The economic uncertainty that marked 2023 has carried into the new year, but that doesn’t necessarily mean 2024 will be full of gloom and doom. Indeed, the U.S. has averted a recession, employment continues to be strong, and a soft landing is widely predicted. And although we are not yet out of the woods, there is hope for a better economic climate in the months ahead.
However, one result of lingering uncertainty is that banks and traditional lenders have tightened standards and terms on commercial and industrial loans to businesses of all sizes. The impact on the construction industry is real, with credit constraints affecting construction equipment purchasing power. It’s a challenge for all involved, especially small to mid-sized companies seeking equipment leases and loans to help them grow.
That’s where independent story lenders come in. As an alternative financing source, they are a unique type of lender. They see greater opportunity in a challenging economy to assist non-investment grade customers and capital-hungry businesses.
As everyone knows: To execute a contract for a construction project, you need equipment. To procure that equipment, you need financing. But while risk-averse lenders take a wait-and-see approach, the economy marches on and there is still business to be done. That makes story lenders a critical resource right now.
Trifecta of Issues
The collapse of Silicon Valley Bank and Signature Bank last year had a transformative effect on many industries, including equipment leasing and finance. With memories of the Global Financial Crisis of 2008 and large bank failures still fresh in everyone’s minds, banks naturally tightened up. Add to that the rise in interest rates and inflation, and it’s clear why so many lenders remain cautious in 2024.
However, there is some good news coming from the Equipment Leasing & Finance Foundation. Real equipment and software investment growth is projected to be 2.2% this year, according to the 2024 Equipment Leasing & Finance U.S. Economic Outlook. Over the next three to six months, the Foundation expects construction machinery, agriculture machinery and materials handling equipment investment to be positive.
Story lenders will be an essential part of that growth, with originations increasing as construction businesses assess their equipment needs and look for financing to help them complete various projects. These lenders will also continue to partner directly with construction equipment dealers and manufacturers to deliver the funding to non-investment grade customers.
Alternative Financing
A story lender can fill the gap by providing equipment financing for businesses with unique circumstances, less-than-perfect credit or short-term cash constraints. In fact, many of the clients they serve have been previously turned down by banks or traditional lenders. In situations where banks and other financing companies may decide not to write leases or loans to prospective customers with C, D, or story credits, a story lender will dig deeper and work to find a creative financing solution for corporate, dealer, and manufacturer partners.
Story lenders serve businesses of all shapes and sizes, encompassing every industrial sector from construction, agriculture, and manufacturing to medical and information technology. These customers want and need money but are unable to meet the rigid lending criteria of banks and other funders. Story lenders can help customers such as:
- Small and mid-market firms
- Startups and pre-revenue businesses
- Venture capital and private equity-backed companies
- C, D, and story credits
- Turnarounds
Story lenders specialize in making credit decisions and offering funding solutions based on the customer’s potential. They seek to establish a relationship and will try to understand an applicant’s unique needs. Then, they get down to business to develop a creative finance solution, which may include flexible terms or a down payment tailored to meet the customer’s needs.
Solution-Centric Listening
Story lenders listen to the applicant. They consider their customer’s unique situation, opportunities, specific goals, and challenges. They look at the financials but then spend time learning more about the who, what, when, where, and why. They look beyond the balance sheet because they know there is usually more to the “story” than credit scores and financial reports. In these ways, story lenders gain much-needed context to make a credit decision. Utilizing all of those elements, they try to find a way to get to “yes” for applicants who have only heard “no” from other lenders.
Story lenders strive to “step into the shoes” of the business owner and get a feel for current opportunities as well as what could happen down the road. In many circumstances, the business has landed a contract that could be transformative in its long-term growth.
For these small and mid-market non-investment grade companies, credit approval can unlock capital that enables the business to meet a vital timeline or seize an opportunity when otherwise it may have stagnated or been missed altogether.
Timelines can be critical, so a speedy response is another key benefit to working with a story lender, many of which are active in industry groups such as the National Equipment Finance Association (NEFA) and the Equipment Leasing and Finance Association (ELFA).
Story lenders work with many different types of businesses and entrepreneurs who are trying to grow their businesses. Oftentimes, there is an unrecognized strength, a hidden opportunity, or an underappreciated skill that a traditional lender would overlook, but a story lender finds valuable. These aspects of the business are revealed by story lenders who know how to listen to a customer’s story.
The key for the customer, then, is to tell their story well. Be detailed and thorough. Don’t hold back. Something you might perceive as irrelevant could be of keen interest to a story lender. Remember that the more information you can provide about yourself and your business, the better.
The need for equipment by commercial businesses, nonprofits, and government organizations will continue in 2024, with stronger investment activity expected in the final quarters. And a compelling part of that scene will be story lenders as they continue their legacy of being a difference-maker for so many.
