The good news about today’s heavy construction economy is that business is up in this nation. Nearly every financial company we interviewed for this story says that they will underwrite more loans in 2015 than they did last year. Business from the oil patch has softened somewhat, but the general economy, public works, and housing are all on a steady upturn.
The not-so-good news is that there are some shady companies out there who are misleading customers, says Rob Misheloff, president of Smarter Finance USA, Irvine, CA. His company provides financing primarily for smaller contractors and companies that are just starting up in construction.
The good news about today’s heavy construction economy is that business is up in this nation. Nearly every financial company we interviewed for this story says that they will underwrite more loans in 2015 than they did last year. Business from the oil patch has softened somewhat, but the general economy, public works, and housing are all on a steady upturn. The not-so-good news is that there are some shady companies out there who are misleading customers, says Rob Misheloff, president of Smarter Finance USA, Irvine, CA. His company provides financing primarily for smaller contractors and companies that are just starting up in construction.
“We often hear from our customers that they have visited one of these finance companies’ websites, and were told the rates were 6%—and then when they get a quote and do the numbers, the rates were actually 15% plus,” says Misheloff.
Misheloff says his company provides a few million dollars annually in equipment financing. He’ll do “much more” business this year than last, he says. “Number one, the economy is getting better and there’s more work.
“There is more work available than there are machines and workers,” says Misheloff. “A lot of people that—during the recession—went out of business, are getting back into business, and they can use as much equipment as they can get their hands on.” Misheloff says that for him, the Midwest is strong, and so is Texas and certain parts of the South, especially Florida.
That view is echoed by Jim Bowles, president of Nationwide Business Capital. “Based on our prior year-to-date we have recognized an 18% increase from last year and expect the full year to be comparable to that number,” says Bowles. “We are seeing an increase in both the residential and commercial markets, which are in turn creating more contracts. We deal nationwide and have recognized a greater increase with businesses on the East and West Coast than [with] the Midwest. Many contractors have bounced back from the recession. Many of our customers have shared that they are on track for a record year,” says Bowles.
David Schmidt at John Deere Financial says that based on how 2015 is going, the company will finance slightly more construction and forestry equipment this year than last. Schmidt says the upturn is probably not as pronounced as the company might have predicted a year ago, primarily because of softening in the oil and gas drilling and exploration activity. Still, the improvement is steady—and the housing market seems to have stabilized.
“I think our contractors now are much more focused on cash flow—cost per hour of using the machine—more than they were prior to the recession,” says Schmidt, manager of retail credit for the Construction and Forestry Division of John Deere Financial. “They’re looking for the most overall value and the cost of running the machines, so if a lower interest rate in combination with the price of the unit makes the operation cost less, given that the quality of the machine is comparable, I do believe that low interest rates are a factor in the buying decision. Those who are doing well are being very thoughtful about how they’re growing their business and managing their equipment fleet, based on the experiences that they’ve had.”
Top officials at both Caterpillar Financial Services Corp. and CNH Industrial Capital-NAFTA, say they will finance more construction equipment in 2015 than they did in 2014. “Many factors are driving the sale/lease and financing of construction equipment,” says Tom Mariani, chief credit officer for CNH Industrial Capital-NAFTA. “Some of those factors are improved market conditions, replacement of units by operators, and refreshing of rental fleets. We are seeing upticks in all regions in the US.”
“Low rates do induce action,” says Mariani. “A notable portion of our financing features manufacturer-backed low rate offers. For instance, CASE Construction is currently offering 0.0% financing for 48 months for qualifying pieces of CASE equipment.”
“The market for construction is growing, driven by the slow but steady improvement in the economy,” adds John Marino, North America region manager, Caterpillar Financial Services. “Most contractors have recovered from the recession. Their balance sheets are stronger. The one soft spot is contractors that support the oil and gas industry. With the decline in the price of oil, drilling has slowed down, so there is weakness in demand for construction of drilling pads and roads into the oil patch.”
We asked Misheloff if the current economic climate would change if Congress infused a significant amount of money into the Highway Trust Fund. “Well, yes,” he says. “But I’ll tell you that in most areas, there’s more demand for construction services than there are construction services to meet that demand. We talk to dump truck buyers, particularly, where the rates being offered to owner-operators are going up and up and up, because there aren’t enough of them.”
Barry Abelsohn, national sales manager at Alliance Funding Group, Orange, CA, says, “Our organization has seen more than a 20% increase in financing as it relates to the construction vertical market. We saw some great growth in year-end 2014 compared to 2013 in this segment, and it seems as if the construction vertical has been on a very steady course which we expect to continue for the foreseeable future.
“We’ve determined that the uptick in construction activity to be attributed to construction activity in the commercial real estate and public works projects,” says Abelsohn. “There has also been a tremendous surge in the rental sector. Business owners assume the rental would be a cheaper avenue and they often overlook the fact that ownership, in many cases, may be the lesser capital expense.”
