Partnering with a Commercial Lender for Equipment Purchases

With business strong, many find value in financing
equipment purchases through a commercial lender.

Vermont Arborists’ Michael Roche bought this F550 chip truck new in 2019 and the Freightliner chip truck (inset) new in 2020. He also bought a 2018 F-150 pickup truck new, a used 2011 bucket truck in 2018, a new Bandit chipper in 2017 and a used stump grinder in 2020, much of it financed through Northern Atlantic Financial. “I also just bought a used skidder two weeks ago,” Roche says, also through Northern Atlantic. Photos courtesy of Michael Roche.

In the past two years, Michael Roche, CTSP, president of Vermont Arborists, an accredited, 25-year TCIA member company based in Stowe, Vermont, has used cash to purchase a used skidder, stump grinder and pickup truck. He’s also financed two chip trucks, a chipper and a loader using a commercial lender. In total, his financed purchases have run him $140,000.

“Every single time, I’ve just called up JoAnn (Cucciare, of Northern Atlantic Financial) and told her how much money I needed, and that I’d like to get it within the next few days,” Roche explains. “She’s like, ‘OK, let me pull your application.’ Then she emails six hours later and says, ‘OK, you’re all set.’”

While some businesses have suffered with the COVID-19 pandemic of 2020, business has been good for many in the tree care industry. To keep up, Roche, like many others, has borrowed to replace and expand his equipment inventory. When he’s borrowed, he’s relied on the ease and expertise of a commercial lender that specializes in the tree care industry.

If you’re running a company and thinking about ordering equipment, financing might be a good move for your tax situation, expansion, budget and future growth. In this article, five representatives of leading tree-industry commercial lenders talk about the benefits of working with
industry-specific lenders, the scenarios in which it can help a business and what you should know if you’re considering going the commercial-lender route.

Roche’s 32-year-old company has eight employees and services the Stowe Mountain Resort ski area and the Champlain Valley in northern Vermont. Working with a commercial lender allows business opportunities that working with a local bank doesn’t, Roche says.

“On short-term loans, it’s not the rate that really matters,” says Roche. “People will say ‘I want to get a 4% loan instead of a 5 and-a-half percent loan,’ but the difference in money is peanuts. What matters is how much you’re financing, the actual principal borrowed. Very often, it’s only six to seven dollars a month for a couple of percent. We all want to get a better rate, but it’s just not that big a deal. What matters is the convenience and getting it done in the first place, and how much you can afford to borrow.

“When you need a machine, you don’t want to spend a month or more dealing with the lender and have to do a lot of paperwork. You just want to get it done. That’s why traditional banks are something of a disadvantage these days. The banks want the last three years of your personal and business tax return, plus a personal financial statement. (Some might have that material organized and at the ready), but it’s still a lot of work to gather up all that information, whereas a finance company just checks your credit and has you fill out a form, and you get the money.”

Harry Fry & Associates financed this Grove crane for J Messina Excavating/Tree LLC, a seven-year TCIA member company based in Deerfield, New Hampshire. Photo courtesy of Harry Fry & Associates.

Roche has been doing business with Northern Atlantic Financial, a 16-year TCIA Corporate Member company based in Souderton, Pennsylvania, for more than 15 years, and has never missed a payment, which undoubtedly makes his process easier than it is for some. But leading commercial lenders in the tree care industry say that, even for less-established clients, they can offer speedier decisions and a much easier process, and there’s a very clear reason for that.

“We understand the equipment,” explains Cucciarre, Northern Atlantic president, using an example from a purchase between Roche and another of her clients. “Bob Good (president of Good’s Tree Care, Inc., a 24-year TCIA member company based in Harrisburg, Pennsylvania) is selling a bucket truck, and if you looked up on NADA (National Automobile Dealers Association) the value for that year of that truck, they’re going to say this isn’t worth whatever the dollar amount was that he (Roche) was buying it for. They don’t know how to look at the value of the bucket on the back end. We specialize in knowing what the equipment is, what it does, what the values are and everybody we deal with – we can tell immediately what that equipment is. For 25 years, we’ve been financing equipment for our customers.

“I just had a customer who did a $450,000 deal with us. We were the same rate as their bank, but we got it done within a couple of days, where the bank said it would take weeks. So why wouldn’t they use us?”

D.J. Jackson, CLFP, is channel development director for Oakmont Capital Services, LLC, a five-year TCIA Corporate Member company based in West Chester, Pennsylvania, where tree care is one of the top focus areas, along with landscaping and construction.

“Most banks are not comfortable with financing equipment that tree care customers need to run a business, especially when you get into the used market,” Jackson says. “A lot of our customers buy used equipment. Their banks are wonderful for cars, mortgages, payroll and checking accounts, but equipment financing is another story.”

At times, Jackson says, he’s suggested that potential clients try their luck with their bank, with a predictable result. If their bank grants the loan by some chance, they will most likely will need a large down payment. Most banks also put a blanket lien over all assets; that’s just the process of a traditional bank, he says, and, yes, more often than not, it does take them weeks to process a loan.

“Another key thing – something I say probably twice a day to clients – in
commercial-equipment lending is, there is no rule or regulation that a lender bank, credit union or whoever it may be has to report to the business credit bureaus. Very few banks, if any, will report this and business credit is becoming so much more important in the underwriting process. At Oakmont, we do report to the business credit bureaus so they can create that track record. This factor helps customers establish or strengthen business credit, which is critical when building a business.”

Snell Tree Experts, LLC, an accredited, seven-year TCIA member company based in Fuquay Varina, North Carolina, financed this knuckleboom crane through Harry Fry & Associates. Photo courtesy of Harry Fry & Associates.

“You might be able to get lower rates at some banks, and there might be some banks that give you great service,” says Chris Enbom, CEO of AP Equipment Financing, a TCIA Corporate Member company based in Bend, Oregon, whose company focuses on the tree care industry and ground- and home-delivery contractors. “If you can get great, cheap rates and really good service, and somebody who understands your business, from a credit union for example, more power to you. But we understand exactly what the arborists do how they operate, you can always get hold of us and we’ll work with you. We work hard to help arborists succeed.”

Lending their expertise

Fortunately for those who work in the tree care industry, as mentioned earlier, the industry has not felt the impact of COVID-19 the way travel and tourism, restaurants, movie theaters and others have. With people working from home, many have looked at that tree in the backyard and thought, “I really should take care of that.” Since most are not going on vacation or out to dinner, they have available funds.

“Every customer I speak to says their numbers are up from every other year, and everybody seems to be doing phenomenally,” says Cucciarre of Northern Atlantic, whose company solely writes loans for the tree care industry. “The first three weeks that COVID hit, we were inundated and did many rewrites of contracts and gave people deferrals, because everybody got scared. Nobody knew what was going to happen. A month into COVID, after everybody deferred their contracts out, they said, ‘Why did we even do that? We have more money now than we ever have had.’

“It was everybody getting scared of not knowing who was essential and not essential. As soon as everybody figured that all out, (things improved). I think Michigan was the state that got held back the longest – but besides that, across the board, everybody is doing very well right now,” says Cucciarre.

In addition to AP Equipment Financing, Enbom runs WTD Equipment, an arborist truck and equipment dealer in Portland and Seattle. As such, he experienced the shutdown and uncertainty in the early days of the pandemic on the lending side, but also dealt with canceled orders on the equipment side, followed by demand that outpaced the equipment supply.

“Things are back ordered, basically,” he says. “There was a chain of events on the dealership side for all dealers across the country, where most people either scaled back or canceled orders at the same time COVID hit the manufacturers and slowed down their production, so things slowed down on the manufacturing side all over the world. Then it turned out the demand was good, so you try to make up for that but you’re in a COVID environment, so in general the manufacturers haven’t been able to produce as quickly as they had before, and everybody was behind in terms of ordering. Now, I’d say most dealers across the country in general are short on equipment. We’re running into that on both the dealership side and the equipment-financing side, where there’s just not enough equipment to finance. Everybody’s just waiting on equipment to come.”

Tonya Fry, assistant vice president at lender Harry Fry & Associates, a TCIA Corporate Member company based in West Newbury, Massachusetts, that specializes in crane and lift industries, noted that her application includes what she terms “the COVID questions”: “How has your business been affected?” “Why are you buying this equipment?” “Have you deferred any loan payments?”

A crew from McCauley Tree Service, a seven-year TCIA member company based in Harleysville, Pennsylvania, with a new crane financed through Northern Atlantic Financial. Photo courtesy of Northern Atlantic.

“Every tree care company owner I have talked to has said to me, ‘How’s my business been affected? It’s increased,’” Fry says. “It’s what I’ve heard across the board from our tree care customers.”

Jackson says business for Oakmont’s tree care clients is up 20-30% in 2020. “Most are booked out six to eight weeks,” he says, noting that extra capital is resulting in some larger down payments.

In fact, Jackson and Cucciarre both note that in the fourth quarter of the calendar year, many companies are using lenders to take advantage of the tax write-offs available under Section 179 of the IRS tax code to expand their equipment inventory.

“Because of the amount of money they’ve made, if they don’t buy equipment, they’re going to end up owing taxes, so now even more people are saying, ‘Yes, I need to buy new equipment,’” Cucciarre says.

Philip McClurkin of Navitas Credit Corp., a 21-year TCIA Corporate Member company based in Hatfield, Pennsylvania, says business has been good for both tree care and landscapers, two areas his company specializes in. In a typical year, he says, the activity is greatest in spring and fall.

“Usually what happens is, the planning period for the next year is the fall, so there are orders and purchases made toward the end of the year, the last quarter. Then again, we have a big burst in the spring, for folks who either didn’t plan for the year or are finding there are going to be needs they didn’t know about up front. This year, summer was huge, but I would say that was because of the slowdown in March and April from the pandemic.”

Oakmont Capital Services financed the purchase of this log truck for a tree care company in Pennsylvania. Photo courtesy of Oakmont Capital Services.

Like most of the other commercial lenders, McClurkin says that rates depend on different factors, but typically would run between 5% and 7%. But there are a wide variety of specialty programs and payment plans that give Navitas flexibility for their clients.

“Being able to offer a wide range of products, there’s virtually no type of transaction we can’t handle – private sales, auctions, new, used, no age restrictions,” he says. “Age is a big factor. I’m right now working on a deal for a client on a 2002 grinder, an 18-year-old piece of equipment. Most banks won’t look twice at that. Most banks won’t know what it is. That gives us a huge advantage.”

Typically, commercial-lender applications are a single page. As a general rule, the factors that influence the loan are the applicant’s personal credit history, the business’s credit history and the asset.

“If you know the industry, you know the questions to ask,” McClurkin says. “I’ve had vendors who are not really in the tree and landscape industry, and they say, ‘Hey, we’ve got this tree and landscape guy who wants to buy this asset and applied through our bank and got declined. Can you use our application?’ Then I get these applications through manufacturers sometimes, and they’re two or three pages long, and it’s just a lot of nonsense. Sometimes this business is only part of what they do, and that’s the downside of walking into a bank and saying, ‘Hey, I’m buying a switch-and-go loader for my truck.’”

What to know

Fry, whose company has specialized in cranes (an expensive purchase, averaging $350,000 to $450,000 new) since the 1990s, says business is directed to her company primarily from manufacturers, dealers and word of mouth. Her tree care business has grown in recent years, she says, and a big reason is personal referrals.

“We are application only up to $500,000,” Fry says. “That’s for qualified customers (personal credit rating) – minimum five years in business with comparable borrowing – and it comes back usually within a 24-hour period. We make it easier than the local bank – and I’m not knocking local banks, but they don’t know the equipment as well as we do.”

Some lenders hold their own papers, and others, like Fry, serve as a broker, working with a variety of funders. As Fry sees it, her role (like a mortgage broker) is to make the best fit for the client.

“With a newer company, or say it’s their first crane, one of the things we try to do when we submit the transaction is illustrate to the credit person, ‘This is what they expect to make per day or per hour with this crane,’ because we need to show them how they’re going to pay for it. Sometimes you need to really lay it out there.”

So, if you’re a company that’s never financed any equipment, what do you need to do to finance the purchase of a truck, chipper or any tool? When is the time to borrow for purchasing new equipment?

“That’s easy,” McClurkin quips, “when you find a piece of equipment you don’t have enough money to pay for.

AP Equipment Financing helped Morgan Tree Service of Oroville, California, finance both a Bandit 15XP chipper and an All Access Equipment CMC 83HD+ Arbor Pro tracked lift. Photo courtesy of AP Equipment Financing.

“That’s the simple answer. The more in-depth question is, ‘Is this machine going to make me money, and can I afford to buy it?’ There are customers who call me and say, ‘I never borrow money. I have cash in the bank. Why would I finance?’ Well, there are a couple of reasons. One, writing a check for this piece of equipment may drain your account. You may not owe anything, but now you’re cash poor. And what do they say? Cash is king. Keep your money in the bank, especially personally. Keep yourself personally debt free.

“These business owners all know what these assets are going to make,” McClurkin continues. “They know what a bucket truck is worth on the street. If this truck is out five days a week, it’s going to make so many thousands of dollars per day, and it’s going to cost so much money to run it, to have people operate it, and they know at the end of the month how much that’s going to cost them. That’s where you can come in and say, ‘This makes sense. I’m going to buy this piece of equipment, it’s going to cost me $1,500 a month for my payment and another $2,000 to operate it each week, but it’s going to make me in excess of $10,000 of that per month.’ We can help them analyze that.”

For a company, finding a reputable lender is a good first step. One could start by checking out the TCIA Corporate Membership list, which includes several commercial lenders, or asking other tree care professionals for their recommendations.

Jackson cites these two important factors in commercial-credit lending:

Personal credit scores and business credit history

Time in business

“What I call the recipe of underwriting is credit history and time in business,” Jackson says. “If I had to weigh them, I’d rate them at 45% each. Then your remaining 10% is going to be industry, equipment age and price.”

Building a commercial credit history helps a company’s suitability for commercial credit moving forward.

“A lot of folks who call us for the first time find that, once they start doing business with us, they’re building business credit,” McClurkin says. “Once they grow, that will create the opportunity for larger dollar amounts and different types of financing for their business moving forward.”

Even for a company with a long history in business, applicants with thin credit may go through more scrutiny and pay slightly higher rates.

“You should try to establish credit early,” Enbom says. “Even if you don’t need to borrow, you might take out a small commercial loan just to get that credit history. (And) you want to be sure your lender provides data to a company called Paynet, that’s the comparative credit company that the vast majority of finance companies use to establish whether you have credit within your business. So, all of the commercial finance companies subscribe to that, but there’ll be some local banks who don’t report that data. That’s not going to help your credit at all with people like us.

“It will help you in the long run if you establish a good, solid pay history early.”

For a company that has always purchased equipment with cash, the process to borrow for a crane can be more detailed than one that’s built a business credit history.

“The thing I’m going to ask first is how long you’ve been in business, because if you’re under that three to five years, you’re going to qualify as a new business, which is kind of a different bucket,” Fry says. “If you have the time in business but don’t have borrowing history because you’ve paid cash, I’m going to have you fill out my application and give me two years of tax returns and either an interim financial statement or bank statements, so we can kind of see what’s going on right now. If you did have comparable borrowing, I would just be sending you my application to fill out. The comparable borrowing is key, because it’s showing that you have a history of paying your bills.”

While COVID-19 has many businesses pumping the brakes, not so for many tree care businesses in most areas of the country. If you’ve got the time in business and the credit, this may be a very good time to seek out a commercial lender to talk about updating or adding to your fleet.

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