They’re not the most glamorous of topics. You probably won’t find them on the agenda at the next tree care workshop you attend. And it’s unlikely you’ll be chatting about them with colleagues at your next association mixer. But financing and insuring equipment are just the kind of nuts-and-bolts business realities that every tree care company has to face.
We asked a few industry veterans with experience in financing and insuring equipment for some helpful hings about how to approach these admittedly tedious tasks.
“We do a lot of financing of equipment,” says Tierson Boutte, owner of Boutte Tree in Atlanta.
This case for most tree care companies, but it can be more difficult for start-ups.
“For small companies with low amounts of cash that are just starting out, I definitely recommend beginning a relationship with a banker, preferably a banker (who) understands the needs of small business,” advises Boutte.
“I can’t overstate the importance of having a relationship with a bank. You may not be able to get a good loan from a bank for the first three or four years you’re in business; you may be in a position where you have to borrow from a national lender, which may have to charge you a higher rate. But, eventually, a local bank might be able to offer you a lower rate.”
And, whenever you’re financing equipment, Boutte recommends getting three quotes. “Shopping for a loan is just the same as shopping for the equipment itself,” he emphasizes. “And, just like tree service owners, I would say that equipment lenders are very, very negotiable on price.”
Boutte says he’s found that, by far, the most successful method of negotiating a loan is to use a competitor’s price. “If you say, ‘I’ve been talking to someone at ABC Corp. who is willing to lend me the money on a certain piece of equipment for ‘X’ per month, with the same amount down,’ a phone call later, that person is likely to be lower.”
It’s essential to do this legwork, because over five years those interest costs can amount to 15 to 20 percent of the equipment costs, he notes.
And when shopping for a loan, it’s not just a matter of comparing rates – you need to compare the overall costs, says Boutte. This is critical because sometimes all of the different terms buried inside a loan and the details about the different ways that interest rates are calculated can create confusion.
Once you know how much you’ll need to put down and what the monthly costs will be over a given term, it becomes easier to calculate your total costs and determine which loan is best. “Just quoting one rate against another is not a very effective way of determining which is the cheapest,” he states.
You also might be able to use the financing that’s been arranged by an equipment manufacturer. For example, in order to sell more units, a chipper manufacturer might pay a large national lender to offer customers lower financing rates on their chippers.
“If a manufacturer has ‘bought the rate down’ through a national bank, that often will be the best way to get the money,” says Boutte. “But, sometimes, the reason a manufacturer can do that is because they’re going to charge a little more on the equipment. A savvy buyer is going to be negotiating first on the equipment, to get the cost as low as they can, and then move on to negotiating the financing.”
In both cases, he recommends using competitor’s prices as a negotiating tool. Even if there’s a chipper from a different manufacturer than the one in which you’re interested, using its costs may help you negotiate down the cost of the one you want.
But don’t stop there.
Start the process all over again by getting competitive bids on financing.
This two-step approach lengthens the purchase process, but the extra negotiating effort can pay off big time. “You might be able to save $10,000 on the cost of that chipper. To make $10,000 in the tree care business, you typically have to do $100,000 worth of work. So the question becomes, which would you rather do – $100,000 of tree work, or 10 hours of comparing and negotiating?” says Boutte.
Peter Jeskey, vice president of capital equipment for Bartlett Tree Experts, oversees equipment purchases for more than 100 offices.
When it comes to financing equipment, he says, Bartlett works primarily with three banks: One is a local bank, and the other two are national banks with local branches “so we have local contacts.” In the past Bartlett used a national lender for financing equipment, but found it couldn’t compete with the rates and terms offered by the banks.
Similarly, Jeskey says, the financing rates offered through equipment manufacturers tend to be higher than what banks can offer. As an example, he cites one manufacturer who came several years ago to discuss financing. “They vowed to be competitive,” he explains, “but they were not.”
Jeskey says that, when it comes to financing equipment, he follows Smokey Robinson’s advice: “You better shop around.” Bartlett has revolving lines of credit with these banks, but the rate changes with each package of equipment that’s financed. (In the case of truck purchases, for example, Jeskey typically puts together finance packages for several trucks.)
“We buy the chassis, send it to the outfitter for the body and the lift or the sprayer, or whatever it may be. On a bucket truck, for instance, we carry the debt for the chassis and the body; then, when the aerial lift gets put on…and it’s a complete unit, I take all of the invoices, usually for three or four trucks together, and send them all off in one financial package,” he says. Virtually all of the equipment that Bartlett finances is done on a five-year term, says Jeskey. “That seems to work very well for us. We depreciate the equipment over seven years straight-line. Every now and again the equipment doesn’t make it to seven years, for whatever reason – tree equipment takes a lot of punishment,” he explains. “But I rarely, if ever, have to buy something out because it didn’t make it to term.”
In addition to competitive rates, Jeskey says, he prefers to work with lenders who have been around – and will continue to be around. When banks or lenders are regularly bought and sold, it can make it difficult to know whom to talk with, to track down equipment titles, etc. “Those kinds of things can be a nightmare,” he says.
On that note, Jeskey adds, just getting a piece of equipment financed isn’t the end of the story. It’s important to track that process through the end of the term.
“One of the keys that I hone in on is to make sure that, once the last payment is made, the title comes to us,” he states.
For a smaller company that might be financing one truck at a time, there’s not as much to keep track of, but it’s still important to stay on top of it, says Jeskey. For a larger company like his, keeping the process organized is critical, he adds.
“Whether you set up a reminder in Microsoft Outlook, or whatever you do, you need to know when a term is coming due and which titles you should be getting back,” he notes. “Banks are notorious for losing titles.”
Whether it’s with the customers or with your suppliers or your bank, “it’s a relationship-based business,” says Jeskey. “We have a good amount of loyalty from the banks, and they get a good amount of loyalty from us.”
Mundy Wilson Piper, owner of Chippers Inc., which provides tree services in central Vermont and New Hampshire, says making her decision whether to finance a certain piece of equipment depends on what it is, from whom she is buying it, and what rate is available: “If it’s a great deal, and we can get a good rate, we’ll often go with whatever [lender] is backing the equipment manufacturer, who the manufacturer refers us to.”
Still, many times your best deal can come from a local bank: “I have a great relationship with a community bank in our area, and I often do some shopping of the financing offered through equipment manufacturers and find that I can do better in my own hometown,” Piper says.
“When our company began almost 30 years ago, we began with a local bank that has grown along with us. They really want to know about our business, and help our business grow, so it’s been mutually beneficial.”