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Companies With ‘Winning’ Track Records Are Often Good Candidates
By Sherri Middleton
With all the doom and gloom news about the economic crisis, none of us are immune to sleepless nights and worries about the future of our business. Truck operators and fleet owners are no exception.
Ray Morandell, senior vice president/sales manager for Crestmark Bank, says there is a silver lining. “It’s not impossible to get financing in difficult economic times. If you think of it in terms of being a ball club that is staying ahead of the game, and you have a good season backed by some successes, then you are an ideal business partner.”
With more than nine years in the transportation industry and many years in finance, Morandell says he’s concerned about “what keeps truckers up at night and what we can do to help them sleep better.”
Bryan Alsobrooks, senior vice president and director of Crestmark Transportation Services, adds, “We’ve seen more and more opportunities than what we would see in a normal economy in terms of available financing. Trucking companies that struggled in ’08 because of increases in diesel prices are getting a temporary cash flow boost from fuel surcharges.”
Alsobrooks says an understanding of trucking and a commitment to understanding the unique needs of the transportation industry is what sets his company apart from other financial lenders.
With 17 years in finance, and many of them in transportation financing, Alsobrooks adds that, “Capacity is significant too, because in the past, these cycles were absorbed by other businesses. Now some companies are going out of business and that changes the dynamics of the industry. Moving into the second quarter of 2009 (2Q) and third quarter (3Q), expectations are good for the trucking industry.”
Fleets will reorganize and restructure their operations to meet the demands of a new market. Lenders will now be more particular about company profitability and will need to have a better understanding of the trucking industry. “Trucking is a unique animal with unique challenges,” Alsobrooks says.
Specialization is Key
In the past few years it seems that some lenders provided financing to practically anyone who came knocking. That business model is changing.
Executives with industry knowledge like Alsobrooks and Morandell say banks that are unfamiliar with trucking will now be more reluctant to get involved if they don’t have a thorough understanding of the market or the industry.
“Transportation financing is all we do in my division of Crestmark,” Alsobrooks says. “Our team understands the risks that go with it so we ‘talk the talk’ with our customers and help them when traditional banks can’t.” The transportation division of Crestmark Bank, located in Nashville, Tenn., is solely focused on trucking finance issues, so they understand the unique needs of the industry.
In a slow economy, Morandell, a member of American Trucking Associations (ATA), and Truckload Carriers (TLC), says it’s now more important than ever for trucking companies to revisit their overall capital expenditures. “When revenues go down and with the volatility of fuel rising and falling, the normal challenges of paying taxes, plates and insurance become more important financial considerations.”
“Trucking has a different twist from normal companies because a company has a load and the cost of delivering that load is constantly fluctuating because of market conditions,” he says. “Most folks don’t use a line of credit because it takes 35 to 40 days to create working capital. In this situation, fuel is a wild card and you can have the best operator working at optimum conditions, but that may not help in terms of running a successful operation.
“The solution is to not focus on one item,” he says. “The puzzle becomes the prospect of the available solutions and that solution is different for all companies.”
Morandell advises fleets and owner operators to look at external operating costs and find a way to make those as efficient as possible. Avoid running empty and then look for the highest advance rate of credit available from a list of lenders. “Now, companies have to do not one, but many things to improve their chances of appearing to be a good investment for a bank.”
Ideal Customers
An ideally viable business model according to Morandell is to have a company whose dynamics are good in any situation. Lending institutions look for longevity in business along with sustained successes and business growth.
Alsobrooks agrees that the key component of an ideal borrower is someone who has a successful track record and someone who knows the risk of operating in transportation. “We want to know their customers,” he says. “We want to know who is paying the freight charges; because that’s ultimately who is paying the bills. We don’t put weight on whether you own your own trucks or whether you lease your trucks, because that can change.”
“Most of what we are seeing in terms of financing is people who need to cover day-to-day bills until invoices are paid,” Alsobrooks says. “A few companies are looking for capital for major expenses, like if they are in the process of moving to a new location, or have major vehicle maintenance needs.”
He said companies with older fleets are also evaluating current equipment inventory and asking themselves whether they should buy newer equipment or wait for better times.
It appears that it is now more important than ever to analyze the operation’s strengths and weaknesses to determine the best financing solutions and possible lenders.
“In the last 90 to 100 days the credit situation is in turmoil,” Morandell says. “Veteran lenders like us look at the marketplace and offer advances against accounts receivable with line of credit lending. If people aren’t lending, it can be the difference between not moving any trucks and filling those trucks with goods. Trucking is a good investment; what’s the adage? ‘Trucks bring it,’ …so trucking companies are the first to see the economic upswing and the first to rebound.”
Cut the Fat
Morandell says the best advice from a financing standpoint is to “get as lean as possible,” while looking at every area of the business where money can be saved. He also advises trucking companies to learn more about customers and buyers to better understand the problems and solutions.
A good banker or lender will want to know your financial situation, and many will recommend contacting a financial advisor or consultant to help deal with extreme problems. “I don’t think it’s impossible to get financing; I think it’s more sticker shock because the cost of raising capital is higher.”
Alsobrooks says that interest rate “sticker shock” may be new to some borrowers due to the changing credit market where many traditional banks and lenders have had to realign their costs to mitigate risk, or have stopped lending altogether. Where the interest rate was at prime plus one percent, borrowers may now see upwards of prime plus six, and that’s a significant increase in credit terms for most borrowers.
“Even though the money is there, the market changes are not what they expected and the cost of doing business will have to go up,” he says.
Alsobrooks and Morandell agree that lenders are reluctant to hedge their bets on unproven companies, but it won’t be long before the market corrects itself to accommodate good customers.
The best advice for fleet owners or owner operators is to continue shopping for a strong lender with the highest value-added service and a competitive interest rate. And be sure to carefully consider the ‘small print’ before settling on a financing plan. “Compare apples to apples and make sure you understand all the potential costs and charges before you sign,” Alsobrooks says.
Crestmark recommends looking at the alternate financing options available to assist your transportation company through these turbulent times. Depending on each customer’s individual needs, accounts receivable financing, factoring, and asset-based lines of credit are all viable options that can provide short-term, or even long-term financial relief.
For more information on national lending trends, contact Bryan Alsobrooks at balsobrooks@crestmark.com or Ray Morandell at rmorandell@crestmark.com; or for more information, visit www.crestmark.com. |
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