Manage Your Money Carefully
With the current credit crunch, a serious issue facing many shop owners is how to finance new equipment purchases. To get a better idea of what your chances are now, I spoke with Yvonne Agostini, owner of Leasing Express (leasingexp.com). She handled the lease on a computer system I sold to a customer in 1992. She was experienced then, so I know she’s been in business a long time. Her focus is on—as the company name suggests—fast service: She says a well-documented lease application can be processed and funded in 24 hours. On the other hand, an application showing $2 in the bank, a prior bankruptcy, a past due lien on the property, and a FICA score under 600 can be rejected in less than five minutes.
About 40 percent of lease applications Yvonne sees are rejected, and the volume of business she writes is about half of what it was a few years back. The trouble these days, aside from the economy, is that applicants often start by saying they have great credit. Then she finds out they owe back taxes, have changed their corporate name three times, and have credit card debt equaling more than 80 percent of their credit card limits. She advises a serious seeker of financing for a spray booth, frame machine, measuring system, commercial vehicle or other equipment to start out by being totally honest about his or her financial situation.
Getting leases funded is what drives Yvonne’s business, so she wants to help every legitimate applicant get the funding they need. And with some 60 percent of loan applications accepted and funded, that is clearly possible—if you can meet today’s tougher qualifications. Banks in states with high foreclosure rates, for instance, have much stiffer requirements.
So what does it take to be among the 60 percent that get funded?
• Banks previously accepted two years in business, but the minimum preferred now is three years.
• The FICA score minimum preferred is about 640 but in some circumstances it can be a bit lower.
• The company must have a bank balance above $3,000, and revolving debt must not exceed 40 percent of allowable limits.
• Most leases are now limited to $50,000, but with full financial disclosure it may be possible to fund $100,000 or more.
Yvonne has even funded leases on airplanes. Not that you’re likely to need one for your collision repair shop, but her point is that a lot now depends on specifics about the business. How long has it been profitably in business? Is it profitable now? How good are the company’s references in the industry and the community? She has many different banks and funding sources to choose from so the game is finding a match between the lease seeker and the funding source.
Be Truthful, and Realistic
Some loan applicants have the attitude that it should be easy for them to get funded. They think they can get an SBA loan, or some special government funding. But an SBA loan application can take months and then still be rejected. There is a faster way. Even with getting full financial disclosure on a company, Yvonne says that would add only about 72 hours to the time needed to arrange funding. She says the first requirement is to be truthful about the company’s financial situation, and to have realistic expectations.
I asked Yvonne about the frequency of including personal assets as collateral for the lease. Her advice is to avoid commingling the business and personal assets and accounts whenever possible. She says it’s necessary to involve personal assets only about 5 percent of the time, and she is always reluctant to go that direction.
Interest rates are another area of great importance to anyone seeking financing. They’re all over the place these days, ranging from 6 to 35 percent, depending on the strength of business qualifications, the size of the lease, where the business is located, the availability of financing in that area, and more. The equipment being purchased makes a difference, too. A paint booth, for example, has many “soft costs” like installation, permitting and licensing. These factors increase the funding risk and thus the interest rate.
I was impressed with Yvonne’s dedication to getting as many applicants as possible accepted and funded, and getting the best deal she could for each applicant. In today’s difficult economic climate, getting financing at all can be a challenge. Having an experienced guide could make all the difference.
Tom Franklin, author of Strategies for Greater Body Shop Growth, has been a sales and marketing consultant for more than 40 years.