Manufacturers can offer a number of different financing packages to help you buy your next piece of equipment.
As the economy continues to improve, more businesses are making investments to fuel their growth. If you’re among those who have decided financing is the best bet, it’s wise to do a little research on what’s out there.
Without a doubt, the most popular financing options these days are the 0-percent interest programs, says David Adams, financial services manager for Toro and Exmark. Loan terms typically range anywhere from three to five years on such programs. Adams says there are more no-interest finance promotions available now than a few years ago and they are available for longer terms.
A main reason for these promotions is because the cost of money has been historically low the past few years. This makes it easier for equipment manufacturers to afford to offer zero percent programs to their customers, Adams says. “These allow a contractor to acquire new equipment now and pay it off over its useful life without paying any interest charges,” he says.
While Dan Gundacker, product marketing manager for John Deere Financial, says that many contractors were paying cash when he first got into this business, most are taking advantage of low financing rates these days. “When an offer for zero percent is out there, it’s pretty tough to think about using your own cash,” Gundacker says. In fact, even contractors who have the cash available are choosing financing. “We’re definitely seeing that most contractors are utilizing that low rate so that they can use their own funds to do something that will help them make even more money for their company,” Gundacker says. “It makes sense to use low rate financing or leasing for the equipment purchase, saving capital for other business needs.”
Tony Whitehurst, general manager of JCB Finance, says that these days, more contractors are also looking for leasing opportunities that include a stated purchase option as well as the ability to walk away after the lease term. But most are taking advantage of the zero percent interest programs available in the marketplace today.
Of course there are some financing packages that are not as popular. Adams says that anything with an interest rate more than 3.99 percent – even if it comes with an initial “no payment period,” – is not as well-liked as others. “With so many no- or low-interest promotions available from manufacturers, contractors simply aren’t willing to pay finance charges if they have decent credit,” he adds.
In addition, Gundacker says that “no interest if paid in full” financing options are not a popular fit in the landscaping industry. Often seen in furniture sales, Gundacker says this “consumer-oriented offer” is not ideal for someone managing a business. “With a package like this, you would get six or 12 months to pay in full with no interest but after that it defaults to a monthly rate,” Gundacker says.
“If a contractor wanted to pay cash up front, they would. They typically wouldn’t want that short deferment only to go back to being faced with interest.”
A custom deal.
The landscape industry is certainly unlike many others. As a result, financing packages may also be tailored a bit differently than for other industries. Adams says that Toro and Exmark don’t take a one -size-fits-all approach to financial packages.
Adams says Exmark and Toro have packages that may appeal to contractors at various stages of business. “For those simply preferring to ‘use someone else’s money’ we offer attractive zero-percent interest programs,” he says. “But for those where cash flow is a priority, we offer low interest rates over a longer term which minimizes the payment. On our revolving charge program, we also include convenient short-term deferred interest plans that can be used to finance everyday parts and service purchases.”
It does seem that most companies try to customize financial packages as much as possible knowing that needs can greatly differ, sometimes based on region. Caterpillar Financial has territory managers located within a Caterpillar dealer’s territory in order to explain to customers their financial options.
“While there are some standard terms within the finance arena, we tailor our financing options to meet a customer’s needs,” says Robert Hughes, market development consultant for Caterpillar’s Financial Division.
“Our territory managers regularly meet with our customers to understand their equipment needs and determine which lease or loan structure best supports those needs.”
Gundacker adds that because landscaping is a seasonal business, the time of year also plays into the popularity of various financial packages. “Waiver options” tend to be popular in the off-season. “One of our most popular options is ‘no interest, no payments until May,’ which is then followed by zero-percent interest for 36 months,” Gundacker says. “That allows a contractor to buy a piece of equipment that they might not need yet but helps them get their fleet ready for the spring. Fleet management is a nice benefit of financing.”
Because John Deere Financial is a captive finance company (both a bank as well as a finance company), they’re also able to craft programs specifically to contractors’ needs.
“For instance, we might have something like ‘zero percent for 36 months,’ but, within that, also meet landscape-specific needs such as a seasonal payment plan,” Gundacker says.
“Because this is a seasonal business, and the ‘season’ varies across the nation, we let them pick up to six months where we will drop the payment down to one percent of the amount financed.” Gundacker also says leasing has become much more popular. “It is a great tool to control cost per hour while maximizing uptime with a newer fleet needing fewer repairs,” he adds.
Since two key issues with landscape contractors are cash flow and working capital, Whitehurst says that JCB Finance is willing to structure transactions that help better match the contractor’s cash flow. These customizations could include up-front skips, annual skips, six payments on and six payments off, low to high payments, quarterly payments, semi-annual payments or even annual payments. “These types of special financing packages are based on the contractor’s credit score,” Whitehurst adds.
Customization may also mean looking at a contractor’s potential future needs. Gundacker says he’s encouraging contractors to consider adding parts and attachments to their financial package that way they can get them now and have them ready to go.
“When the mechanic needs the parts, they’re already there and ready to go. It saves time and it helps with fleet management,” Gundacker says.