Legal Ease: Where Have All the Lenders Gone? Finding Credit in the Industry
By Edward Kaye
Editor’s note: There is no doubt that the roster of industry vendors has contracted in the past two years, exacerbated by the pandemic. The list of companies in this article is far from exhaustive and is meant as a conversation about what’s happening within our industry, not an endorsement. As always, it’s important to do your own research to determine what is best for your situation and company.
There used to be a time when there were more lenders and leasing companies in the transportation industry than vehicle manufacturers. In fact, lenders used to race each other to their prized dealers, salespeople, and customers at industry trade shows to protect their territory.
Once the pandemic hit—causing the lending markets to destabilize—every major lender to the industry suffered write downs and losses, and many started to disappear or at least exit financing the limousine, livery, and charter and tour businesses.
Due to the current supply chain-induced shortage of new and used vehicle inventory coupled with an estimated 40 percent of pre-pandemic operators going out of business or consolidating with other companies, the demand for vehicle financing has been reduced and there are clearly fewer options today than there were in 2019.
Rule number one, know your lender. There are some lenders that exclude certain types of loans to the ground transportation industry. For example, some will not finance or lease limousines or limobuses, while others will not finance bigger equipment like motorcoaches. Some lenders consider only “A” credit customers while others have the ability to stretch to “B” and “C” credit-rated customers. Most lenders require a personal guaranty but some do not. And there are still some hard money lenders that will consider very risky credit or very old vehicles at high interest rates. Really, it’s all over the map and depends upon your relationship and many other factors.
To get a snapshot of what’s happening in the world of finance, I spoke with some of the lenders and leasing companies that never left the industry—including Wells Fargo, Titus Leasing, and Auto One Capital—about what they’re experiencing with their customers.
Wells Fargo has always been a traditional balance sheet lender, meaning they require full financial disclosure for most transactions. Senior Vice President and Bus Division Sales Manager of the Commercial Vehicle Group Matt Hotchkiss says, “We have not exited any markets although some segments are scrutinized more than in the past.” According to Hotchkiss, Wells looks for companies that have resumed payments for at least six months and have returned to positive cash flow and net income excluding any government subsidies.” Their approach to the industry is credit-driven and if you qualify, expect prime rates, according to Hotchkiss.
Titus Leasing, a privately held company, has been in the leasing business since 1972 with a sole focus on the ground transportation industry since 1986. “We have not changed any of our funding parameters that were in place prior to the pandemic,” says Vice President Donna Tomek. Titus consistently funds the vehicle invoice price less any rebates on vehicles, according to Tomek, who has been with Titus since 1985. She adds that business at Titus is roughly 70 percent of what it was prior to the pandemic, and they continue to fund qualified startups.
Mike Villani, president of Auto One Capital, a lender with longstanding ties in ground transportation finance, says that “funding is no longer an issue and if the customer qualifies, it’s business as usual. The problem now is (the lack of) product.” Since used vehicles are in short supply, sale prices and, therefore, requested loan amounts are at all-time highs, creating an additional layer of complexity to the current finance market.
While we have all heard stories of nefarious finance brokers taking deposits from operators without providing any service, there are a number of reputable finance brokers or referral sources that have both exclusive and nonexclusive relationships with various lenders. In fact, my firm represents several of them.
Oftentimes, experienced brokers understand the widespread credit qualifications of lenders and are able to streamline the credit approval process, getting the operator the best interest rate for the vehicle they are financing. Back to rule number one: know your broker, know who you are dealing with, get references, and realize that honest brokers never charge a fee upfront. This is a niche industry where reputation and relationships matter.
If your credit deteriorated during the pandemic, you are not alone and there are still some brokers who specialize in getting difficult transactions approved. (You can also read more about that click here.)
Local banks are also a source of financing. While many local banks will not finance specialty vehicles, some do—especially if there is an existing banking relationship. These banks usually have competitive rates and may look to expand their relationship with their existing customers in good standing.
But the pandemic did open some new avenues of financing. Specifically, those operators who stayed busy during the early days of the virus were able to use the government-sponsored COVID Economic Injury Disaster Loan (EIDL) program to cover expenses and finance vehicles. Other operators found alternative sources of financing through fintech and other online lenders. Beware, however, the online lending community is notorious for fast approvals and high rates.
While there may not be as many finance options as there were before the pandemic, there are enough choices to satisfy most operators, although you may have to look a little harder for them and do a little extra research. [CD0522]
Edward Kaye is a partner in the law firm, Schickler Kaye. He can be reached at firstname.lastname@example.org.