The actions of the Federal Reserve have contributed to an increase in inflation – and high interest rates – putting all-so-necessary funding out of reach for many portable plant operators.
This situation is compounded by the reluctance of many traditional lenders to provide funding required by everyone in the industry.
As finding capital becomes more difficult, it’s more important than ever to determine why mobile equipment operations need capital, how fast it is needed and, most importantly, what it can afford to pay for that capital? Surprisingly, the first stop should be the operation’s bank.
Getting started
It may seem strange to suggest that every search for affordable funding should begin with the operation’s bank. Although numerous factors will impact the type of lender eventually chosen, the best option is usually to start with the bank currently used for the operation’s banking.
Even without a personal relationship with the banker, an existing bank often has a broader perspective of the operation’s debt, spending and cash flow, and the operation is already in the bank’s system. That puts the operation one step ahead even with a reluctant bank.
Obviously, if a relationship with the operation’s current bank isn’t sufficient to overcome the bank’s reluctance to provide the needed funds or render advice, a new bank might be necessary. Since banks are often the source for the most economical financing, a community bank might be the answer.
Establishing relationships with community banks is often easy, as they consider the operation as a whole alongside the operation’s cash flow, credit and collateral factors.
Banks, in general, are interested in businesses with collateral and strong credit. While often not interested in providing long-term funding, banking services such as cash management, payroll services, merchant services and lines of credit may be available.
Every business should already have a line of credit to help tide them over short term. A business’s line of credit provides access to funds up to a pre-set limit, with the business paying interest only on the funds withdrawn. Fees for having the funds readily available are usually competitive.
While banks, even community banks, typically have low interest rates and offer competitive terms, financing may be hard to qualify for. Thus, an incentive such as a guarantee by the Small Business Administration (SBA) might help obtain funding.
SBA funding
SBA loans make it easier for portable plant operators, manufacturers and suppliers to get funding. The SBA offers lenders – mostly traditional lenders – a federal loan guarantee. This makes it less risky for banks to lend and often means more favorable interest rates and terms for the borrower.
Repayment periods for SBA loans are based on what the funds will be used for. They range from seven years for working capital to 10 years for equipment purchases and 25 years for real estate purchases.
There are a number of SBA loan guarantee programs available, including:
• SBA 7(a) loans, the most popular program, provides funds for many purposes and are available in amounts up to $5 million.
• SBA 504 loans offer long-term, fixed-rate financing to purchase or repair real estate, equipment, machinery or other assets.
• SBA Microloans are the smallest loan program offered and provide $50,000 or less to help businesses expand.
When traditional sources, even with guarantees, fail to provide affordable financing it might be time to explore specialty financing such as equipment loans.
Other financing options
Equipment loans are a specialized type of financing available through otherwise reluctant banks as well as, often, equipment manufacturers, dealers and other suppliers. Interest rates are lower and the terms are frequently less burdensome because the equipment serves as collateral.
Offered as a buying incentive by many equipment manufacturers and dealers, these loans are usually tied into the life of the asset being financed. Offsetting the benefits of ownership (versus leasing), many equipment loans require a down payment.
With the reluctance of traditional banks to lend, online lenders are enjoying a surge of popularity. Best of all, online banking eliminates the cost of brick-and-mortar branches, thereby generating cost savings to be passed on to borrowers.