🔒Equipment finance firms provide the capital that keeps Maine industry rolling

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J.D. Raymond Transport in Bangor got its start in 1999 when John Raymond bought his first truck and trailer and began hauling material from Massachusetts to Maine.

The company has expanded its fleet and facilities and today the primary focus is on supplying bark mulch to wholesale customers throughout New England, handling about 540,000 yards of mulch per year. That work involves buying and selling raw bark and producing finished mulch. The company's forest products division, a supplier of biomass to wood-to-energy plants, offers grinding services to logging contractors, landowners and municipalities.

Raymond's work has required a lot of equipment over the years — loaders, excavators, grinders, trucks, trailers, bulldozers, harvesters, limbers and skidders. So that's meant taking out a lot of equipment loans.

“A Peterson grinder costs $485,000, when we started — they're $830,000 now — and there's 'X' number of stuff that goes along with it,” says Raymond. “I needed a couple of new trucks, six new trailers, excavators and a grapple, because the business was growing. It's expensive.”

Financial institutions like Maine Financial Group in Scarborough and Machias Savings Bank have been instrumental in making that growth possible, Raymond says. And because operating his business pretty much takes up all his time, he appreciates the willingness of equipment loan officers to meet him on the fly.

“I've signed loan papers in the park-and-ride in Portland at 11 at night,” he says.

Serving backbone industries

Equipment finance isn't one of those big-headline type of markets, but it's a significant part of the financial services industry.

The Equipment Leasing and Finance Association, a Washington, D.C.-based trade group, represents 580 member companies and a sector valued at $1 trillion. It estimates that 78% of U.S. companies use some form of financing when acquiring equipment, including loans, leases and lines of credit (excluding credit cards). The equipment leasing sector encompasses not only banks, credit unions and specialized lenders, but also a range of businesses — including billing services, inspection services, consultants, collection firms, credit-and-risk management advisers, insurance companies, finance technology systems, HR consultants, lawyers and accountants.

Tangible assets such as trucks and heavy machinery typically require a significant amount of capital.

In Maine, equipment financing is part of the product lineup at many financial institutions, which enable companies to finance anything from trucks and lobster boats to medical devices and digital machine tools.

Maine businesses financed $2.98 billion in capital equipment in 2015, according to the trade association's latest figures. That was a 7%, or $200  million, increase over 2014 amounts.

“Many different companies do equipment finance in Maine — some within the state, like other banks, credit unions, etc. — and others outside the state, like Caterpillar Financial and John Deere Financial,” says Maine Financial Group President Scott Dillon. “It's a big market and it crosses borders and covers different types of institutions.”

Financing 'backbone industries'

At Maine Financial Group, an affiliate of Katahdin Trust Co., the focus is on construction, forestry, trucking, marine and well drilling.

“We're committed to servicing the backbone industries in Maine, New Hampshire and Vermont,” says Dillon. “I've got a customer who requested $7,000 for a loan on a truck, and we had a customer in the logging industry who requested in excess of $1 million,” says Dillon. “We did those two loans in the span of one week.”

Dillon credits Maine Financial founder Walter Purda with instilling within the company a certain spirit that's about digging down into the specific needs of customers and maintaining a commitment to them through the ups and downs.

“All of the industries we serve are challenging and somewhat high-risk,” Dillon says.

“But we're committed to lending to those customers: They're an important part of the Maine economy,” he continues. “Construction, both commercial and residential, is very important to the state: Those folks need capital, too. People who drive trucks, move goods and components that are critical to business and industry need access to capital. You include commercial fishermen — these industries are weather-dependent and fuel-cost dependent. While we have big customers, our average customer is the small business owner. Typical banks might shy away from some of this type of business risk, but we're committed to supporting these folks.”

Regardless of the size of the client, says Dillon, it's important to the financial institution to understand why someone needs to purchase equipment.

“If you look at what capital equipment does, it needs to have a revenue-generating purpose,” he says. “It should make more than what it costs for a loan payment and for maintenance and upkeep. It should be profitable for the customer. So it's important for us to get to know our customers and what they're trying to do in the marketplace and how this will help them.”

A more complex type of lending

At Gorham Savings Bank, Steve deCastro, executive vice president of commercial lending, says equipment lending can be trickier than other types of lending.

“We look at all types of equipment with different useful lives, so it takes more thought to structure that type of loan,” deCastro says. “In some cases, the equipment might be very specific to the business, or it might not have value to outside that specific company. So that makes it a little more challenging from a lending perspective. When we make a loan, we're always looking to make sure the company has sufficient cash flow to cover the debt service and that it has enough collateral value in the event the business is unable to pay the loan back. So if it's unique equipment” — like a CNC machine versus a dump truck —  “that makes the value tougher to obtain, and we have to look for other ways to shore up the loan.”

Field day

Equipment lenders say that relationships and a willingness to meet clients at job sites are key to a thriving market.

“I've been down a lot of logging roads and out in the middle of farm fields, or out on the docks with lobster fishermen,” says Chris Fitzpatrick, a business lender at Machias Savings Bank, which has issued equipment loans as high as $10 million. “It's not uncommon to receive a phone call at 7 at night from a customer saying he had a breakdown and needs to upgrade a piece of equipment, and the next day you'd be on his job site, wherever that might be, having him sign the papers. Our people actually prefer to do that. We love to get a feel for how people maintain their equipment and their facilities.”

“I've closed loans on the hood of pickup trucks,” says Dillon, who credits his team — James Amabile, Susan McCarthy, Christopher Case, Tammy Wheeler and Devin Rolph — with the same spirit. “When possible, we prefer our customers to keep doing what they do, which is generating revenue, and they're not generating revenue if they're coming to our office to sign a loan document. Jim [Amabile] recently went to Rockland, where they were launching a new lobster boat. He brought the loan documents to sign and he was able to see the launch. I visited a customer recently who needed some repairs to his equipment. I pull up into the woods, it's a beautiful summer day, and he pulls up in his equipment, stops, and we literally sign the loan documents right there. It's not like that every time. Some customers come to the office. But they appreciate the fact that we're not what you'd necessarily think of as typical bankers. We don't wear suits. We don't make you wipe your shoes at our door.”

Often, Dillon says, the team acts as advisers.

“We specialize in knowing about equipment,” he says. “We're pretty intimately familiar with the years and makes and models and capacities, and customers will often call us to ask if we know where something might be available.”

Work-site meetings are important to Josh McLaughlin, a borrower who owns the earthworks construction company J.McLaughlin Construction in Houlton and has worked with Machias Savings.

“The lenders we make relationships with are the ones who make time to come to us,” says McLaughlin. “We don't work typical hours. We're in the field before traditional offices open and we're not back until long after they're closed. My focus is on our projects and what makes us money in the short season we have. So it's necessary that they're able to come out to us so that we can sign the paperwork, or to have more flexible meeting hours.”

Now in its sixth year, McLaughlin's equipment ranges from front-end loaders and bulldozers to excavator and dump trucks.

“With our equipment, any repair is usually costly: A minor breakdown is a few thousand dollars,” he says. “You lose a motor or a pump and you're looking at $10,000 to $20,000 for repairs, and there might be times when you need to seek out financing for that. It depends on how your season is going.”

Getting a loan rather than using cash reserves makes sense for seasonal businesses like his, McLaughlin says.

“It's such a short season that, while you might have cash on hand, you need that cash to get through the other months,” McLaughlin says. “So our outlook is, while interest rates are fairly low, financing a piece of equipment allows us to keep that cash on hand. It's usually on a shorter term and it helps us to make the cash flow and the business cycle work.”

“Need drives every transaction,” says Dillon, who cites three scenarios that will bring in customers. Most common is equipment acquisition, either new or used, either for replacement or business expansion.

“We're seeing that a lot in construction right now,” Dillon says.

Second is equipment repair, where a new truck motor, for example, can cost upward of $30,000.

“Most companies are good about setting aside funds for repairs, but if you have two or three things happen all at once, sometimes you have a capital shortfall,” he says.

The third request is for working capital.

“Let's say it's a seasonal business, like logging. Sometimes a company will borrow against the equity in their equipment to get them through a couple of months of mud season, when they're not generating revenue,” he says. “They might use that to repair and maintain their equipment or to acquire different things they need for their business, and sometime even for their living expenses. So it's all driven by specific needs.”