Finding the Most Qualified Customers As Infrastructure Jobs Drive Demand

With an uptick in infrastructure projects, more contracting companies are seeking out equipment leasing and financing options. With the prolonged recession, they've learned to run lean to make up for thin margins and an unpredictable workflow. They've cut staff, rented rather than purchased or leased equipment and paid down higher-interest debt. They've also outlasted some of the competition.

On the other hand, the economic downturn has taken its toll, with many companies willing to take work that is only marginally profitable. In their eagerness to stay busy, they could underbid, misjudge their capabilities and resources, or simply be too optimistic in their projections of the time and expense needed to complete the job. Any of these could lead to repayment problems down the line.

With the economy and the construction industry still under stress, finance and leasing professionals need to be extra vigilant, ensuring that their customers can meet their obligations. They and their contracting customers need to be able to take advantage of new opportunities without overextending themselves.

It's difficult to say whether the recent increase in infrastructure projects will end up being a trickle or a flood, but it is expected to continue at least through 2012. Politics, government funding, the pace of recovery, and how long repairs or replacement can be deferred are all factors that will affect future work.

There's no doubt, however, that much of the country's infrastructure is in poor shape and needs immediate or near-term work. Different regions will rebound faster than others and types of projects will differ, but one thing is clear: Equipment financing and leasing professionals who can accurately gauge a contractor's abilities and financial situation ' and then work with that contractor to maximize its capabilities ' will be well-positioned to capitalize on new projects.

Three Tips

The three tips that follow are designed to help financing professionals find and maintain mutually beneficial partnerships. They include: 1) Partnering with the right customer; 2) Offering the customer a range of options; and 3) Ensuring bonding capacity.

Partner with the Right Customer

Lenders are understandably cautious, and not every deal is worth exploring. In general, the best prospects are companies that have a history of bidding successfully on public works projects, have a broad geographic base so they're not dependent on a single local economy, and have proven management experience that has served them well during the downturn.

Whatever type of lending the contractor is seeking, it's the lender's job to ask tough questions and ferret out companies that literally aren't up to the job. In addition to assessing the company's balance sheet and equipment needs, it's important to assess the management team and work crew and how the company stacks up in terms of experience and expertise for the particular job. Does it understand the cost and scope of the project and is it priced accurately, allowing for a good margin? The big question is not whether the contractor can win the bid; it's whether it can successfully complete the job and meet its payment responsibilities.

Offer the Customer a Range of Options

The more flexibility you can offer your customer, the better the chance of success. By offering a wide range of options, the lender can help the customer compete for more jobs, control costs and operate more profitably, thereby bolstering its ability to repay its loans. By offering such options as leasing vs. buying; different types of financing; leasing with an option to buy; and repayment choices, such as the ability to pay seasonally, the lender can offer long-term value.

In some cases, for example, it may be cheaper for the customer to lease new equipment rather than own and maintain older equipment. Obsolescence and new or “green” regulations can also factor into the decision. Advising on and structuring leases, sales or financing to maximize tax advantages is also very useful.

Lenders can also help contractors take advantage of the low-interest-rate environment by refinancing. Finally, having equipment financing in place helps determine the actual cost of a project and adds a layer of certainty for all parties, including the bank and bonding company.

Ensuring Bonding Capacity

If a contractor doesn't have or can't get the bonding it needs, it will be severely limited in its options. There are two critical reasons that lenders require contractors to have a solid bonding relationship. Public projects require bonding, and bonding capacity increases the number and size of opportunities available. Bonding should be an advantage, not a limitation. Particularly as contractors step up to larger projects, their current and future needs should be well within the upper limits of bonding capacity.

Lenders can often assist their customers in getting their balance sheet and other criteria in order in advance of the bond underwriting process and facilitating good communication.

Cautious Optimism

While the economy and the construction business still have yet to turn the corner in terms of a recovery, infrastructure remains an opportunity. Experienced lenders who understand the industries their customers work in, as well as larger economic trends, can intelligently expand their businesses. By being cautiously optimistic and focusing on strengthening their own position and that of their customers, lenders can capitalize on emerging opportunities.

Walter Rabin is the president of Capital One Equipment Leasing and Financing. Headquartered Melville, NY, Rabin focuses on structuring direct funding solutions across various industries such as construction, transportation, and manufacturing. He may be reached at [email protected].

With an uptick in infrastructure projects, more contracting companies are seeking out equipment leasing and financing options. With the prolonged recession, they've learned to run lean to make up for thin margins and an unpredictable workflow. They've cut staff, rented rather than purchased or leased equipment and paid down higher-interest debt. They've also outlasted some of the competition.

On the other hand, the economic downturn has taken its toll, with many companies willing to take work that is only marginally profitable. In their eagerness to stay busy, they could underbid, misjudge their capabilities and resources, or simply be too optimistic in their projections of the time and expense needed to complete the job. Any of these could lead to repayment problems down the line.

With the economy and the construction industry still under stress, finance and leasing professionals need to be extra vigilant, ensuring that their customers can meet their obligations. They and their contracting customers need to be able to take advantage of new opportunities without overextending themselves.

It's difficult to say whether the recent increase in infrastructure projects will end up being a trickle or a flood, but it is expected to continue at least through 2012. Politics, government funding, the pace of recovery, and how long repairs or replacement can be deferred are all factors that will affect future work.

There's no doubt, however, that much of the country's infrastructure is in poor shape and needs immediate or near-term work. Different regions will rebound faster than others and types of projects will differ, but one thing is clear: Equipment financing and leasing professionals who can accurately gauge a contractor's abilities and financial situation ' and then work with that contractor to maximize its capabilities ' will be well-positioned to capitalize on new projects.

Three Tips

The three tips that follow are designed to help financing professionals find and maintain mutually beneficial partnerships. They include: 1) Partnering with the right customer; 2) Offering the customer a range of options; and 3) Ensuring bonding capacity.

Partner with the Right Customer

Lenders are understandably cautious, and not every deal is worth exploring. In general, the best prospects are companies that have a history of bidding successfully on public works projects, have a broad geographic base so they're not dependent on a single local economy, and have proven management experience that has served them well during the downturn.

Whatever type of lending the contractor is seeking, it's the lender's job to ask tough questions and ferret out companies that literally aren't up to the job. In addition to assessing the company's balance sheet and equipment needs, it's important to assess the management team and work crew and how the company stacks up in terms of experience and expertise for the particular job. Does it understand the cost and scope of the project and is it priced accurately, allowing for a good margin? The big question is not whether the contractor can win the bid; it's whether it can successfully complete the job and meet its payment responsibilities.

Offer the Customer a Range of Options

The more flexibility you can offer your customer, the better the chance of success. By offering a wide range of options, the lender can help the customer compete for more jobs, control costs and operate more profitably, thereby bolstering its ability to repay its loans. By offering such options as leasing vs. buying; different types of financing; leasing with an option to buy; and repayment choices, such as the ability to pay seasonally, the lender can offer long-term value.

In some cases, for example, it may be cheaper for the customer to lease new equipment rather than own and maintain older equipment. Obsolescence and new or “green” regulations can also factor into the decision. Advising on and structuring leases, sales or financing to maximize tax advantages is also very useful.

Lenders can also help contractors take advantage of the low-interest-rate environment by refinancing. Finally, having equipment financing in place helps determine the actual cost of a project and adds a layer of certainty for all parties, including the bank and bonding company.

Ensuring Bonding Capacity

If a contractor doesn't have or can't get the bonding it needs, it will be severely limited in its options. There are two critical reasons that lenders require contractors to have a solid bonding relationship. Public projects require bonding, and bonding capacity increases the number and size of opportunities available. Bonding should be an advantage, not a limitation. Particularly as contractors step up to larger projects, their current and future needs should be well within the upper limits of bonding capacity.

Lenders can often assist their customers in getting their balance sheet and other criteria in order in advance of the bond underwriting process and facilitating good communication.

Cautious Optimism

While the economy and the construction business still have yet to turn the corner in terms of a recovery, infrastructure remains an opportunity. Experienced lenders who understand the industries their customers work in, as well as larger economic trends, can intelligently expand their businesses. By being cautiously optimistic and focusing on strengthening their own position and that of their customers, lenders can capitalize on emerging opportunities.

Walter Rabin is the president of Capital One Equipment Leasing and Financing. Headquartered Melville, NY, Rabin focuses on structuring direct funding solutions across various industries such as construction, transportation, and manufacturing. He may be reached at [email protected].