How to Navigate the Great Credit Search
When it’s time to upgrade, or replace, vehicles and equipment, where should you look for credit?
June 2013, TruckingInfo.com - WebXclusive
You know that it’s time to upgrade a certain portion of your fleet. But you assume that, in the current economic environment, getting credit can be difficult. So how do you get the equipment you need, when you need it? First, let’s dispel the myth of limited credit availability. In reality, you don’t need an AA rating to get credit. If your company’s credit is good, you should have no trouble getting the credit you need to upgrade your assets. There are, however, four main recommendations before you actually start your credit search:
- Be honest in your assessment of your company’s financial status.
- Consider leasing, rather than purchasing, your equipment.
- Look for companies that specialize in financing the type of equipment you need.
- Make your CFO understand how the upgrades will lead to a positive ROI.
Honesty is the Best Policy
If you’re concerned about your creditworthiness, there are options. If your receivables are strong, you may consider factoring as an option. And, there are financial institutions that specialize in loans to companies with bad credit. But if your credit is good, you don’t need to worry about these issues.
Lease vs. Purchase: What Works Best for You?
If transportation is not your core business; if it’s essentially the way you transport your products from Point A to Point B, a lease may make the most sense for your company. A “fair-market lease” allows you to expand your fleet with minimal ownership risk, but make sure the lease agreement stipulates no end-of-lease residual requirements. The beauty of leasing is that you don’t have to worry about selling or remarketing vehicles at lease maturity. Plus with a lease vs. purchase, your initial cash outlay is lower, with lower monthly payments. If you’ve decided you want to eventually purchase your commercial vehicles, you might consider a “terminal rental adjustment clause lease, which will allow you to finance a truck or trailer with a guaranteed purchase option at the end of the term. The benefit to this type of loan is that you’ll be paying a fixed amount equal to what the vehicle is predetermined to be worth at the end of the lease cycle.
Is Your Bank Really Your Best Bet?
Probably not, when it comes to your transportation and capital equipment needs. Large companies who specialize in this area have incredible leverage when it comes to acquiring credit; leverage that is probably not available to you. Companies like AmeriQuest partner with some of the country’s largest banks to get you truly flexible financing at the best possible rates. And, since your funding is coming from 3rd party financial institutions, it may not impact your credit line with your company’s bank (there are exceptions to this, so please check your bank’s covenants). But the benefits of dealing with companies who specialize in commercial transportation involve more than just financing. These companies often perform in-depth analyses to determine what your asset finance needs truly are. They have experts who look at a wide range of factors, including acquisition costs, utilization patterns, and more, to derive insights that can actually drive the growth of your business. From all of this, they’ll arrive at a financing plan that best meets your business goals.
CFO Buy-in, The Ultimate Challenge
You know how new equipment will benefit the company; your CFO or Treasurer just sees a huge outlay of funds. Your biggest challenge is explaining to him/her why this expenditure will actually reduce costs in the long run. As the cost of fuel rises, fuel-efficient vehicles can actually save money. However, since they are more expensive on the front end, you need to show a cost savings over time. This is where dealing with a specialist in transportation financing, like AmeriQuest, makes sense.
As I said earlier, credit is available. But if commercial transportation is not your core business, yet you need to upgrade your fleet, outsourcing this task may be the solution you’re looking for.
Neal Weeks is vice president of syndication and operations for AmeriQuest, with nearly 25 years experience in the finance and transportation industries. Prior to joining in 2008, he held an executive position in a national finance leasing organization and served for 15-years with Ryder System.