If you run a commercial tree care company, finance experts say now might be the right time to buy.
The COVID-19 pandemic that shut down much of the country starting in 2020 did not have a terrible impact on the tree care industry. In fact, after an initial shutdown of a few weeks, many owners say their companies rallied to do great business in 2020 and 2021.
That demand has continued into the current year, but a convergence of tree care industry and post-COVID-19 trends has created an environment that could end up hitting some companies in both the field and the pocketbook.
In tree care, companies have been trending toward more mechanization in a field where hiring qualified workers has historically been a challenge. During COVID, the potential labor pool has shrunk, making the need for grapple saws, loaders and other heavy equipment even greater.
Meanwhile, the supply-chain issues in manufacturing have caused problems for businesses all over the world, including slowing production of trucks and other heavy-duty equipment used in tree care. If they can even find something to purchase, buyers may wait months or even years to take possession.
Finally, there is the cost of equipment and financing. Interest rates have ticked higher and are expected to go higher still, as the federal government seeks to control inflation. As a result, new equipment may cost more, with higher financing rates.
“It’s exactly what we’re seeing, and the rates are going to fluctuate,” says Brenda Foster, senior account manager for the Pennsylvania-based specialty vehicle and equipment division of Navitas Credit Corp. “Mortgage rates are going up. So yes, across the board for anybody borrowing money, rates are going up. However, I don’t think they’ve gone up as much as the cost of equipment has gone up because of the supply-chain demands.
“I always find it interesting that people will negotiate their rates on the loan, but they didn’t negotiate on the price of the equipment,” Foster adds, though she concedes that negotiating might be difficult in today’s seller’s market. “They accepted the price from the dealer or the seller.”
There are multiple factors (creditworthiness, length of the loan, price) that determine the interest rate a buyer might get for financing, and lenders don’t like to go on record with numbers for fear of appearing disingenuous if they are not accurate.
However, a loan that would have carried a percentage rate in the threes in March 2022, a few weeks before this story was written, was in the fours in April for a client with a very strong credit position. That rate is expected to rise.
“We’re not bumping yet, but that’s not saying we’re not going to,” says JoAnn Cucciarre, who specializes in the tree care industry for Northern Atlantic Financial, LLC, a Pennsylvania-based finance company. “As of right now, we’re holding steady where we’re at. But yes, I keep hearing rates are going to go up, across the board.”
The situation has already changed the buying habits of some and may cause further disruption among tree care company operators who are traditionally brand loyal, do their buying at certain times of the year and generally want to focus on other aspects of their business besides paperwork and forms.
For tree care companies, two of the busiest purchasing times are the spring – when the equipment is needed for the field – and the end of the year, when accountants may recommend making those large purchases for tax purposes.
Four leaders in financial lending who specialize in the tree care industry spoken with for this article, all with TCIA corporate member companies, agree that this is an interesting time for those seeking to finance equipment. If you’re an owner or executive considering buying some heavy equipment sometime this year, these experts suggest you give the situation your attention now.
“When a salesperson is telling them to give a deposit, that is no longer just a pitch,” says D.J. Jackson, CLFP, business development officer with Oakmont Capital Services. “That is no longer a means to qualify that client, a means to close the deal that their training may have directed them to do. That is very real.
“And I also encourage them (clients) to stay in touch with their dealer, because there are folks who were in the queue to get a certain machine. They could not wait any longer – a different machine became available, and they jumped on it. That person in the queue is now backing out of their spot.
“Every once in a while, I’ll have a client come to me and say, ‘D.J., I have to get on this tomorrow. Somebody backed out,’” Jackson continues. “Whether that person backed out because they already had bought something else or had a change in the direction of their company, they jump on it. So I encourage (clients) that, one, it’s not a sales pitch – give the deposit, lock in that piece – and two, twice a month, stay in touch with their salesperson to see if a piece has broken free.”
“If you’re ordering brand new (equipment), it can be anywhere from six months to 18 months out (for delivery),” Cucciarre says. If a company is going to need heavy equipment down the road, she says, “they need to actually order it now.”
As a rule, tree care owners would rather be in the field than filling out forms, which makes financing through companies familiar with the industry and commercial lending a preferred choice. The lenders make the process easier than a typical bank, they themselves say, and quicker, which is particularly important in today’s market.
“We understand when you buy a used bucket truck that the back end costs more than the truck itself,” Cucciarre says. “Banks still don’t understand that. And then, when they’re looking up the value of the truck, they’re looking at the truck only, and they don’t really understand everything about it.”
Typically, once a client establishes a relationship with the commercial lender, transactions require a one-page application, and applicants don’t need to explain the value of having a grapple, bucket truck or other equipment in the field.
“We want financing to be as easy and seamless as possible,” says Shana Foshee, senior marketing specialist for Birmingham, Alabama-based Altec Financing. “Our customers rely on being out in the field, and our goal is to get them out there as quickly and efficiently as possible.”
Frequently, Foshee says, her client spends their days in the field as part of a one-crew operation.
“He or she is not going to be in the office,” Foshee says, “In many cases, they may be handling business from their phone between jobs. We try to make sure we do everything we can to make financing easy for them.”
Like many large-equipment manufacturers, Altec finances purchases of its own products. However, Foshee also will finance other equipment purchases for existing clients. As such, she’s witnessed that the traditionally brand-loyal tree care owner may be changing their habits out of necessity.
“The problem we’re experiencing now across the board is delivery times,” Foshee says. “Clients are still very much brand loyal, but industry-wide supply chain constraints may require them to evaluate different equipment. We’re still here to support our customers in these cases.”
Oakmont’s Jackson sees a similar trend. Some equipment has already been sold before it arrives at the dealer, and there are manufacturers’ shortages of other components or entire units delaying delivery.
“I just had that conversation a few weeks ago, that there is a bit of a land grab right now as far as brand,” Jackson says. “If somebody was with Altec forever or Terex forever, and then all of a sudden there was the other one that was available, they’ll take it. There are folks – I’m seeing it with our own clients – who have been brand loyal, but based on availability, they are moving to a competitor. That’s an excellent, excellent point. And it’s happening.”
Jackson says some tree care owners who prefer to buy new equipment are instead buying used because it’s available. Some who normally buy used are buying new instead, and some owners are bringing used, dormant equipment from the work yard to the marketplace because they see the price this equipment can bring.
“Our private-party sales are through the roof,” Jackson says. “I’ll have repeat clients come to me and say, ‘D.J., I found one, let’s jump on it.’
“Just yesterday, I had a client looking for a chip truck, and he was searching dealers and private parties for four months and finally found the one that was configured exactly the way he wanted it.
“Then what you’ll have is some of the used prices getting so high that somebody may think they’re not in the world of new or have earned the shot at a new piece, but the delta between the new and the used is getting so small that they’re saying, ‘Heck, you know, for a few hundred dollars more a month, I will go new.’”
Planning ahead is important
Business owners can pre-pay for an order and lock in a rate, but Foster notes that a company also might consider the possibility that the wait could be long. And there is a consideration that today’s high-demand-equipment prices may come down when manufacturing stabilizes.
While they don’t agree on everything, lenders do agree that tree care company executives understand the change in the market and pay attention.
When asked what advice she’d offer, Cucciarre says, “Look at what your purchases are going to be for the next year or even two years.
“I had a special-order chipper they’re saying is going to be almost two years out,” she says. “If (a company owner thinks that) by year’s end they’re going to be able to find equipment to get the write-off, they’re not. If they don’t start looking now and putting things in place, a lot of people are going to be paying extra taxes this year, because there won’t be equipment to purchase.”
“You need to make sure you go with a lender who’s going to be quick to react, both from an approval standpoint and a documentation and funding standpoint, because there’s a long list of people behind you who want that machine if you and your lender don’t move quickly on it,” says Jackson.