Equipment dealers, lenders get creative to help small businesses

Heavy-equipment dealers and lenders are getting creative to help the industry’s “little guys” find financing.  

Ingenuity has become crucial in recent years as small businesses and startups struggle to get off the ground amid tight lending standards, Charles Baldwin, a sales representative at Elizabethtown, Ky.-based manufacturer Kato Compact Excavator Sales, told Equipment Finance News at the recent Equip Exposition in Louisville, Ky.  

Many businesses must be operating for 24 months before finance companies even consider lending to them, he said.  

“That’s a big hurdle for a lot of the newer guys getting into the industry,” Baldwin said. 

Equipment financiers denied — or only partially approved — loans for 27% of small business applicants in 2023, according to a survey by the Federal Reserve comprising nearly 11,000 responses. Nearly 71% of small businesses making less than $100,000 in revenue were denied or partially approved last year, the report stated.  

Businesses with less than $100,000 in revenue was the smallest of four groups in the report. 

More options needed 

Roughly half of construction firms have fewer than five employees, according to a July report by research and data collection firm Statista. Nearly 80% of homebuilders are independent contractors or specialty trade contractors, according to the National Association of Home Builders.  

More financing options for independent operators would yield increased sales for some dealers, Harley Brattain, general manager of Aurora, Ore.-based Equipment NW, told EFN. 

“Right now, all heavy equipment is commercial financing only,” he said. “My business would probably be up 30% if property owners — a guy with 10 acres here, 50 acres there — could just get a machine financed, and they can’t. The banks won’t do it because they don’t have titles.” 

The used-equipment market stands to benefit from increased lending for private individuals and small businesses, Joe Rexin, owner of Long Beach, Calif.-based Rexin Equipment, told EFN. That’s because the used market “somewhat tailors to the startup, small, small contractor, maybe a guy that’s doing it as a side job,” he said.  

Rexin said he has turned down some prospective buyers because they didn’t have an accredited business, despite having “a fairly decent net worth.” John Deere Financial and Kubota are among the few OEM captives that offer consumer loans, he said.  

Lenders on deck 

Dealers may have to reach into their bag of tricks to arrange financing for the industry’s little guys. Working with multiple lenders as opposed to a single captive or lending partner is one solution, Kris Realander, sales manager at Morrisville, N.C.-based Triangle Equipment Group, told EFN. 

“It’s easy to get one–sided or pigeonholed into just direct lending from a specific financing company,” he said. “There are so many options out there, and there’s a lender for every scenario that someone brings to me. My job is to pair them with the right one and get them on the right foot so we can continue to grow their business.” 

Scale to fit  

Flexible loan terms can also support startups in the heavy-equipment industry. They allow businesses to pay interest that best suits their growth goals over a six- to 12-month stretch, Realander said. 

Similarly, some lenders are cultivating financing plans that accommodate small businesses’ incremental growth goals, Jody Ray, relationship manager at Chicago-based equipment financier BMO Bank North America, told EFN during the Equip Exposition. 

“Let’s say you’ve got John Smith’s construction company that’s been a business for a few years… we’re certainly going to extend the loan if he meets our credit underwriting standards,” Ray said.  

“But we’re also going to take the steps to make him successful in the repayment of that loan, so that he grows his business instead of just purchasing that one piece of equipment for $30,000 initially,” he added. “Then we’re looking at helping him purchase the next one, then the bigger one.” 

BMO Bank, a lending partner of Perry, Okla.-based equipment manufacturer Ditch Witch, has extended the maximum term for 0% financing deals from 60 to 72 months to accommodate smaller companies, Ray said. The lender also offers incentives and subsidized rates.