Besides interest rate increases, the most frequent topic customers and potential customers ask is: "What is the credit market like today?"

Due to bank shutdowns, constant media coverage about a possible recession, and an uptick in fraud, lenders are proceeding cautiously. Are they lending? Yes. However, lenders are asking more questions and requesting more information, which means it takes a bit longer to get a deal done.

Here are some of the most common questions we hear — and answers that 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 doing in the year ahead. Provide a complete, legible credit application. Taking the time to fill it out thoroughly can alleviate many questions once the file enters credit review.

Why Am I Asked to Provide Financial Information?

There are several reasons company financial information may be requested. The company may not have comparable borrowing history — in which case, financial statements or bank statements may be needed. The requested finance amount may exceed the application-only limit of $650,000. Or the equipment being purchased is new to the fleet and will replace rented equipment. In that scenario, the financials can show what the company is currently spending on rentals, which can be compared to the projected monthly financing payment.

What Happens After Credit Approval?

If you are purchasing from a licensed dealer, the dealer will provide an invoice with all pertinent information about the equipment — year, make, model, serial number or VIN for all components, the purchase price, and any additional costs such as sales tax, delivery, and title fees. These transactions are typically quicker and more straightforward.

What If I'm Buying from a Private Party?

Due to limited equipment availability, we are seeing a significant increase in private-party and user-to-user transactions. Lending for these deals can proceed smoothly with the right information and a little patience. You will need to provide the same details as a dealer purchase, plus a few additional items.

We may request a copy of the seller's original invoice from when they purchased the equipment. This helps trace the purchase back to a licensed dealer and, for non-titled equipment, serves as proof of ownership. If the seller has the unit financed, we will request a current payoff. At funding, we pay that lender off directly and send the balance to the seller — ensuring the lien is properly released.

We will also likely require a sight inspection of the equipment to confirm that the VIN or serial numbers match what the buyer is purchasing and that the equipment is in working condition. A lien search on the seller will be ordered and reviewed for any outstanding liens on the equipment as well as any blanket liens filed against the seller.

What Are Blanket Liens?

Blanket liens are not specific to one piece of equipment. They cover all equipment, inventory, and assets the seller owns. Any lender who has filed a blanket lien must provide a lien disclaimer to ensure the buyer is protected and the equipment being purchased and financed is free of those liens. Blanket filings are commonly in place when the seller has a line of credit with a bank or an SBA or EIDL loan. All parties should expect some patience here, as it may take time to obtain the proper signatures on the required lien disclaimers.

Next Steps for Any Loan

Once approved, the borrower will be asked for copies of driver's licenses for anyone required to sign documents — this ensures names are correct and legal. Documents are sent via email or DocuSign for signatures, and emailed documents may be returned as scans or original copies.

Lenders will require the collateral to be properly insured, with the lender listed as the Loss Payee and Additional Insured. The lender's funding department then reviews the signed documentation package to ensure everything is signed correctly and the file is ready to fund. During this review, patience may be needed — it takes time to make sure every detail is covered. Corrections may occasionally be necessary, which adds time to the process.

Once the documentation review is complete, the lender may contact the buyer and seller to confirm the transaction details and wire transfer information. If everything is in order, the wire transfer is released.

Why Work with a Professional Lender?

When purchasing something as valuable and important as heavy equipment, it is essential to work with a knowledgeable professional who has experience in your industry and understands your type of business and the specific equipment you need. That kind of expertise helps the borrower get the most from their investment and makes the process go as smoothly and quickly as possible.

— Harry Fry & Associates