Since the waste industry might be affected by the pandemic when securing financing for an equipment purchase, we want to ensure that you have all the information regarding the “new normal” credit process and understand the steps to now take to reduce the impact on your business.
By Jim Peach
The year 2020 and the effects of the COVID-19 pandemic have impacted every industry worldwide. Many businesses are still struggling, and life is not back to “normal.” Some industries are facing factory shutdowns, which have impacted production schedules. The result of these closures eight months into the pandemic equal a lack of inventory and parts. The question now is how can business leaders, owners, and operators in busier industries, like waste management, best prepare to keep up with demands if equipment inventory is delayed or non-existent? Although we do not have all the answers, we do have some tips on how a business can prepare now for a future equipment purchase.
In full disclosure, the equipment finance industry has experienced changes since the beginning of the year as well. Many of us pivoted to working remotely, missed the opportunity to travel to tradeshows, and adapted to continuous shifts in processes and requirements.
One significant and unprecedented change brought on by the pandemic is related to the credit process. Since the waste industry might be affected when securing financing for an equipment purchase, we want to ensure that you have all the information regarding the “new normal” credit process and understand the steps to take now to reduce the impact on your business.
Securing Financing in The Time of COVID
Since March, the finance industry has acclimated to changes brought on by the pandemic, some more successfully than others. Local banks continue to struggle with processing the Paycheck Protection Program (PPP) loans and home mortgages. And although direct lenders are coping much better, many finance professionals are now required to ask a series of questions as customers begin the application process. These questions are directly related to doing business during a pandemic. The first thought on everyone’s mind revolved around timing: How will this add to the initial credit process and affect an application’s turnaround?
In full transparency, the additional questions slightly prolong the process—with slightly being the operative word. The outcome of asking these questions enables us to understand customers’ businesses better and ensure that securing a loan is the right financial move. By attaining greater detail upfront, we can provide customized financing solutions that benefit the customer.
With the new stipulations regarding the COVID-19 questions, some customers consider it a red flag, assuming it is automatically harder to get an equipment loan. However, that is not necessarily the case. There is financing available and loans are still conducted daily. Although the money is there, it is important to make sure that the timing of the financing is right for a business. Just because a customer gets approved does not mean it is in their best interest to buy equipment.
This is where the COVID-19 questions come in, allowing both the applicant and the lender to take stock of the business risk. The answers to the questions also help the financing professional present the best rate and terms on a loan so the customer can assess whether to move forward.
Right now, with inventory falling behind, we are recommending that customers get pre-approved for any end-of-year purchases so that they are not scrambling at the last minute. Reach out to your finance professional and vendor contacts today to get the ball rolling. The credit process is different from seven or eight months ago, and funding might take longer. To combat any delays, it is recommended that customers obtain pre-approvals, especially since they are valid for up to 90 days.
As the approval process has evolved during the pandemic, some businesses have asked whether they are exempt from the COVID-19 questions. “I can just skip these questions to make the process move faster,” is a statement team members have encountered more than a few times.
The response? COVID-19 questions are asked of every applicant, so it is not possible to skip them. The questions are in place, along with the credit process, to protect everyone’s business.
Pre-Approval Equals 2020 Tax Breaks
Obtaining pre-approval now not only sets a business up to purchase equipment before the end of the year, but it also qualifies the buyer for tax deductions under Section 179. If a business decides to buy (or lease) a piece of qualifying equipment in 2020, the full purchase price can be deducted from its gross income, allowing for more immediate tax savings and increased cash flow.
With the uptick in trash collection since the start of the pandemic, some businesses may need to invest in equipment before the end of the year to keep up with demand and keep their workers safe. Whether it is purchasing trucks or other supplies, be sure to take advantage of the tax benefits available through the end of the year.
My desire is not to sound like a broken record, but we truly do want to ensure customers can take advantage of any Section 179 tax benefits to help offset some of the challenges 2020 has brought on. The IRS once again increased the deduction limit and spending cap, plus bonus depreciation is set at 100 percent. It is a great time to plan for an equipment purchase.
Recap: The “New Normal” Equipment Financing Process
Some changes to the equipment finance credit process brought on by COVID-19 were put in place to protect both lenders and customers. Many have integrated the required COVID-19 questions into the financing process, adding an overall step.
Since the marginally prolonged credit protocols are a reality, owners and operators are encouraged to obtain pre-approval now if planning to make a purchase in 2020. Not only will this speed up the buying process, but it will also ensure businesses can take advantage of 2020 tax benefits.
Change is inevitable in business (especially this year). We thank all the members of the waste industry for your commitment to waste management and keeping us all safe. We appreciate the dedication of the men and women in the industry and want to make sure businesses have the equipment needed to succeed. | WA
Jim Peach is Vice President of Sales and Marketing for Oakmont Capital Services (West Chester, PA). He has more than 15 years of experience in the equipment finance industry and holds a CLFP designation. Prior to joining Oakmont Capital, Jim worked 14 years at Stearns Bank N.A. Jim started at Stearns Bank as an account manager and held many roles during his time there including client relations, business development, third-party origination, equipment valuations, off-lease equipment sales and VP/Sales Manager. Jim can be reached at (320) 844-8808 or e-mail [email protected].
References
• https://oakmontfinance.com/oakmont-capital-online-application/
• www.oakmontfinance.com/let-section-179-benefit-your-business-beyond-2020/