Harry Schneider, president of Allied Financial Solutions, Florence, Ky., has been involved in financing rental fleets for decades, but he has never seen a period like this. Schneider spoke with RER’s Michael Roth about the current lending environment, his expectations for 2010, and what rental companies can do to restructure debt and obtain capital.
RER: How has business been for you in 2009?
Schneider: Business has been very weak in 2009. Since customers are not purchasing as much product from the manufacturers, opportunities to assist customers in financing purchases has been low also.
How have your customers in the rental business fared in 2009 and what are their expectations for 2010?
Delinquency and losses have increased. Those statistics alone define how the customers have fared. Fortunately, many of our customers were in a position to weather the storm. But, that has been all they have done is weather the storm. They are not yet ready to test the waters and increase purchases. But, indications are that this could change soon.
What has the business environment been like for rental companies trying to obtain credit in 2009 and what are your expectations for the business environment in 2010?
The initial wave of applications has not been overwhelming. What we are finding out however is that some customers have not been able to keep their credit ratings up to standard. D&B is reporting more customers below their standard PAYDEX rating. This slow payment has also leaked over into their personal reports. Credit reporting companies have really tightened up on how they report credit. It does not take major delinquency to dramatically reduce a credit score. For example, we had one customer who somehow missed a $28 minimum payment on his hardware account. There were no other delinquent accounts reported. He paid thousands of dollars in monthly payments on time. But by missing this one $28 payment, his credit score went from 715 to 655.
I would imagine that in addition to the lack of availability of capital and credit for rental companies, there has been a lack of willingness on their part to take on more debt and spend money?
This is absolutely correct. We have money available to lend, but the request for that money has been low. Many rental companies are in a “wait and see” mode. Some are in a “hope I can endure” mode. It will take some real improvement in the economy for many of them to come out into the sunshine again.
From what you can see, do you see a lot of rental companies “in trouble” financially? Have you seen some go out of business or face serious doubts about their ability to survive?
Yes, some. As I stated, delinquency and losses have gone up. We have had more bankruptcies and/or customer closings this year than normal. We have also had to work with a few customers to restructure debt in order to help them through this trying time. For the most part the customer and our funding sources have been proactive. We have moved forward with restructures before the customer started paying late. This will help their credit rating when the market improves and they want to make new purchases.
What are your expectations for the economy in 2010, as it relates to your business, as it relates to the rental business, and the economy as a whole?
Historically, after a recessionary time, the rental industry has experienced a boom. This recession was stronger and more widely spread. It has affected many more people than any previous recession since 1929. The rental industry will experience growth in 2010 and 2011. I don’t expect a boom! People are just going to be too cautious. But, there will be an increase in business and opportunities for those rental companies who properly plan and prepare.
What is your advice to rental companies right now? Obviously each one is different and the problems they face are unique to their markets and particular finances, but taking that into account, a general statement, what advice do you have to pass on?
Be pro-active! Make sure that your rental fleet is ready for an increase in activity. Although the recovery will be slower than average recoveries, it will come. If you wait too long to purchase equipment, you may miss the real opportunity. It is your business and your livelihood. It is time to invest in your future.
This is a very broad question, but what is the environment like for rental companies and other equipment purchasers to get credit right now? How does it differ from other periods?
Again, this recession was far ranging. It was global! There are many people out of work. Getting all of those people back to work is going to be a monumental task. Each of us must try to do what we can. We can hurt our business trying to be all things to all people. But, we can do little things that when combined with other companies in our community, can help to turn the tide locally.
If we handle our own companies and support our local economies, it could very well have a ripple effect that moves through the county and state in which we reside. If we hire just one person back and encourage others in our community to do the same, hundreds of people will find employment. If we invest in people and equipment for our companies, the end result could mean not only enduring, but success. It is so hard to talk to people about believing. But we have to believe in ourselves. We have to believe that it is up to us to move this whole process forward. What we do now will be the foundation of our future.