Financing Your Fleet

It’s been nearly 18 months since the construction industry started making a comeback from the recession. At the height of the recession, industry spending was shrinking at a rate of more than 16 percent per month. But as of March 2013, the U.S. Census Bureau reported construction spending was up 4.8 percent from the same period in 2011.

With the sector maintaining positive spending since fall of 2011, construction executives are faced with the opportunity of betting on the slowly improving market and rebuilding their companies to operate at pre-recession capacity.

Rebuilding the Industry

March’s construction spending figures saw positive gains in the areas of private residential construction and single family homes. As companies are landing more projects, employment in the sector has shown signs of improvement, with the Association of General Contractors reporting employment gains in nearly half of metropolitan markets for March of this year.

Construction equipment investment for the second half of 2012 also showed marked improvement over 2011. The third quarter of last year brought 51.6 percent growth and while the industry experienced a slight drop-off in the fourth quarter, compared to that same period in 2011, equipment investments were up by 46.4 percent, according to the Equipment Leasing & Finance Association (ELFA).

Factors contributing to this growth range from recovery efforts following Hurricane Sandy to an increase in the sales of new single family homes. Additionally, the increase in housing building permits indicates that growth in the industry may not be short-lived.

So what does this mean for industry executives? It’s time to think about efficient ways to position your business for growth.

A Strategic Approach

One of the most frequently overlooked opportunities available to construction executives in the current marketplace is refinancing their fleet. The construction industry’s market conditions have continued to improve, and market strength is having a positive effect on utilization rates and operating results.

Here are three key areas business owners should consider when exploring a potential refinance:

Record Low Rates: “Record low interest rates” have been touted for a few years now, and while they are certainly still available, they are expected to begin to climb again, so acting now will put business owners in a solid position as they secure new opportunities. Reducing their interest rates by a few percentage points can help lower interest expense, improve cash flow and result in lower monthly payments.

Diversity is Good: While the financial benefits are obvious, refinancing today also presents an opportunity to diversify your pool of lenders. Access to capital from multiple equipment financing sources can be a benefit for the business owner. Solid working relationships with your lenders can help provide important guidance on growth options and will present an owner with real options when it’s time to choose next financing steps.

Better Terms: There are a number of areas in which fleet owners can secure more agreeable terms and conditions through refinancing. One such example is the ability to work with lenders who use asset-specific language in their loan and lease documents.

While there is no one-size-fits-all approach to fleet refinancing, as each company has different credit needs and requirements, taking the time now to consider refinancing options can be a great long-term bet on the future of your company.

This isn’t the first time since the height of the Great Recession that housing market analysts have predicted a full-on recovery. And there remain plenty of detractors to the notion that this is the sector’s long-awaited comeback.

At the same time, however, the spring housing season in the United States, as of the May 28 S&P/Case-Shiller home price index, already attained year-over-year growth of 10.9 percent, the highest it’s been since May 2006. The index, which gauges residential real estate values by looking at 20 metropolitan regions in the United States, also experienced its “strongest run since the boom days of 2005” in monthly home prices. While these recent gains can be reversed in a single day, it is still entirely possible to take advantage of current market conditions.

Planning for the Unknown

By taking advantage of the currently low interest rates through refinancing, construction executives can set their businesses up to weather the storm – whether industry growth stalls or a wave of demand surges – having the extra cash on hand resulting from lower monthly interest payments provides executives with the means to grow their businesses strategically. On the truly positive side, if the initial indicators of long-term industry growth seen throughout the third and fourth quarters of 2012 ultimately give way to a sustainable increase in business for construction companies, owners who took the steps to refinance in the current interest environment will be positioned to take advantage of increased demand.

The ability to meet that demand will require increased liquidity in order to tackle these new projects in the first place.

Ray Sullivan is the national sales manager for EverBank Commercial Finance, Inc., which specializes in crane financing. Sullivan is a 17-year industry veteran who has counseled hundreds of U.S. crane industry professionals, providing guidance for all of their loan and equipment financing needs.

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