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Besides interest rate increases, the most frequent topic customers and potential customers ask us is, “What is credit like today?”
Due to bank shutdowns, constant media bombardment about a possible recession and an uptick in fraud, lenders are proceeding cautiously. Are they lending? Yes! However, lenders are asking more questions and asking for more information, so it takes a bit longer to get a deal done.
Here are some of the questions we hear most frequently. Hopefully, the answers will help you be prepared and understand what to expect.
How can a borrower help the process go smoothly?
Tell us your story. We want to understand your background, how you started your company, what you see happening in your market and what you anticipate your business to do in the year ahead.
Provide a complete credit application that is legible. Taking the time to fill out the entire application may alleviate some questions once the file is in credit review.
Why am I asked to provide financial information?
There are several reasons that company financial information may be requested:
Why am I being asked the reason for the purchase?
We often ask why an applicant needs the equipment. That might seem silly ask, but we need to find out:
Providing the complete information requested may help us tell your story to the lender and help them make a favorable decision on your request for financing.
Next Step
What should I expect once credit is approved, and what can I do to be prepared?
If you are purchasing from a licensed dealer, the dealer will provide an invoice with all the pertinent information about the equipment you are purchasing, such as year, make, model, and serial or vehicle identification number (VIN) for all of the components; as well as the purchase price plus any additional costs, such as sales tax, delivery, title fees, etc. These transactions are typically quicker and easier.
What if I’m buying from a private party?
Due to the lack of equipment, we are seeing a significant increase in private party or user-to-user transactions. Lending for these transactions can go smoothly, too, if you have the correct information and a little patience. You’ll need to provide the same information you would if you were buying from a dealer, plus a few additional items:
We may ask the seller for a copy of their original invoice when they purchased the equipment. This is requested in order to search the purchase back to a licensed dealer, and if it is a non-titled piece, to use as proof of ownership.
If the seller has the unit financed, we will ask them for a current payoff. At funding, we will pay that lender off directly, and fund the balance to the seller. We want to make sure that the lender receives the amount they are due, and can promptly release the lien.
We will also likely require a sight inspection of the equipment. The inspection is done to ensure that the equipment with the correct vin/serial numbers match what the buyer is buying and the equipment is in working condition.
A lien search on the seller will be ordered and reviewed for any outstanding lien on the equipment being purchased, as well as any “blanket” liens filed against the seller.
What are Blanket Liens?
These liens are not specific to one piece of equipment. They encompass all equipment, inventory, etc., that the seller owns.
In order to ensure that the buyer is protected and the equipment that is being purchased and financed is free of these “blanket” liens, a lien disclaimer is required from any lender who has filed a “blanket” lien.
Generally, blanket filings are put in place if the seller has a line of credit with a bank or has an SBA loan/EIDL loan.
Patience is needed from all parties, as it may take time to get the proper signatures on the required lien disclaimers.
Next Steps for Any Loan
Documentation: The buyer (borrower) will be asked for a copy of driver’s licenses for anyone who will need to sign documents. This ensures that the name of the signers is their correct, legal name.
Documents are sent via email or DocuSign for signatures. Documents that are emailed may be returned via scan and or as original copies.
Proof of insurance: Lenders will require that the collateral be properly insured and that the lender is listed as the Loss Payee and Additional Insured.
Review of documents for funding: The signed documentation package is reviewed by the lender’s funding department to ensure all documents are signed correctly and the file is ready to be funded.
It may be during this review that patience is needed. It takes time to be sure all the i’s are dotted and the t’s are crossed. Also, corrections sometimes need to be made, and that adds time to the process.
Verbal funding authorization: Once the review of the documentation has been completed, the lender may contact both the buyer and seller to confirm the details of the transaction and to confirm the wire transfer information. If all is in order, the wire transfer will be released.
Use a Professional Lender
When you’re buying something as valuable and important as a piece of heavy equipment, it’s important to work with a knowledgeable professional, someone who has experience in your industry and who understands your type of business and the equipment you need.
That kind of knowledge and understanding helps the borrower get the most from their investment and makes the process go as smoothly and as quickly as possible.
Cheyl Fry is vice president of Harry Fry & Associates, West Newbury, Massachusetts, a finance and lease company dedicated to the lifting industry. She can be reached at cheryl@harryfry.com.
