Rob Misheloff
Heavy Equipment Rental Purchase Options can turn rentals into valuable assets for your business.
In today's episode, we're diving deep into Heavy Equipment RPOs (Rental Purchase Options) and how they can transform your business operations.
Join us as we welcome back equipment finance experts, Robert Jackson and Anthony Alvarez.
With their extensive knowledge and experience, Robert and Anthony will walk us through the ins and outs of heavy equipment RPOs.
They'll cover the benefits, potential pitfalls, and strategic tips to ensure you make the most of these options for your business.
Whether you're in construction, agriculture, or any industry relying on heavy equipment, this episode is packed with insights to help you make informed decisions.
Tune in to learn how to leverage RPOs to boost your business’s growth and efficiency.
Transcript
Hi. Welcome to another episode of, Smarter Equipment Finance. Today, we're gonna be talking about RPOs, also known as rental purchase options. My name is Robert Jackson. I'm known by RJ. It's just easier to condense it. I have my host cohost, excuse me, mister Alvarez, Anthony Alvarez.
And, today, we're gonna be discussing the advantages and disadvantages of, owning, equipment versus exercising RPO options. Yeah. So, Anthony, tell me a little bit more about RPOs, which you know, kind of, what they're all about, what the pitfalls of an RPO could be, and kinda summarize it a little bit, and we'll go into a little bit more detail as we go along.
Absolutely. Appreciate that. So an RPO is a rental purchase option.
As a matter of fact, these are often found Mhmm.
At rental yards. Absolutely love rental yards. Rental yards if you think of it this way, they fill the gap for business owners when a purchase may not be in the plan at that time. Maybe it's a temporary job or a small job, for a temporary condition, and you need that type of equipment.
So a rental purchase option gives you the opportunity to rent the equipment, but you're also buying down the equipment because you get credit.
In many cases, that could be a substantial amount. We're gonna have examples throughout this, this podcast.
But, essentially, an RPO is a great means of acquiring equipment, when you're not in the market to finance. Mhmm. Mhmm.
Okay. Now speaking from my personal career at, Smarter Equipment Finance, which is approaching six years, I've encountered them at least, two dozen times or possibly more. I don't know.
And during my encounters, I've often found that when somebody wants to engage from an RPO into another product, what kind of products do we have that they can, you know, advance into, I suppose?
You know, so that that's a really good question because there's different design programs to help business owners, whether it's a dollar buyout, whether it's an FMV lease, a a traditional lease, whether it's an EFA, a loan with an early buyout.
And some of these programs even come with, say, step payments. There's all kinds of different programs available. So when you're considering taking your RPO into a finance, format, these are some of the things that you should be expecting or you should be asking for depending upon what your needs are. There are times where business owners come to us and they want to finance.
But, honestly, maybe an RPO is the best fit for the time. Maybe there's something on credit. Right? Maybe there's something just not in line with what you need. Maybe your revolving is really high. Right? Maybe you only have ten percent of revolving credit available where lenders wanna see about eighty percent.
In cases like that, an RPO is an actual product that where you rent to purchase option, if you will. You have a rental purchase option. So you can continue to rent it, or you could purchase it outright with the credit that you get on whatever agreed upon term you have with that readily, agency.
And how long are those terms typically?
You know, I've seen those anywhere from, say, six months, eight months, twelve months. The most recent one was four months. That kinda threw me off. And so what what I understand, you know, as far as the terms, the minimal that I do know, is that this is this is all controlled by whoever you were working with. Correct.
And the benefit of these I think it's akin to kind of an in house financing program, if you will.
Yeah. Kinda.
But it's it's like a lease to own, it Yeah. If you will. But but the parameters on what you own versus or or how much, how much rental cost versus actual credit Yeah. For equity, I should say, is really contingent upon the seller and yourself.
That's that's an agreement that we have we don't have we have absolutely no dog in that fight.
That is correct. That's we we can't control any aspect of that. Correct. The only thing that we can control is to check and recheck the numbers to ensure that they match up with what you believe you should be getting credit for.
But the one thing about an RPO that you have to understand is it's moving from a lease to a commitment. It really is. It's a deciding factor. So it's usually for people that are looking to engage the equipment for long term growth that are gonna scale their their scale their business.
So it's so if it's a piece of equipment that has been providing a lot of utility, a lot of revenue, a lot of profit, and it's something that they wanna keep for the next three to five years and own it. Because when you own it, you're free to do anything with it. When you're doing with these RPO, you're restricted to the covenants that are within that agreement. So you have to abide by those those agreements or it's or it's canceled.
Yeah. Yeah.
And they and they can take away.
When you own the equipment, nobody can take it away unless you stop making the payments, but that's like anything else in life, Because it works just just like a traditional loan would when you were, when you were talking about different products that we can be offered. So, that's that's one of the things that I've I've noticed that has to be it has to be a mental, decision, a breakdown, a a a commitment that has to be agreed upon.
No. That that's a really good point.
A recent example, there was a gentleman that I was helping on an RPO from one of our, our drill vendors, and the gentleman had rented two separate rigs Mhmm.
Each of them for over fourteen thousand dollars. Yes. I said fourteen thousand dollars.
It's not uncommon.
So you figure he's paying approximately twenty eight thousand dollars a month renting these two drill rigs.
Mhmm.
But the reason why did he have to do it? Ironically enough, I met this client two years ago. Weird. Yeah.
And I met him through a manufacturer.
And at the time, the young man just didn't have any he didn't have any time in business. He was just too new. Excellent credit though, by the way. Excellent credit. But he was trying to bite off a little more than what's allotted for a start up. You and I both know, traditionally, start ups are limited to approximately a hundred and fifty thousand.
In this particular customer's case, he was taken down two pieces of equipment for four hundred thousand dollars.
So But he wasn't a start up, was he?
Yes. He was. Oh. Which is why I couldn't help him at the time at the manufacturer. Okay. But it brings me to the point. This is a great time to exercise an RPO.
In the event, if the asset that you're looking at is way beyond the means of any comfort of a commercial lender when you're a startup, This is a great way for you to still acquire the, equipment, pay down the equipment, use the equipment, succeed with the equipment, and then eventually, as you said and I love the way you said it because it is the reason I bring this this this example up, he had to make a commitment. Right? Yeah. But he only wanted to make a commitment on one.
Right. And the reason, he was unsure whether or not he wanted to take down that additional exposure. Right. And so I love the way that you verbalize that because you're actually pointing out something that is it's so it it's so it's so obvious.
Like, if the business owner is not committed to that purchase, it's not a good time to talk to someone in financing.
Now if they are, let me explain the benefit of this. The gentleman was making a payment of approximately fourteen thousand in change. When I say change, well over fourteen thousand and ended up yielding a monthly payment of approximately thirty nine hundred on a finance term. Mhmm. What a relief. I mean, if you can imagine the rest of that is now what? What does that not what does the additional money become now to his revenue?
Whatever he wants. Profit. Wow.
Now he has profit or he could pay more bills. Whatever he wants is just like you said. He could pay bills with it. He could save it. But the but the the point is he he bit the bullet. He took advantage of an excellent program with a wonderful vendor who, by the way, I I noticed a lot of vendors in the RPO industry, rental industry.
They're very service service oriented. Mhmm. That's true. Very relationship driven, very caring as to the success of their clientele.
Mhmm.
I've noticed this with the reps that I've engaged, especially over the past two years as I've delved into it more. Mhmm.
But there's a great service that comes with it. And sometimes when you buy something, the service is there. Don't get me wrong.
But when it's an RPO, that person's kinda tied to you for the next couple years. Right?
So in this in this client's example, it's a great example of when to exercise an RPO, how he came to a decision of commitment, and how it benefited him in the long run rolling it into ownership.
That that I love the way that you said that though because it really brought a it it brought about a better explanation for it.
So it it kinda leads me into something else because we've talked about why we believe our POs are great and why we love rental companies and how they help business owners just like we do.
Mhmm.
I mean, if you think about it, it's just another form of financing something in a way. So I bring that up because what would the application process look like?
An application process is gonna be no different than than anything else. So you wanna make sure you don't neglect your credit.
The, RPOs don't generally report as a trade reference anywhere. Correct. Because you're just essentially renting equipment, so there would be no serviceable reason for that. Although, I have come across circumstances, weirdly enough, where I know people have done it for a very long time.
Sometimes it does show up, weirdly enough.
Oh, wow.
It it's it's it's been a while, but if memory serves me correctly, because it's been been doing this for almost six years now. But yeah.
I believe so, but not a hundred percent. But I know it doesn't show up on personal credit, so don't neglect your personal credit.
We wanna look for pea people that have longer operational histories, traditionally, because this is a business to business transaction, can yield better results, but it's not always guaranteed. Nothing is. Yeah.
And when when it comes to how this the terms are are paid back, we can we have programs that can go as long as seventy two and even sometimes eighty four months for well qualified people. So if you're wanting to extend your your term out as long as possible, we've got options that allow you to pay it off early. So it's treated just like a loan. We've got traditional term loan with EFAs just like you were saying. We can even structure, leases.
The application process is pretty much a phone call. And if you have access to your email, if you've got good credit, we don't even really need bank statements, unless these unless the accounts or or the the size of the transaction is pretty substantial. Usually over a hundred and fifty k, we might have to get bank statements.
Mhmm.
But if you've got strong enough personal credit, strong enough business, stability, credibility, a fifteen minute phone call is all you really need.
Yeah. And along with that, since you are in an RPO, part of the RPO program and the reason that we love them as financers is because business owners build equity. They build equity into the equipment.
In this recent ins instance, and I know you have one. I mean, Robert and I are very close friends. We we sit next to each other at work. We we we talk about our clients. We try to bounce ideas off each other to go ahead and help our clients.
And we both recently had run into RPOs, which is why we wanted to do this podcast because there's so many good reasons why you need to use an RPO, and there's so many great benefits when you're gonna approach financing with it. So as Robert was saying, the the the application process is simple. It's a soft checked application.
We may or may not need banks verifying, say, how much time in business you have. And then the other key component would be your RPO paperwork.
Mhmm.
What's different about an RPO in reference to a standard, say, rental, agreement, an RPO is allotting so much equity to be put back in your favor toward the purchase at the end of the RPO, or in some cases during the RPO if your rental agency allows you to do so. But the reason that that's important, in this recent case, and I'm gonna go back to it, I could not help this gentleman two years ago because he needed three hundred and seventy seven thousand.
For a startup, they would cap him at one fifty. You and I both know that. By going into the RPO, he was able to acquire two of those machines at three seventy seven, but he was paying fourteen thousand dollars a month each. Mhmm. Out of the fourteen thousand, each of those were storing away approximately ten thousand dollars of his monthly RPO payment towards his purchase in the future. So by the time I met the client again, he had a hundred and forty thousand dollars plus in equity.
Wow.
Exactly.
Now because we have lenders that'll step to the plate to help startups over a year Mhmm. He was now in the right position to approach these lenders and got an incredible term, seventy two months, single digit deal, early buyout option. Mhmm. He was ecstatic. As a matter of fact, it even led to a great review.
Mhmm.
So I bring that up because that's probably the only additional paperwork you would need when applying is your RPO credit information because we would like to see how much you've contributed.
And I love what you said as far as staying on credit, and it's the same on the RPO. Do not fall behind. Believe it or not, lenders will look at the pay history on an RPO even though it could be a hundred thousand dollars worth of equity on a three hundred thousand dollar piece of equipment. Mhmm. And they're gonna go ahead and start to question you if you were running late on that.
Mhmm.
What are some other good points or or key indicators that you should be aware of when you're in an RPO stepping towards a purchase? Anything that people should think of, maybe bolstering banks or what other ideas do you have?
Well, it it never hurts to have, healthy financials.
Very rarely will we have to ask for full documentation requiring two years tax returns and other data.
But in the but but for the for the sake of argument, RPOs, like I was saying before, fantastic for people who want to position themselves for long term growth.
Mhmm.
It's really what it is. Yep.
But for for for an average guy or a guy that's trying to still, you know, like a giraffe on roller skates, if you will Yeah. Still trying to figure out that an RPO is perfect because it still allows him not to be committed to it so he can get out of the equipment at any any time. He can he can he can, turn the equipment. Don't know about penalties or anything like that, but he's he's not encumbered by with the purchase as you will. So and you gotta look at it from both sides.
You you you why don't you tell the audience And and I couldn't wait to get to this point because this is this is a really great story.
Robert has a client that he has served for couple of years now and has taken care of them. Mhmm.
And one day, one of his clients shows up and he has about seven hundred thousand dollars of equipment on rental.
Mhmm.
And when I originally heard the info, I was like, wait. What?
And it was amazing because the time that you had spent in dissecting that deal and how you approached it, share with us, like, what was the benefit to the client? Tell us about that experience. Again, seven hundred thousand dollars of rented equipment in the construction industry.
Yeah. It it was it was a customer who, who had helped a couple of times and but I won't share any information about him because it's it's it's it's, you know No. Absolutely. Obviously proprietary.
But he's a wonderful, wonderful client.
I I he's a he's I've talked to him personally. He's a great guy. So we've developed kind of this, relationship, if you will.
Yeah.
But, the deal was too large to get done in one piece without getting tons of information. I had to get a debt schedule. I had to get current, interims, profit loss statements, two years tax returns, three year, three months bank statements.
And it was exhausting. No. I mean and he's a he's a he's a he's a business owner. He doesn't have time to compile all it was really the time.
It was just like he calls me because I get it done quickly. He I don't I don't require much. It's just boom. Here.
Quick. I need this. I need that. This is what what what do you need from me?
Mhmm. Here's the terms.
It's very transactional, but that's just because he he has so limited time in his day. He values that more than anything.
Can I ask you something?
When you say time Uh-huh. Is it his time in using the equipment, or what type of business time just in a day, focusing his business with his family.
He's very like, he he he's he takes his son to to a basketball game, and he doesn't answer work emails. He'll tell me straight up, I'm turning my phone off. I'm not gonna be you know, I'm done for the evening.
No. He has time management now.
What I'm saying. Yeah. Yeah. So he doesn't he doesn't mess around when it comes. But it was too big to get the deal that way. So what I did is I is I broke it apart, because we have so many different underwriting profiles that we're familiar with. We know how to position the deals.
So I was able to secure all of the assets through What assets were they? They were nontitled, they were, lifts, boom lifts, telehandlers Awesome.
And and other equipments.
Awesome.
Things like that.
Forklifts.
Just just things that, that he a rental yard would use. But, anyhow, it it it went through. It it it it it was a lot of work. It it required an extraordinary amount of my time, but we pulled it off. And, and now he and now he owns owns all of them. I believe it was eleven different different pieces or something to that effect.
The and and how much did that affect him economically?
It saved him he said it was gonna save him about sixty thousand dollars a month.
Sixty thousand dollars?
Sixty thousand dollars a month.
So I I bring that up because So this is a guy who does eight to nine million dollars a year.
Yeah. And this is why I bring it up. And RPOs save him. I know the I know his story you shared with me. He uses RPOs continuously. They are great. Again, absolutely.
Right now, actually, currently.
Love the product. Our clients love the product. And, again, when when financing is not the the comfort, you gotta have a good rental yard. Mhmm. So with that being said, saving sixty thousand dollars a month, what do you think that's gonna do to his p and l by the end of the year?
Who knows?
That's that's some huge I and I I I shouldn't jest about that, but I do bring it up because it is. It's true. Like, there's a there's a massive savings. Now when when people rent, they account for that rental payment in most of their jobs.
Like, when I was in in construction, we would rent equipment. We would write that detail or that cost into our job of whatever that equipment was gonna be. So I understand that portion of it. Nothing is covered.
But as you start to grow more and you have multiple job sites you need to rent more, well, maybe now is the time to start purchasing these things since your company is expanding, growing, and you're picking up way more consistent work. I wanna say consistent work.
So, again, you took that client. You put them in a fabulous situation.
I've been with you throughout the entire process.
I gotta commend you because the the statement that came from the client as far as his appreciation and just the way that he acknowledged you, I could tell that you felt very proud of that. And so that those are two great examples of what we believe, an RPO, you know, what they can do for a business owner and how we have stepped in to also help business owners at the tail end of those RPOs.
So let's go ahead and just kinda wrap this up in a sense and and talk about the benefits.
Really just wanna recap. So if you're a start up business and you're having trouble qualifying for the equipment that you need, RPOs.
Yeah. Sticking them. Staying. Excellent.
Yep. Because it shows a pattern of payment. Mhmm. Lenders will then take that term, the proof of the term, the history of the payments, and that'll be one of the contingencies on their decision.
On one of on that side note real quick, before to wanna interject.
If if the RPOs can be extended long enough and we have an accurate payment history, we can actually use that, believe it or not, to bolster the deal. So don't think that those payments are just, you know, disappearing like a fart in the end because it's not true.
Correct. That's why they're supposed to that's why I'd said earlier, make sure those are on time as well. Right. What Robert just alluded to is it would almost it's like a trade reference.
It is. It's a trade reference in a sense. You're going to a financing lender Mhmm. And you're sharing with them that you've done something in house on a rental agreement, but the pattern of on time payments are gonna help you.
Right.
You've picked up a new job. You wanna transition to an an, you know, larger growth, so you need to get the equipment in order to do that, or maybe there's a a job coming up that's gonna require you to have a piece of equipment for the next six months straight.
And an RPO would, you know, have it buy any equipment, you could see the long term value you could possibly pay off the equipment at that time. We don't generally encourage that. Let's be honest. If you're gonna borrow money, leverage it for your benefit.
At least extend the term out, on the payment history just like you would on RPO for twelve to twenty four months. Yeah. So, Yeah. You're right.
The longer history that we have on those, the better. Another good, time to use an RPO is, let's say, you go to finance and you find out you have excellent credit.
Mhmm.
K? You have excellent banks.
Mhmm.
But maybe you are what's called a business that is in the class of rapid expansion.
Mhmm.
So for those out there that are watching, rapid expansion is when a business owner has so much growth within a short time, of a, you know, of a period a short period of time where lenders start to go ahead and kinda push back a little bit and say, well, maybe not right now. This is a great client, but they've taken on too much water. RPO.
Or as you mentioned, it's a job. You're only you have a special condition. You're not gonna need this equipment for the next couple years, RPO.
We've talked about not only when it's beneficial to use them, but what items we would need. All we need is the proof of the RPO agreement and how long you've paid and the proof of those payments being on time.
I just wanted to, extend a personal greeting to everybody out there and say thank you for for watching this, this episode of RPOs. If there's any questions or if you found this information useful, you can give myself, Robert Jackson, RJ, or Anthony a call at, Smarter Equipment Finance.
And, if you probably encounter either one of us concerning these things, you'll you'll get the information you need.
Yeah. We pride ourselves on that. Again, thank you so much. Yeah. I just wanted to go ahead and just end this by saying that we appreciate the the feedback that people give us after these podcasts as well. Yeah. So take the time.
If you're in the rental, the rental sector Mhmm.
If there's something that we've missed or if there's something that we could have touched on, we'd love to hear from you. We have tons of relationships from the East Coast to the West Coast out to Hawaii, Alaska, and we would love to hear what your thoughts are, or we'd love to hear about a success story of an RPO and how it changed your career or your business.
Robert and I are available Monday through Friday, generally here all day long, so we'd love to go ahead and speak. Thank you again for listening, to us today, and I'm very happy I got to do this one with you, dude.
Thank you. Appreciate you, brother. Bye.