. If rates were reduced, that same scenario with a 7 percent rate yields a payment of about $9,900 – a difference of $240 per month. This is a real cost of money, but if you need the equipment to cover jobs, can you make the payment work? If you look at it another way, with the cost of fuel, cost of insurance, and cost of labor all totaled, can you make a desirable amount of revenue to justify the expenses? Can you justify the loss of revenue if you don’t have the crane?

Only you can answer these questions. However, consider these points: interest is one cost, and possibly, fuel is the only one that may retreat over time.