In this episode, finance experts Rob Misheloff and Anthony Alvarez cut through the noise to give you clear, actionable advice on securing funds for your heavy-duty gear.
They’ll talk about the latest market trends, walk you through different financing options, and share practical tips to help you get the best deals.
Whether you're looking to upgrade or expand, tune in to learn how to make solid financial choices that will keep your business rock steady.
Transcript
Thanks for tuning in to another episode of the Smarter Equipment Finance podcast. Today, we're going to be talking about rock solid finance, securing funds for your mining and drilling gear. I'm Rob Misheloff.
Anthony Alvarez.
And let's get started.
Excellent.
So we pulled in Anthony because Anthony is our resident expert in mining and drilling. And let's talk about little bit about just just the industry in general and how crucial funding is for equipment in the industry.
Absolutely, Rob. You know, if we if we just take a look at cell phones and the components that a cell phone is made up of, since COVID began, there's been a high interest in mining those elements and minerals and, metals here in the states, and there is a high concentration of effort in those sectors.
So if you just take your cell phone, just cell phones alone nationwide, there's a lot of people that would need access to communication. Correct? So it begins with mining.
Those components, minerals, metals, all of that is drawn from the earth, and it's imperative for our daily lives. Now whether it's, say, jewelry, whether it's metals for different types of material or tensile strength, all of that stuff is drawn through mining.
Mining. So what kind of type of equipment are we talking about here?
You have different types of machinery, and some of this machinery is just absolutely humongous up into the millions, if you will. So it's not your standard machine that you could go down to Home Depot and grab. Right? These are machines these are assets that are gonna cost upwards the amount of five hundred thousand plus, and they're gonna perform jobs that no other machinery can can do.
In fact, take machines that, that do boring or that do some type of grinding.
Some of these machines are twenty five feet, thirty feet long with grinding heads as tall as you and I.
So, again, these are not pieces of machinery that you could pick up at Home Depot, and it's imperative that people find, a means of acquiring this machinery if they are to be in the mining industry.
Now when you say a means of acquiring this machinery, are we talking about paying cash? Does does anyone pay cash for these million plus dollar pieces?
You know, on it's it's this is a very good question because I found myself in some odd scenarios in the past where I was talking to someone about, let's say, seven hundred and fifty thousand dollar piece of machinery.
And without even blinking, they were talking about paying cash.
So I would say there are some that are very, say, cash strong that are gonna invest like that. But what I've noticed over the course of the past couple years, that's really pulled back. Right?
And the reason I think that's pulled back is because we've been in this flux of just this kind of up down. We don't know where the economy is going. We Right. We feel it's strong.
It might be weak. We think things are happening. We see indicators here. We see indicators there, but some of them conflict.
I think what we're finding now more than ever is companies looking into investing and financing this equipment and leveraging themselves, when it comes to, say, section one seventy nine and other benefits of financing when it comes to the US, corporate tax code. We were talking just be before we got started about, a customer purchasing a a screed. Yeah.
And the interesting thing about that screed, it was all electric. Yes. Which brings up an interesting question because it seems like, particularly in the mining industry, technology is advancing rapidly, making equipment more efficient where there's a good reason even if you already have mining equipment.
You could potentially save money or be more productive with newer equipment. Are we seeing some of that?
You know, the the technology, you're absolutely correct. Even going to the recent shows, and then there's gonna be another one this year here in Las Vegas. I believe, that one comes up fairly soon up, at the tail end of the summer.
We're starting to see advancements in machinery that we've never seen before. Some of the machinery that's actually being created is a combination of, say, green energy and diesel, if you will. K. So, absolutely, as you start to progress and you start to to grow on this new world and these changes are coming in or let's say the EPA, you know, puts in some type of condition or clause when it comes to mining.
A lot of these manufacturers are getting ahead of the bell curve right now and designing a the screed that we And the screed that we were talking about, ironically, is a hundred percent green energy, which, I mean, that's just unheard of. When I was supplying concrete companies back in the early two thousands at Whitecap, a screed you know, a big old giant screed was operated with nothing but fuel or diesel. Right. Now these things are just it's incredible to me the advancement.
So as you see that kind of crossover going into the mining industry, it's exciting. You know, it's exciting to see what kind of innovation that what they can bring in and helping companies be more efficient and saving on the cost of, say, different types of, constants on your on your p and l such as fuel. Right?
Right.
Those types of savings are gonna fall into, say, some type of a vertical on that p and l as far as, as far as a cost savings. But as time goes on, we'll start to see that line grow a lot more as the equipment becomes more efficient.
Right. Now if you're overhauling all of your equipment, you're just not gonna pay cash in most cases. Right? You just don't wanna trash your balance sheet.
No. As a matter of fact, I see this as well in the drilling industry. I mean, you you a lot of these assets in the mining industry and drilling industry, if you go back, some of these things are from the seventies, eighties, and so the equipment is older. And when you're when you're maintaining this machinery, it could become costly. But the benefit but the it could become costly.
But the benefit but the benefit when they are repairing these items is that that machinery lasts a lot longer than your standard machinery. Sure. So, I mean, it's wise to invest in it, but it brings up a good point. It frees up the capital to continue to grow and to, say, purchase and finance other equipment.
Right. Okay.
So that brings us to financing.
What sort of options are available both from us and from not only similar companies, but, alternative avenues. Like, let's let's talk about the whole whole gamut.
Right on.
So, let's start off with your your your better paper, if you will, your top tier paper. Some of that paper may see anything see your standard loans, an APR agreement of sorts.
There are also products in the market that we use such as EFAs, equipment financed agreements.
There's also the option to say even lease in those cases when you have that type of credit.
Those are the those are gonna be available to, say, the top tier. Okay. Now the top tier is actually gonna be made up of less than, say, twenty percent of the market over the industry.
Top tier. Can you paint a little picture of that? What does that look like?
So let's talk about okay. So let's let's say a company's been around for well above five years.
K.
Let's say that they have established corporate only transactions only using an EIN. They have surpassed the point of where a PG was required.
Personal guarantors are usually required when you're newer. Right? Sure. But as you start to grow, become bigger, there are opportunities for you to leverage your corporate credit to use more credit. Now the ones that are being allowed to do that are typically your a paper clients. And when I say a paper, we're going back to their commercial credit. They may have ten to twelve trade lines with, say, like, an average transaction of about seventy five thousand on their PayNet.
With that being said, what we do is we scrutinize the timing of those payments. And the reason that I bring this up, in order to be considered a. Right? Mhmm. In the commercial world, zero misses.
Right.
And I mean zero misses. And for those that are unaware, on commercial credit, a late payment begins day one, not after a ten day grace period, not after thirty days. It's important that business owners know this because we run into this very frequently when it comes to these types of transactions. People think they're top tier. And in reality, they've kinda bumped themselves down to a b. Okay.
And so let's talk about a b. What's a b?
So a b. Let's go ahead and say using standard FICO. Let's say six eighty. K. So a six eighty FICO, typically considered about about a b, if you will, mid grade b.
What we are looking for in that case is that the person has comparable credit in some form or fashion in line with what they would like to purchase. K. But the overall credit history shows minimal eights, if any. Hopefully, none. And usually, Rob, when I see, like, a six eighty, six ninety five, or a six seventy five, it's usually just because of somebody's revolving.
And by, say, minimizing the amount of revolving credit that you're using, it spikes your credit up in some cases tremendously.
So in those cases where someone is a b, it just it could be because they're leveraged a little too much when it comes to, say, revolving credit or debt. But those types of deals are gonna be somewhat similar as an a paper, just not as long. On an a paper agreement, it's typically anywhere from, say, seventy two months, eighty four months. And on b grade paper, it's typically limited to, say, sixty months or forty eight months.
Okay. Okay. And they have the same sort of finance options other than length of credit terms?
You know, the very similar options. That is correct. That is correct. Very similar options.
Whether through a bank or a commercial lender such as ourselves or a commercial broker.
Pardon me.
And in the the drilling industry, in the mining industry, are we seeing deals that that are being culminated for c paper?
Believe it or not. Okay. So I have a very good example. Ironically enough and and you and I have been talking about this transaction. We currently have a transaction for approximately one million dollars.
The company itself, although bringing in upteen millions of dollars, could legitimately be considered a c paper client in this case.
And the reason, it's very important that as we start to grow that we watch how we are hedging or leveraging ourselves with credit. And the reason that that is important is because if we grow too fast, that could be a no no.
And if we're adding on this debt, why we're not, say, increasing profitability, if we run into that case for one, two, or three years, that that deal could be considered c paper.
But in the context of what people would normally expect for c paper, if I'm correct, that deal came in right about a b minus, c plus, c plus area. But the beauty of that deal, Rob, that deal was one million dollars. Without that type of financing, that customer would not have the asset that they need to go ahead and continue to work. So, yes, we do and we'll see some c paper.
And those transactions and the offers from lenders are just as good in the scope of how they're designed. The rate's gonna tick up. Right? Sure.
But the benefits to a lot of these loans, whether you could pay off early or whether you could save on interest, a lot of those lenders still offer those, benefits to those loans.
Cool. So let's talk about, smarter finance.
Yes, sir.
When would we be a good option, and when would we not be a good option for a potential customer?
The this is another great question. So let's talk about when are we a good option?
We are a good option if you have actually gone ahead and you have checked with your own financial institution.
And that financial institution, in most cases, from my experience with the customers that I've met, may say no.
K.
But it's imperative that you try there first.
If nothing else, just for your own edification.
I had a customer down in Texas, five hundred and seventy two thousand dollar vac truck.
We were point four five percent away from their bank, their own bank. And I encouraged the client to please check with his bank.
But this is this is gonna answer your question. And and the reason that this was so intricate is think about it. If we were point five percent away from a credit line that was at eight percent, and in fact, a million dollar credit line, which five hundred and seventy two thousand would have eaten up almost sixty percent of that credit line. Right? Sure.
So in cases where the distance isn't that far, it's worth your time to speak with us because of the fact that you preserved a million dollar credit line Right.
Going into twenty twenty four.
And on top of that, you have commercial credit that is now separate from, say, your bank. There are no covenants.
There are no contingencies.
There are no blanket liens. And and this is really important. I don't think a lot of people quite understand this. When you work with a commercial broker, that is a self collateralizing loan in a sense. You are not hedging the rest of your business. You're not having to go ahead and sign off and have us, say, take possession of titles or lean your other equipment.
So in cases like that, even when the spread may be a little higher through commercial financing.
Absolutely, you should check with us.
So let's let's back up because you had a couple of million dollar words in there Yes, sir.
That we know from from dealing with them in business every day. But some sometimes people listening may not understand What is a blanket lien?
What does all that stuff mean?
So this is a really, really good question, and it could be a shocker for many business owners.
I had a transaction last year where we were working on two drills for eight hundred and fifty thousand.
The gentleman, wonderful gentleman, great business, went fully vested into geothermal, but was kind of getting away from, say, the water well industry, if you will. Mhmm. So in this particular case, the client had secured the first drill without any any questions. We got that one done. The second one, however, it the question started to come up because of the exposure amount that the client had been adding recently. So the question had come up if he was willing to, say, offer a form of collateral for the second loan.
And in this case, the reason that it's pertinent to this conversation is because he had blanket liens.
Blanket lien.
When my client went in and borrowed money in this case, let's assume it's two to three years ago on a three million dollar drill. Right. K?
He takes that three million dollar drill. A bank takes a look at him, his business, his financials, how he's performing, but then the bank turns around and gets a list of all his assets, everything that that company owns.
So they start to look at the shop. Right? They start to look at all the equipment.
And so, basically, what they do to secure themselves, a bank will lien all, the building, the equipment, everything that is owned by that business, thus saying to that business owner, until this three million dollar loan is cured, paid, completed, they now have control over all those assets with liens.
So it's crazy. Like, if you go to your bank, some banks will do this. And and they're protecting their interest, Rob. It's not that they're doing something wrong. This is standard operating procedure in their world. Right. But to a business owner, it's high risk.
Not only is it high risk, but it restricts your future borrowing capacity. Right? Because it can very well be that in order to borrow money after that, which let's face it, as a capital intensive business may come up a lot, In order to borrow money in the future, you're gonna have to go back and get a subordination agreement from that lender. So you're, essentially, even just to borrow money from somebody else, you have to go get permission from the bank.
And that's if they allow you.
That's if they allow you.
That's if they allow you.
Right. And which and, I mean, bank covenants, a lot of folks don't realize how dangerous a covenant can be for your business. Because what what will happen is, and it and it depends on the transaction, but banks will say, well, your ratios of your EBITDA to sales or your quick ratio or your current ratio, has to be within these parameters.
And so if you have a hiccup in in your business, which, let's face it, can happen in any business, and you break a covenant, the loan becomes due and payable to an entity that has a lien on your entire business so they can just start taking things. That's frightening.
Yeah.
That's frightening. And and I and, again, I understand why that's done.
It it secures the loan with the lender.
And in our case, we're gonna have small instances where that takes place, meaning not a covenant, but say, a lien on a different asset.
Sure.
But those are so few and far between.
I mean, I think I've done maybe two of those in the five years, maybe three of those in the five years that I've been here.
I I just don't typically see those from our lenders. So in comparison to what people might see from their bank, when you come to us And our lenders, the only interest they have is that one asset. Right. Now granted, there are other legal measures people could take and and and I'm not trying to downplay, the importance of paying that loan back. But that that's that's the asset that their their interest is in.
What about are there other instances where we may not be the the best choice for somebody?
I mean, an SBA loan can come to mind. Right?
Yes. Absolutely. So if the terms terms are usually the biggest issue when it comes to large ticket items.
If the terms are not achievable in that seven to say that six to seven year period to cure that loan, then absolutely, we should be looking at an SBA loan.
We also work in that field as well with our lenders.
Those programs are available. And typically, what we see on that are the terms where they begin at, say, ten years. That's kind of like the standard of what I've seen.
Right.
Is a ten year loan coming from SBA, but that's probably the the the, say, the better of the upper echelon of borrowers.
Right? Because the credit has to be there. Correct?
Right.
And in order to qualify for that amount, obviously, you were invited to the party because of the credit. But the terms themselves that SBA sets are all based on your credit. And as long as you have that, it gets you past that standard threshold that we offer of, say, six to seven years on newer equipment.
Yeah. And SBA is gonna have lower terms than anybody else because the government is taking on fifty percent of the risk of that loan.
Absolutely. Yeah. Several of my my mining clients and drilling clients have loans, just like that, and I've ran across those on their PayNet.
Now the downside to an SBA loan besides the fact that they're always collateralized, typically, you gotta put up your house. Mhmm. But, not always, but but very, very often, you're required to at least put up your your personal residence as collateral. But also they can just be an a nightmare in terms of the paperwork.
And so it's it's a question of whether the the time it can take twenty to thirty hours to to apply for an SBA loan.
And so the question becomes, is that worth it? And in some cases, it most definitely is. Mhmm.
Yeah. Again, talking about the same client with the two drills that we were just talking about. Same thing because we had pursued an SBA loan for the second rig.
Very this is another good point.
Rob, we were sitting around waiting for over thirty days.
Yeah. I mean, it took forever.
The back, the fourth, the back, the fourth. And, again, these are high profile loans.
Right.
So with the government involved and other and and lend lenders involved and banking I mean, they're scrutinized.
And then you bring up a really good point. My client could not wait.
He couldn't wait. It it But the timing that it took just to be declined, we were already working with another lender to potentially fund the transaction.
But, again, we wanna offer and we wanna pursue what's best for the client, whatever is best for that business.
Sure.
So SBA, yes.
Yes. Great option.
But if you don't qualify for SBA and you don't wanna have your home or your items, say, collateralized in a deal, this is a great place to start.
I would certainly say, if you choose to go the SBA route, you also want to apply somewhere else at the same time to have it in your back pocket for as soon as you get declined because your loan for your SBA loan can be declined for any reason, and then you're at square one after throwing away thirty, forty five, who knows how many days.
That's great advice for the viewers to get that SBA, deal rolling at the same time that you are working with another commercial lender as backup.
And so that way for two reasons.
One, you have everything running credit. You have everybody running credit at the same time.
Right.
It's a lot better when you're doing that, and it's only two people.
I'm not saying do ten people at one time. There's only two people running it, the SBA and then a backup lender. And then the other reason that that's a great, idea is you never know in comparison, take that SBA loan that's ten years, take that seventy two month deal that came over from one of our lenders, you might be more incentivized to pay it off a little faster, or you could run with the leverage of the ten years and pay a little less. But in the event if you're declined by the SBA, you do have a backup.
Right. So let's let's talk about the application process. I know we do a tremendous amount of smaller deals. Right? You you know, forty thousand, fifty thousand. And in those cases, most of the time, also we look at is, well, how long have you been in business, and what's your credit look like?
Yep.
That's not always gonna be the case when we're talking about two million dollars, seven hundred thousand. What Yes. What what does the application process look like, and what sort of paperwork are we typically collecting?
So that the term that we use in the industry is that as a full doc submission.
K.
A full doc submission when you are going for, say, transactions typically above three hundred and fifty thousand. K. That's kind of where we've seen a lot of lenders settle on app only. So anything above three hundred and fifty thousand, what you can expect is the past two years of your taxes, the past two years of your p and l's and your balance sheets.
K.
And then your P and Ls and your balance sheets up to date for this year, January to current. Right. The lender may ask for personal bank statements. They may not. But, typically, we start off with three months of the corporate bank statements.
They'll wanna see a personal financial statement to see what assets that owner has and how leveraged they are in their own personal life, if you will. Sure. Because they could get an idea as to what what you have through the commercial side, through Paydex, PayNet, DNB, all these different commercial reporting agencies.
But when you come to the table, these taxes, these financials, these bank statements, lenders are typically looking for profitability.
If there was one word that I can just use in in in these examinations or these submissions that we've put out there, it's typically declined based on profitability or accepted based on profitability. K. So kind of what they are looking for in those financials.
Success stories.
I would have to I'd have to go to the most current. K. And because there's such close related industries, drilling, mining, drillings used in mining, I'm gonna use this last this last case because the information that we had been receiving was that the company was not profitable.
K? They had been working with a different entity who, by my estimation, was not as cautious in protecting the credit submissions.
Here's where I'm going.
The success story came about because I was honest with the client.
I I genuinely told the client after the approval, we have to stop submitting.
I have four submissions, but my one of the lenders that declined you is claiming that almost fourteen other submissions have taken place since December of twenty twenty three. Here we are just at the beginning of April.
We secured the, we secured the the approval mid March, so two and a half months into the year. So you figure in three months, someone submitted their application fourteen other times.
Why did it become a success story?
We were able to not only get the, client approved without any form of collateral. As a matter of fact, I believe it's only a ten percent down payment. It it it's like a standard deal. It's it's a very good deal for them.
But here's the success story.
Without this million dollar asset out there drilling for this company, how else would they perform this?
They would have to subcontract, right, this work out of their own money and hire another contractor to come in and perform that portion of the work. So let's say their contract is a million dollars, but the drilling portion of it is six hundred thousand dollars worth of the contract.
Right.
They're giving away sixty percent of their business.
They're giving away sixty percent of their business. Like, it's what's the purpose? So success story.
I'm proud to say that not only was I honest with the client to help them protect their credit, I also got them approved, but I genuinely believe that I earned a client for life that not only understands their commercial credit better now through the experience of working with me, but appreciates the information so that they can disseminate it to their company. Right? Their their CEO, their CFO, whoever the whoever the these parties are so that there's an overall consciousness about how important commercial credit is to their future.
So by far, this last experience on this million dollar drill stands out to me because if it weren't for the lender that stepped up to help them through us I mean, they could be in a situation, Rob, where they were putting they were going to say a subprime lender and possibly leveraging fifty percent of the cost out of pocket and being put on terms that are much shorter, probably even half the time as expected.
I'm not making assumptions. I'm just saying off of the smaller transactions that we work when you go to subprime, terms are typically less. Rates rates are gonna be much higher.
Absolutely.
So in in this case, I believe we'll we'll we'll call them client a. I believe in this case, client a is by far one of the best success stories of my own personal career because I without this opportunity, it has me kind of appreciation coming from the treasurer of the company because of this experience and the knowledge that they picked up.
So I guess we're getting to where we're gonna gonna wrap up.
I do wanna say, Anthony, if if you're looking for financing for mining or drilling gear, Anthony is our resident expert. You know, we have people call call in all day long looking for loans for construction equipment and trucking equipment and so forth, and I can't ever get Anthony to answer the sales line, which to my chagrin, right, because he's one of our best closers, but he absolutely refuses because he focuses one hundred percent of his time on financing, mining, and drilling deals. And he knows just about every equipment provider in the industry.
And even some of them don't like him, but they at least know who he is, and the vast majority like him and choose to do business with him. So if you are looking for that type of financing, Anthony's certainly the best in this company at that specific type of transaction, and I'd pit him against anyone at any company. So there's a couple of ways to get in contact with Anthony. You can just call our sales line and say, hey. I wanna speak to mister Alvarez.
You can go also go on to our website. In in our about us section, we've got a list of all of our employees, and you can find his smiling face there. And it's got his links to his email, his phone number, his LinkedIn, all that all that good stuff.
I appreciate that. It would, it'd be an honor to help anybody out that is in these sectors.
And, and and again, coming from the supply industry, the construction supply industry, you know, I've cut my teeth out in the dirt with contractors and and spent the time out in the field getting to understand what it is that they do. And so I pride myself on these experiences because not many times are you gonna run into someone that is in the lending side of things that understands the performance side of things.
Right.
And so I I try to humbly be a part of these sectors and just I'm eager to learn from all my manufacturers, my dealers, my vendors. I'm a sponge. I I I wanna know as much information as possible.
And then secondly, and should be even more important, my clientele. Like, these guys and gals trust me. You know? They're they're affording me an opportunity to work, number one. But number two, to serve them in industries that I'm just so intrigued by.
Like Right.
You go and you just see a mountain one day, and then half the mountain's gone the next day. And you're like, how the heck did they do that? It's intriguing. And, you know, the these customers are salt salt of the earth.
And without the the mining industry and the drilling industry, god, Rob, I I just I don't know where where we would be.
Sure.
You know, we'd have spoons out there trying to go and gather what we wanted. So it'd be an honor to help anybody out if they were to call in. I do appreciate that.
Awesome. Well, thanks again for watching.
And Thank you, guys.
It's been fun. Absolutely. I appreciate it. I love these. Cool. Thank you.