Maria Hadlow discusses finance with some of the industry's largest manufacturers.

With the industry expecting better things for 2011, Maria Hadlow discusses finance with some of the industry's largest manufacturers.

With aging fleets and a more positive outlook for the access industry, already the major manufacturers are reporting growing order books. But with many financial institutions still reticent to lend money, customers may find their vendor can also help them find a financial package that suits them.

Jamie Gibson director of capital markets and marketing of Terex Financial Services, North America said that with the downturn in the rental market, many traditional funding sources moved away from this segment in 2009 and 2010.

"Recently, I've began seeing these sources returning to the market in a very selective manner. It's going to take time for the financial statements to recover and therefore see the return of traditional funding sources in a big way.

"In an effort to offset the reduction in capital availability, Terex began to take deals on-book last year."

Doug Moreton director of Terex Financial Services EMEAR (Europe Middle East Africa Russia) agreed that while availability of credit is better then it was one year ago, obtaining financing can still be a difficult task for many companies.

"All signs point to an improvement in many economies across Europe, but there is still some level of scepticism from banks and finance institutions on providing additional credit to companies (in particular rental companies).

"I anticipate that most companies will report a modest improvement in financial results from 2009 to 2010, but the results will still be significantly down from what we saw three to four years ago.

"Many banks and finance companies are looking for steady improvement over a period of time, not just one or two quarters of performance.

"Given the significant and unprecedented global downturn that we have gone through, I expect financial institutions to be a bit slower and more conservative compared to previous downturns."

JLG has found that the banks and financial institutions are more willing to lend money, "However it's important to remember that even in the least-impacted markets across Europe, the appetite now is at a reduced level to that of even three years ago.

"Some of this is due to the reduced number of finance companies still active (some have left the market permanently!), some due to the repayment patterns now being experienced (rescheduling debt does of course affect short-term appetite for new facilities), and in part due to the regulatory rules for banks and finance companies that have changed, (capital adequacy rules, current debate ref Leasing Accounting practice etc).

"In short, financial companies are now required to look at risk and reward across the range of their customers (other industries as well as our own).

"Those customers that are able to provide results in line with current forecasts, demonstrate that they can pay off existing and proposed future debts, plus continue to provide transparency about their businesses, will find themselves in the front row as the willingness to lend money improves."

Of course the recent economic situation may have left potential purchasers reticent about borrowing money. JLG says that this is hardly unexpected given the uncertainties shown in the markets over the last few years.

"In general, our customers seem to be looking to refresh and reshape their fleets rather than expand at present. To achieve this, borrowing money (rather than auto-financing through working capital) is still viewed as being both the most efficient and effective way of driving growth through business value and competitive edge, if not in overall size."

Mr Gibson of Terex says that he is seeing a slight shift in customer behaviour to a cautious optimism. The lessons learned from the downturn are still very fresh in everyone's minds and thus most buying today is out of necessity and very little is speculative.

Mr Moreton says that in the past two years there has been significant reticence to expand rental fleets. As a result, many rental fleets have aged significantly.

Now, as some economies have improved, customers realize they need to replace their aging rental fleets with new equipment to reduce maintenance costs.

"I anticipate this trend to continue which will obviously require many customers to borrow money to finance the acquisition of new equipment."

For financing to work in the current environment there needs to be more flexibility on both sides and, as JLG emphasises, transparency.

"We always encourage our customers to provide as much visibility as possible (including financial results, financial forecast, overall vision) for the finance community to absorb.

"As we all know, "the numbers" are crucial to opening the credit envelope, but it's the vision created by the leaders of any business, and the confidence the finance community have in the management team that really opens opportunity.

"To that end, inviting the finance community into the business - to visit, view, ask questions etc - often unlocks significant value too.

Mr Moreton agrees about visibility, "First and foremost," he says, "customers should be completely transparent with their financial results and what they forecast their business to do in the coming years.

"There is more credibility with banks and finance companies when customers honestly and pro-actively discuss their business challenges, opportunities and concerns.

"Second, customers should prepare accurate and timely financial statements and financial reports (i.e. fleet utilization). At the end of the day, producing quality financial statements helps business managers and owners run their businesses. They should feel they are doing it for themselves, not for the banks and finance companies. "

Haulotte says that purchases should be ready to pay a downpayment in order to reduce the credit risk for the bank or leasing company. and the Terex team agrees.

Mr Gibson says, "Customers should anticipate more structuring of deals in the near term. This presents itself largely in the form of down payments and personal guarantees.

Reporting capabilities are also key in today's underwriting environment. Strong reporting of finance factors such as time utilisation, dollar utilisation and A/R aging play an important role in acquiring financing."

So what is on offer? JLG Financial Solutions offers a range of customised solutions for our customers. "Some recent examples include service-lease contracts, fixed term operating leases, as well as the more traditional term loans and leases that we help JLG customers identify and complete around the world.

"There is no "one-size-fits-all" solution - it really depends on what customers need and why. JLG actively encourages our customers to think about, and share with us, not just the reasons that they want a particular machine, but how that "asset" is going to add value to their business over time.

In some cases fixed term leases are the right way to go, in others, medium term loans. That's one reason JLG looks for partners in finance to help provide a range of solutions to our customers in various markets globally."

Terex Financial Services is designed to help customers meet their equipment needs while managing their financial goals. Current financing offers include 12 months at 1% to a balloon at month 61.

Competitive low rate loan offerings are available as low as 3.99%, as seen recently at The Rental Show 2011. Customers will also receive competitive FMV (fair market value) offerings.

Mr Moreton says that Terex Financial Services can offer many different finance options to meet individual customer needs. These options include hire-purchase contracts, finance leases and operating leases.

"It is best to sit down with a prospective customer to discuss their specific financing requirements and develop a tailored finance program that meets their needs."

He continues "Every customer is different, but one principal that is consistent is the need to manage cash flow. The average finance terms vary depending on the type of equipment that is being acquired and what current rental rates customers can charge.

"Typical finance terms range from 4 - 6 years. In the current environment, I would not expect to see customers requesting short term financing contracts."

Mr Gibson also points out that a longer term financing arrangement is more advantageous to the customer as it helps in the current environment of lower rental rates.

"However, a funding source is going to push for a shorter term to minimize their collateral risk. Due to this relationship, terms of 48 to 60 months are typical."

Ideally financial packages also have to take regional differences into account JLG says that each market will have its own features and practices.

"JLG works with our customers and local providers in each market to both understand and help present financing solutions that meet with needs.

"For customers working in numerous markets, they will see that expectations from funders remain broadly similar, but there is undoubtedly variance in experience and also appetite from the finance community to provide facilities.

"This can sometimes be seen as being how "hard" or "easy" they are to do business with."

Mr Moreton said, "In Europe and globally there are regional and country difference in customer's ability to obtain financing. Every market is recovering at a different pace.

For instances in Europe, it would be fair to say that the northern countries are recover a more quickly then the southern countries. Finance companies in these regions appear to follow a similar pattern."

Haulotte pointed out that counties where the repossession of the assets is more complicated, like China for example, is making more difficult to get finance as funders cannot adopt an asset risk approach.