Whether you are new to the tree care industry or have been in business for several years, when considering credit options, it’s critical to put together a solid business plan.
“A plan is absolutely necessary to securing and using credit, especially when purchasing tree care equipment,” says Jim Braafhart, credit manager at Vermeer Corporation. “When tree care contractors fail, the cause is often because they don’t have a plan projecting what their revenues are going to be or a plan of what to do when business falls off.”
Braafhart has seen many success stories involving good credit decisions. “They usually involve an owner who knows what kind of revenues he’s got coming in, how much growth he is going to have and then buying the appropriate amount of equipment. We have seen plenty of our customers grow in that way over the years.”
Startup company
Braafhart suggests that a three-year Fair Market Value lease may be the best choice for someone entering the tree care business.
What about a person who has limited or no experience with credit history?
“Without credit history, it’s going to be a little tougher,” notes Braafhart. “You may be required to put more money down or may have to rent. A rent-to-purchase agreement is often a good option. Or, if you can present a list of work projects lined up, that may overcome a lack of credit history. Sometimes a good business plan may be able to make up for lack of experience.”
He warns not to be misled by special circumstances or short-term projects. “If you are only going to be busy doing this type of work for three months, you may be better off renting that extra chipper,” says Braafhart.
If your work is seasonal, there may be credit products that have delayed interest and structured payment options. Manufacturers such as Vermeer may have finance offers based on time of year or an impending new product. Watch for discounts and other financing specials.
A similar approach may help someone with a negative credit history. For example, says Braafhart, a substantial down payment, your most recent income tax statement or customer orders indicating future work can all demonstrate that you will be able to generate sufficient revenue to meet the monthly payments.
Expansion
A lease may also be a good option for an existing tree care company that is growing. “You may be able to secure equipment with a lower payment and if you need more or bigger equipment, a lot of times you may be able to roll a three-year lease into trading up for a new machine,” says Braafhart. “Another advantage is having access to new technology every three years; that may really help your business.”
Leasing typically appeals to a company operating high-maintenance, frequently used equipment. After three years, you may be able to move into a new machine with lower maintenance costs.
**The content of this article is an overview of using credit in the tree care industry. Check with your credit provider and/or tax advisor for information specific to your situation.