Options for tree care companies
Randy Finch, owner of Finch Tree Surgery in San Gabriel, Calif., has been in business for many years, has a high personal credit score, writes checks for equipment when possible and borrows money only when buying a major piece of machinery. Therefore, it’s not difficult for him to get a loan, and get it at an acceptable rate.
He would be the ideal client for JoAnn Cucciarre, owner of Northern Atlantic Financial in Souderton, Pa. She says that despite the economic downturn, her company is still writing loans for clients large and small.
The recession has affected tree care businesses around the country, but Cucciarre says that company owners are more deliberate about applying for loans because they are being more careful with their finances, which shows they are being more responsible. It also is good for lenders like her, because when companies are more cautious, it lowers the risk and can improve the chances of acquiring a loan.
Cucciarre knows a lot about the tree care industry because it’s the only industry her company serves. She has worked as a lender for 16 years, part of that as the co-owner of another company. She started Northern Atlantic Financial four years ago to offer commercial loans specifically for tree companies, noting that it is a solid industry to be involved with.
“Personal guarantees on each loan are required,” Cucciarre says, and the company owner’s personal credit scores must be above 650. So, it’s important for owners to keep control of their personal debt, such as credit cards. The company itself must also have good credit, and would have to have been in business for at least two years to get credit from a financier like her, in other words, a nonbank loan. She makes loans only for equipment, but that can include office equipment, such as computers and software, as well as field equipment, such as chippers and trucks.
Interest rates are variable, and the company’s health contributes toward that determination. Cucciarre won’t even quote a rate until she looks at the type and age of equipment being purchased, current national loan rates and other factors, such as credit history. A bankruptcy in the past can be a deal breaker.
Northern Atlantic Financial no longer lends money for startups. Unlike banks though, the company will make loans of up to $75,000 on applications without tax returns attached; anything above that amount will require a tax return. A tree company also cannot have any outstanding delinquent loans. There are many responsible companies that meet the requirements for a commercial loan, and Cucciarre signs loans all over the country. This could be a good year to get a loan for that new chipper or stump grinder, because she figures that new or updated equipment will only make a company more efficient.
“I look for a great 2010,” Cucciarre says. “People will feel more confident, and the more money they make, the more they will invest.”
Another long-time worker in the independent financial industry is Jim Stekl, president of Capital Partners, LLC in Sioux Falls, S.D. He acknowledges that he has had to tighten credit guidelines somewhat, but any small businessman with five years in business and a credit score of 700 or above will have no problem borrowing money from a company like his. Below that, more questions are asked by the lender.
“Those are the small businesses out there that are really being affected by the economy,” Stekl says, noting that a credit score of 625 or below is a red flag. He estimates that about 20 percent of his clients are tree care companies, and he lends in all 50 states, sometimes even without a full financial disclosure. He says that even clients who can borrow from the banks, which require more rigorous financial statements, will often borrow money from an independent source to keep their bank line of credit open for payroll, expansion or emergencies.
Stekl also points out there are two options for clients. Often, when buying equipment, they have the option to lease, as well as to buy via a loan. Capital Partners enables equipment dealerships to finance purchases or leases. About 50 percent of his business is in lease arrangements, with one benefit being that a company’s lease money is off the balance sheets and doesn’t negatively affect its ability to borrow money later.
Stekl points out that lease arrangements and outright purchases each have different advantages for tax purposes, and should be considered in that light. Leases are an excellent and straightforward tax write-off, for example.
Financing for startups is difficult to qualify for nowadays, but Stekl’s company will provide startup funding up to $30,000. “Startups have definitely been an area where banking companies have pulled back on,” he notes, but the guidelines at Capital Partners are the same now as in the past. First, 90 percent of the loan is based on the borrower’s personal credit situation, which again means a credit score of at least 625. A bankruptcy in the last five years without the reestablishment of good personal credit could be a reason for the loan application to be denied.
Anybody looking for money to start a business will also need to have some kind of experience in the tree industry, such as working for another company, and will need to prove that they have enough cash on hand to provide for payroll and emergencies. Stekl says that for a $30,000 startup loan, the applicant will have to have about $10,000 in his checking account; for a $20,000 startup loan, that amount will need to be about $5,000.
“I’m fairly upbeat about 2010,” says Stekl. “People have been putting off purchases,” and as the economy improves, his company is positioned to meet the increased demand. He says the downturn may have actually been beneficial, in one way, for companies seeking loans, because it has taught people to better manage their debt and be more efficient within their companies.
From the bank perspective, there are regular commercial loans and lines of credit, and there are government-guaranteed Small Business Administration (SBA) loans. Tom Burke, senior vice president for SBA lending for Wells Fargo Bank in Minneapolis, Minn., says SBA loans may be easier to obtain with less cash collateral required and longer term loans may be available. He is proud of the fact that although overall year-to-year bank lending through SBA in the U.S. was down some 30 percent last year, Wells Fargo showed a 3 percent increase. “We’re having a good year again this year,” he says, noting the bank has expanded its reach eastward through the purchase of Wachovia. “We’ve been taking advantage by adding more sales people.”
Burke suggests that potential borrowers look at the different types of SBA loans. There are the well-established 7A and 504 loan types, each offering different advantages for long-term applications, equipment purchases and the purchase of the real estate, but financing through the stimulus bill in 2009 also offers new advantages, such as fees charged to the borrower are generally waived by the bank because 90 percent of the loan is guaranteed by the federal government. This has encouraged both borrowers and lenders.
“Character is a huge issue,” Burke replies when asked for tips for people looking to borrow SBA-guaranteed money. Personal character goes beyond bankruptcies and personal credit scores, he notes. For example, a past criminal record, even a long-forgotten youthful brush with the law, can be detrimental to the applicant because of federal guidelines. Banks, not the government, make the lending decisions, and they are very particular. Loans for startups, in particular, may be difficult.
Burke also advises applicants to have a basic understanding of cash flow and the exact methods by which they will repay the loan. Not everyone understands how to read financial statements, and that is not a good sign for a lender. Also, Burke says, the company’s taxes should be current, because the bank will want to see them. In addition, companies should report all income and not keep “cash jobs” off the books and tax records. It is a sign of good management to record all transactions.
As for 2010, Burke is encouraged that aspects of the federal stimulus bill are being examined by Congress for possible extension through the rest of the year. Changes also may be in the works that will improve terms for small businesses. One is a proposal to increase loan amounts based on the size of the company. For example, loan limits for both 7A and 504 loans are $2 million now; for 7A loans, that could go up to $5 million if the measure goes into law.
Don Dale is a freelance writer and a frequent contributor. He resides in Altadena, Calif.