Who are your best customers?
Are they the people who do business with you on a regular basis? Do they have their paperwork up to date and do they pay on time, or early? Are they easy to deal with and always polite to you and your people?
Just like you, your lender is a business. And just like you, it wants to support its best customers. Nowadays, a good relationship with your bank or lessor is one of the most important factors promoting the health of your business.
So, "Are you one of your lender's best customers?" If you have a hard time answering that question, then you have some questions to answer for yourself.
Do you have a fleet plan?
The first step is to put together a fleet plan for the next 12-24 months.
Remember it is just a plan; it is not etched in stone. However, it should show your lender at what point you'll need to add cars to the fleet and when you plan to sell or send them back. If your business loses 20 percent in sales, can you show your lender how you'd handle it? Be prepared.
A simple spreadsheet with a list of vehicle types on one axis and the 12 months of the year on another will help you approximate your funding needs.
Every so often, manufacturers will offer a special discounted price on fleet units for a short time period. Make sure your credit line has enough flexibility to take advantage of these opportunity buys.
Do you have up-to-date financials?
In this day and age, if your bank or finance company calls and asks for a copy of last quarter's financial reports and you tell them it will take a couple of weeks, you've raised a red flag. With the right accounting software, you have no excuses; you can be current everyday.
Underwriters also look at credit scores, so make sure your Dunn & Bradstreet ratings and FICO score are up to date. Also, make sure you have letters in your credit file to explain any past discrepancies.
Do you know your lender's current policies?
With the changing landscape in the financial industry, lending policies can change weekly. For example, the Fed can issue new requirements as banks buy banks, fold or get taken over, which changes their loan policies.
It is not uncommon today for a bank to buy another bank and impose new policies on its customers. This may mean the fleet customer will need to reapply for a new credit line.
You need to check with the bank on a regular basis about any changes in policy and loan requirements. If you receive a policy change in the mail, read it. If you have a question, call. If you don't like the change, call.
Does your lender know who you are and what you do?
Does your financial package include an executive summary with bios? You should also include a company profile with a description of your market and what distinguishes you from your competitors.
At one time, banking was a personal business. Now decisions are often made by computers located thousands of miles from a bank. Still, fostering a personal relationship can open doors normally closed.
You would be surprised how little bankers know about how their customers make money.
When they look at your fleet, what do they see-a giant mobile liability that is losing value on a daily basis, or a well-managed asset?
Show your bank that you really understand your business. Offer to take your banker and his or her boss to lunch. Ask if there is anything you can do to make their job easier. Invite them to your office to meet your team. And don't forget to always send them your updated financials at the end of every quarter. Do not wait for them to ask!
Does the bank know how much business you do with them? Do you?
If the bank is handling your merchant account, do they know how much money your company runs through them?
If you require your employees to have accounts at your bank for direct deposit, the bank has those accounts because of you. Consider that all of your employees' salaries for the year are money flowing through your bank. Your employees will also use the bank for personal loans, car loans, mortgages, credit cards and more.
The same can be said for corporate credit cards and loans, and the consumer loan program set up for people buying your fleet units. When you add it up, it equals a lot of money. Maybe it is your bank's turn to spring for lunch.
Does your lender know how great you are doing?
Is your business expanding? Have you signed a new client or sponsored a local charity event? Good news! Let your bank know, let your employees know. Email is your friend!
If you're with a local bank, let your customers and your bank know how much you buy within the community.
What are you doing to make your bank a good customer?
Do you offer discounts to your bank's employees and their customers for your services? How about a "First National Bank" Special? Look at cross-promotional opportunities. Whatever your company's business-landscaping, insurance, plumbing, food service-you have goods and services that your bank's employees and customers want.
Can you position yourself so the bank will introduce you to a new corporate customer? If they have a "customer spotlight," can you be one of the companies they shine the light on?
Now that you have answered all these questions, there is one last one:
Is this the right lender for you?
So you have a plan. You know your loan needs for the next 12 months. You know how much business you give your bank and you know what they offer in return. Your financial package is up-to-date, and you have a process that keeps it up-to-date. Now is a good time to see what other banks and leasing companies might offer.
But remember, if you have a long-term relationship with your lender, you must weigh carefully whether getting a quarter point lower on your loan rate from a new bank is really worth it. BF
Mark Eckhaus ([email protected]) is CEO of Eckhaus Fleet LLC, one of the largest independent fleet distributors representing Hyundai, Suzuki, Toyota and other manufacturers to the corporate fleet and rental car industries. Mark is a principal in several new car dealerships. Tim Yopp ([email protected]) is chief technology officer of Eckhaus Fleet LLC.
Financing: What the Lenders Say
Lenders from two leasing companies, a bank and a captive finance company weigh in on what they look for in small fleets when assessing a credit line.
Kent Boskovich, president, Union Leasing
We look at overall trends such as age of the company as well as the ownership and management team, though the biggest factor is the strength of the balance sheet. What is the client's debt to equity ratio, and is the company highly leveraged? The retained earnings have to be strong.
We don't look at number or cost of vehicles; we look at what we can do within the dollar credit line. If we can't accommodate the entire line requested, we can lease low-mileage pre-owned units. Going that route will meet the unit count that the client wants, and put them under the line of credit. We're comfortable with this because first year depreciation is deadly on a vehicle.
Anything that mitigates risk will get you more units. Leasing or financing pre-owned units, cap reductions (putting money down) and shorter terms all mitigate risk.
We're always ready to consult on the best time to get in or out of a unit. If a client needs to get out of a unit quickly, we'll look for ways to retail the unit, which could return 20 percent more than wholesale.
Richard Pipenhagen, national sales and marketing manager, Toyota Financial Services
The same fundamentals for financing are intact as they always were, such as good financial ratios, a strong balance sheet, cash flow and positive net worth. The factor most impacted by the financial crisis is number of years in business. We don't want to do business with anyone that hasn't been in business for at least five years. Even then, we're very careful about what we do.
We like to talk to a client's lead bank and understand that they've got a good solid relationship with them and are endorsed by them. We look at their D&B and Paydex scores [for promptness of paying creditors], and see if they have any charge offs [uncollected accounts].
For newer companies or those with credit challenges, we might suggest a down payment, say, $1,000 a unit. If it's an open-end TRAC lease, we'd suggest depreciating the units a little faster. If they close the doors, this leaves us in a more solid position.
We also suggest, especially for newer companies, that they use Toyota exclusively, as we're more comfortable remarketing our own product.
Joe Opferman, president, 1st Source/Truckers Bank
In today's banking environment, it might be prudent to work with two institutions. If your bank is purchased and your relationship is severed, you then have another place that understands your business. It's also prudent to work with banks that specialize-have your equipment loans at one bank and your vehicle loans at another. Each can help you find the best deals and have expertise that might not be available from a local bank. In today's world of remote deposits, a banking relationship does not have to be just down the street.
Experience with a lender is very important and can overcome some one-time negative events. The banker that feels comfortable with the fleet operator will be more inclined to lend.
Also, when you tell a banker something, deliver on the promise. Telling a banker one thing and then doing another does not inspire confidence. Bankers expect changes in plans but they want to know why, and usually not after the fact.
Tell your banker the good, the bad and the ugly and demonstrate that your organization can withstand a downturn in the market. Show that you are prepared to make the adjustments required to meet demand. When a banker has confidence that the operator has a good grasp of his economic drivers and a defensive plan, it will provide the confidence the banker needs to move forward.
Steve Bloom, senior vice president, Enterprise Fleet Management and Car Sales
We look to write leases that are good for our customers and for our business, which means an appropriate depreciation of the vehicles. We try to compel the customer to match the depreciation to the use of the car. There is clearly volatility in the used car marketplace now, so having a $500-$1,000 cushion takes into consideration extra miles or wear and tear.
We typically give a line of credit year by year based on how the risk is set up, how the vehicle is depreciated and aftermarket levels. We take a smart, moderately conservative approach to aftermarket upfits, bearing in mind resale value may be negatively impacted when considering more customized items.
Cash flow is ultimately the most important thing, then financial solvency and the stability of the balance sheet. Because we deal with medium and smaller size companies, knowing the owners is important. We would want to know their credit history and their commitment. If their tax strategy is to not pay a lot in taxes and flow it through themselves personally, we might ask for personal guaranties.
We'll first do a needs-analysis to come up with a plan. We need three years of financials, and if they're not audited, we'll ask for tax returns and a two-page application. Depending on the strength of their credit history, we might ask to depreciate the vehicles a little faster or put a little more money down.
Businesses that have been hit by the economy won't be talking about new vehicles in most cases. They might talk to us about disposing vehicles and downsizing the fleet. If there is volatility or exposure in the lease, we'll recast it mid term. We can help the fleet now more than ever to make their cash go further. However, even thought the market is volatile, you have to be careful to not react to what is happening right now because in three years, it will be different from today.