This is not a drill. The economy is slowing down at a gradual pace and lenders are tightening standards. The Fed’s recent report on how many banks are tightening lending standards for businesses is below. As of now, we’ve entered territory previously occupied by major disruptions in the ability to access capital.
As a result, equipment dealers are feeling the shift.
- In a recent survey of 53 manufacturer-owned finance groups (captives), over 30% had tightened lending standards in the last 60 days
- In a similar survey of over 1,200 equipment dealers, 39% reported tighter lending conditions when trying to fund an equipment sale. In addition, 11% reported vendor finance company relationships were in the process of exiting their industry entirely
- Interestingly, the same survey reports dealer application volume for April through mid-June was up 23% over the same period last year
“Credit tightening is hurting our ability to get deals done. This is no longer a test. This is happening.”
– CFO | $700MM Manufacturer of material handling equipment
But wait a minute.
In an environment where more businesses are slowing their upcoming equipment purchases, where rates are at their highest point in nearly 20 years, where equipment costs are high, and bank lending is tightening, equipment dealer applications are up over 20%?
The answer is yes! Here are the four biggest reasons why:
- Trust. When over 5,000 businesses that had borrowed for an equipment purchase in the last five years were asked who they trusted most for their equipment financing, 43% sought their equipment dealer’s options first
- Outside of the Primary Bank Relationship. 85% of respondents in the same survey would choose a finance option outside their primary deposit bank relationship – the largest number recorded in the nine years of this survey. Increasingly, businesses are seeking the lease disruption to the primary banking relationship by diversifying sources of funding
- Flexibility. When lending standards become tighter, businesses feel like equipment dealers are more likely to work through challenges or unique needs
- The Declining Priority of Rate. With rates elevated and approvals dropping, businesses are increasingly realizing that an incredibly low-interest rate on a loan you can’t get approved for is of no benefit. Paying competitive but higher rates is increasingly acceptable, especially when the equipment is a growth-driver or expense-reduction vehicle
“In times like these, we go to our equipment dealer for financing. Sometimes they have promotional deals not even the banks can compete with. But more frequently, they’re easier to work with, know our business, work to find solutions, and don’t look down on us when times are harder.”
– Owner | $18MM Concrete company
To maximize sales, now may be the right time to reconnect strategically with your lenders. Understanding how they see the current market, their commitment to your industry, and seeking any creative ideas they may have to serve customers looking for dealer finance options first are an important first step. Then, trusting lenders with the track record of delivering financing through the economic ebbs and flows is a must.
LEAF is actively lending right now and strategically positioned to bring the creativity and confidence of execution you need to make the most of each sales opportunity.
*2022 Cybersecurity Almanac