0% Offers, Driving Equipment Financing for the Spring Construction Season

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As equipment makers offer 0% interest rate loans on new equipment and contractors gear up for the spring, construction equipment finance companies forecast a solid year for their business.

Interest rates remain low for new and used equipment. Lenders also claim that the credit supply remains plentiful and loan approvals are still at typical ratios.

“Now is a good time to buy,” says Peter Gregory, senior vice president of Wells Fargo Equipment Finance. “The prices are very low. They are expected to stay low.

Wells Fargo has worked with manufacturers to customize 0% interest rate loans. “These are products that manufacturers will use to entice customers to buy equipment and these are for all contractors,” he says.

“Everyone does this, whether it’s 36, 42 or 48 months,” adds Corey Kovarik, vice president of Retail Finance at Komatsu Financial. “It seems to be what we do and what the competition is doing. I think anytime you can get 0% from people like that.

The optimistic mood is far from last year as the pandemic created lockdowns and questions over whether the construction industry would collapse, possibly even worse than the Great Recession.

When the pandemic began in March, appeals to construction equipment finance companies followed suit.

“All the lenders got phone calls: ‘I need deferrals. I need 60 days. I need 90 days, ”says Gregory.

Equipment loan deferrals were granted as uncertainty spread over what the economic shutdown would mean for the construction industry.

“Between March, April, May and June, we extended or deferred payments on around 20% of our contracts, a large number of contracts,” Kovarik explains.

But since the construction industry was seen as a core business, work continued in most places. The finance industry stabilized, and in June it began to recover.

“In the grand scheme of things, the majority of people came out of these postponements during this period of May, June and July,” Kovarik said. “And it was sort of business as usual. People were able to pay. People have started buying again.

Wells Fargo has seen some contractors cut their deferrals short. “Fortunately, many customers ultimately didn’t need all of the postponements,” says Gregory. “And some of them took 60 or 90 days, but only took 30 days and started making payments.”

Lenders say they haven’t quite hit pre-pandemic lending levels, but believe they will soon.

“It just keeps getting better,” says Gregory. He notes that contractors are entering peak season and updating their fleets.

“Right now, contractors are buying a lot of equipment,” he says. “So I would say the next six months will be really good in the industry.”

Kovarik says Komatsu Financial is forecasting a 5% to 10% increase in lending ahead of its new fiscal year, which begins April 1. This should bring the company back to 2019 levels.

“So all things considered, we’ve had a very solid year from a fundraising standpoint,” he says.

While the outlook is good, buyers may find longer delivery times on newer equipment. Gregory notes that pandemic supply chain backups on components are still being sorted out.

“Some manufacturers tell us that delivery times for some units are getting a bit longer,” he says. He predicts that this will lead to an increase in values ​​and demand for used equipment.

What if your credit isn’t stellar?

Zero interest, low interest rate loans are primarily intended for entrepreneurs with a good credit rating. People facing credit issues, such as startups, may need to look for other options.

Gregory and Kovarik both recommend that those struggling to get approved for a loan consider a lease-to-own option. After several months of paying rent and applying it to the purchase of the equipment, the tenant accumulates enough for a down payment, and this can be converted into a loan.

“It shows that you have a proven payment history with the dealership and can make those monthly type payments,” Kovarik explains. “And generally, the installment payment will be less than a rental. So when you convert, your payouts usually go down.

Dustin Doi, president of First Capital Business Finance, sees many start-up entrepreneurs looking for equipment loans. With less than two years in business, many of them are considered high risk and have been turned down by the banks.

The average business loan for construction equipment is approximately $ 48,000 at 48 months. The terms vary depending on the creditworthiness and income level of the buyer.

“We do a lot of difficult credit,” Doi says. “And if you have really bad credit, we always have programs for that too. You simply need to either have equity in the deal, which means a larger down payment, or have more income. “

In addition to loans and leases, First Capital also offers “equipment finance contracts”.

EFAs are designed to obtain financing for higher risk borrowers, but they can be expensive. They use a “factor rate” instead of an interest rate. It can range from 5.5% to 20%, according to Doi. AFEs also require the borrower to pay finance charges each month for the duration of the agreement, and these cannot be prepaid.

Doi says his business seems busier this year than it did last year before the pandemic. The most popular items are dump trucks, bucket trucks, utility trucks, compact excavators and soil compactors.

First Capital announces 24 hour approval deadline. About half of its inquiries come from its website, the other half over the phone. Many business loan programs use algorithms to review applications. He performs credit checks to make sure there are no liens on the business or other issues. Business income is one of the most important factors in considering a loan or CFC, says Doi.

About 75% of its transactions involve used equipment, ranging from $ 35,000 to $ 75,000. This requires a one-page application, an invoice or bill of sale for the equipment, or even a web link to the equipment.

“We really like seeing the specs on it,” he says. “And if the guy has gone bad on his credit, say, but he has good bank statements, we ask him to send bank statements for a few months to justify the income.” “

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