Financing cranes and transport equipment

04 November 2019

A discussion of equipment finance trends and issues. 

Navigating the constantly changing realm of equipment finance requires the advice and support of an expert. American Cranes & Transport convened its 2019 Finance Forum to get answers to timely questions about financing cranes and specialized transportation equipment.


Four long-time finance industry professionals participated in our roundtable discussion, including Tonya Fry, Linda Brown, Doug Fletcher and Jeffrey Whitcomb. An economics graduate of Stonehill College, Fry has been assistant vice president of Harry Fry & Associates since 2004. With 25 years’ experience financing cranes and heavy equipment, Brown is assistant vice president of Commercial Credit Group. With Siemens Financial Services, Fletcher is a 25-year finance veteran with a focus on cranes and commercial construction equipment, including heavy haul and all crane support equipment. Whitcomb has been financing cranes since 1999. He is the construction industry leader at Mitsubishi UFJ Lease & Finance (USA) Inc.

The Federal reserve has lowered interest rates twice in the last three months. are lower rates being passed on to buyers of cranes and other equipment?


TONYA FRY: Even though the Fed has decreased interest rates twice, we are not seeing a drastic decrease in rates from our funding partners. We will see small decreases here and there from our funding partners, but no large drops. Overall, I think rates have stayed very competitive, and it is an excellent time to purchase. Since the Fed has decreased the rates twice, more than likely they will remain unchanged or a minimal decrease in the fourth quarter. Regardless, as we approach year-end, it is always an excellent time to take advantage of year-end pricing if you are planning to make purchases.

LINDA BROWN: Interest rates have, for the most part, remained historically low over the past 10 or so years, which has been great news for companies looking to finance equipment. All indicators and projections pointed to an environment of increasing rates, which did not materialize to the degree that was projected. Again, good news for borrowers. With the Fed’s recent rate reductions, I am seeing on average, about a 25 basis point reduction with loan rates.

DOUG FLETCHER: Based on the Fed rate being lowered, the rates for equipment finance have been affected positively with lower interest rates, which translates into more spending power for our customers.

JEFFREY WHITCOMB: Yes, interest rates continue to touch historic lows. The fourth quarter of this year will be a tremendous time to finance new cranes or to refinance prior loans. It is also a very good time to use leasing to reduce taxable income. In 2017, H.R. 1 “The Trump Tax Law” capped the amount of interest you may deduct. If your company has reached its limit for the year, then leasing (with a capped or fixed residual) is a better option than a loan because 100 percent of your lease payments will be fully deductible. So for a company that has reached its “cap” for 2019, if you lease a $2 million crane rather than buy it you could save as much as $150,000 in taxes by leasing, assuming a 48-month term with 25 percent residual. That is real cash for the company – not just an accounting gimmick.

How do you characterize the market for crane and related equipment sales, both new and used?

TONYA FRY: In 2018, 45 percent of our funded transactions were for new units and 55 percent were for used. This was similar in 2017 and we are seeing the same trend in 2019. Overall, the market is strong for both, but we are finding that customers are continuing to price shop. We have seen more and more customers purchasing from end users as well as purchasing from vendors.

Linda Brown

Linda Brown, Commercial Credit Group

LINDA BROWN: It has been my experience that the crane and heavy equipment markets have been strong to steady over the past five to seven years with varying degrees, depending on the geographic market. The transportation markets have slowed the past 12 months, however new and used cranes were strong the past 13 to 15 months, experiencing a slow-down in June. The used crane market has become a challenge in California due to CARB Emissions laws. Companies are replacing older units with newer CARB compliant units.

DOUG FLETCHER: The new and used crane market is robust and will continue to grow with the economy as essential infrastructure projects will continue, and remain vital, across the U.S. All crane industry applications are strong and in need of crane services. Manufacturers are building cranes at a record pace to meet the industry demand with build times between six and 12 months. However, acquiring new or used cranes remains difficult for companies struggling to meet project and contract obligations. Manufacturers are working to improve their build times and supply cranes that are most needed. The used crane market is strong and will continue to be going forward. Financing for used equipment will continue to remain an attractive option for our customers because it offers the possibility of customized financing solutions depending on the type of crane and hours of use.

JEFFREY WHITCOMB: Our company works mainly with middle market-sized companies and with large ENR200 contractors, and the market is robust. We see strength in tower cranes, all terrain cranes and telescopic crawlers, especially. Lattice boom crawler sales are strong also and rough terrain cranes are doing better than two years ago – although the smaller tonnage models continue to be threatened by larger capacity telehandlers. We do not do much used crane financing although we do sale/leaseback transactions and those tend to be based more on financial considerations than on the availability of equipment.

What are the challenges of closing financing on a crane or related piece of equipment? What sorts of specifics should the buyer have taken care of before a loan can go through?

Tonya Fry v

Tonya Fry, Harry Fry & Associates

TONYA FRY: The biggest challenges we face when closing loans/leases is the ever-changing banking regulations. The changing regulations have amounted to additional paperwork and additional verifications. The banks and funding sources often have auditors come in to review their files. If they are not in order, the source can suffer penalties. As a result, the extra paperwork can often be passed along to the customer.

For example, funding sources must approve/verify the vendor as part of the closing process. In doing this, a physical address is needed, and they look for proof of a “brick and mortar” shop, sometimes with signage. In our industry not every seller has an actual dealership or yard with signage. As far as the customer goes, some funding sources require two forms of ID, or a form of ID and a physical address verification. I think the reason for some of these things are because we are in a world that more and more relies on the internet as a means of conducting business. We are losing that personal touch and as a result, it opens the door for more instances of fraud. Funding sources need to verify that not only the asset exists, but the vendor and customer exist as well.

LINDA BROWN: When companies are shopping for crane or equipment financing, it is helpful to have current company tax returns and/or financial statements. I realize it’s tempting to put off doing tax returns and filing an extension, but when going to market to borrow, it is helpful and could possibly help secure more advantageous terms. In addition, presenting a brief explanation of how a new unit will enhance or expand your fleet is always helpful. Is it a replacement or addition and what are the projected utilization rates?

Doug Fletcher_Headshot

Doug Fletcher, Siemens Financial Services

DOUG FLETCHER: The challenges are twofold: the customers’ budgetary needs and their equipment needs. The crane application and utilization play a vitally important role in identifying the specific type of crane a customer will need. In general, companies can be pre-screened for their purchase by providing all current financial information and industry information in advance. Depending on the financial transaction requested, the customer should consult with their company finance department or CPA to determine if the loan or lease will be the most beneficial for the transaction. Being prepared ahead of time and having all your equipment and financial information in advance will create an effortless customer experience.

JEFFREY WHITCOMB: The main challenge any time we provide a lease or a loan on a crane continues to be lead times (getting the timing right so that we are ready to fund once the crane arrives in port and will soon be delivered). I would also say that crane company owners need to keep tabs on the liens that are files on their secured loans. Periodically asking your main lenders to provide copies of their UCC-1 filing statements is a wise investment of time. You do not want to have broad lien language or blanket liens on your entire fleet or company because those “get in the way” of a new finance company providing financing to your company and could delay funding and delivery to a job site.

We also see credit quality for smaller companies being an obstacle. I am constantly amazed that crane companies with $50 million to $75 million in annual revenues do not have audited or reviewed financial statements. This can really slow down the process. I highly recommend finding an excellent CPA firm through a competitive bidding process based on price and a questionnaire on their qualifications in order to find a firm that can provide timely statements for banks and/or leasing companies to use for underwriting purposes.

What role does depreciation play in the realm of financing equipment?

TONYA FRY: Depreciation plays a very important part in crane financing, especially as we approach year end. The Section 179 Deduction with Bonus Depreciation is in effect for 2019.

Currently, for 2019 the first year write off limit is $1,000,000. Any purchase amount over the $1,000,000 is subject to 100 percent bonus depreciation. For example, if a customer purchases $1,250,000 in equipment, they immediately write off $1,000,000 and then they take 100 percent bonus depreciation for the remaining $250,000.

This write off and the 100 percent bonus depreciation is a great incentive to purchase now and gives the customer a huge cash/tax savings. When it comes to depreciation and incentives like this, we still encourage customers to double check with their CPA as well.

LINDA BROWN: Yes. Deprecation has played a large role in driving equipment purchases. The Section 179 bonus depreciation can potentially save a company hundreds of thousands of dollars depending on their tax bracket. There is a $1 million deduction limit and $2.5 million spending cap for equipment purchases. Companies should talk to their accountants for tax advice.

DOUG FLETCHER: Depreciation is important based on the industry the crane services, which makes financing a crane very attractive. Due to the higher values set for cranes, the depreciation aspect plays an important role in the finance structure, focusing on better values and possible lower cost related to the transaction.

Whitcomb Business Photo

Jeffrey Whitcomb, Mitsubishi UFJ Lease & Finance (USA)

JEFFREY WHITCOMB: It used to be that the value of depreciation for lessors was quite substantial and effectively leveraging that in the fourth quarter of the year could result in substantial savings for the crane company. When our company provides an operating lease to a customer, we gain the tax benefits of ownership and that can result in a “better deal” that you cannot get when you take out a loan. However, with lower corporate and pass-through tax rates the benefits are not as great as they once were.

Bonus depreciation is a tax incentive that allows small- to mid-sized businesses to take a first year-deduction on purchases of qualified business property in addition to other depreciation. For 2019 it was moved up to 100 percent for qualified property. The new law also allows bonus depreciation to be taken on the purchase of a used crane (which was not allowed prior to 2017). If you have a large profit this year but expect a small one (or a loss) next year then using bonus depreciation makes a lot of sense.

The Section 179 deduction is a second tax incentive for businesses that purchase and use qualified business property, but the two are not the same. The amount for Section 179 has nearly doubled this past year – so it is significant. As with all tax matters, I would suggest that company owners or financial managers consult with their tax accountants to see exactly what is available to them and how to maximize it.

Do you see more OEMs offering finance programs for their cranes? Do these programs compete with your crane finance programs?

TONYA FRY: We currently are not seeing a great deal of OEM financing programs. There are a few manufacturers that may have them, but they are not that common in the marketplace. If an OEM does offer one, we compete with our credit criteria.

An OEM finance program is typically tied to one funding source with one set of credit criteria. Not everyone is going to fit that criteria. We compete with OEM programs because we work with a variety of funding partners. As a result, we can offer very competitive rates, and have much broader credit criteria. We can find financing for a vast majority of customers.

LINDA BROWN: Yes, some OEM’s have finance programs and occasionally they will compete with the finance products we offer, but too not often. If a borrower is looking for more flexible terms that fall outside the box offered by the OEM’s program, we can be helpful. Many times, that equates to limited to zero cash down, longer terms or a possible debt restructures to cash flow a new unit into the fleet. Every deal is different, and the key is to remain flexible, think outside the box and know and understand the market. In addition, over 50 percent of our financing is done in the used markets.

DOUG FLETCHER: Siemens Financial Services works with OEMs to provide financing options to distributors and end-users. Crane OEMs typically have approved financing programs that are tied to their dealers or approved financing providers. A typical benefit with these types of financing programs is providers can offer discounted rates. However, due to the current demand of cranes, there are currently no discounted rates within the crane industry that I am aware of. This is not to say that it doesn’t happen, or will not happen, because in some instances, manufacturers will occasionally provide subsidy dollars to assist in the financing of the equipment.

JEFFREY WHITCOMB: I do not see this activity as much because interest rates are so low to begin with. When rates are much higher, we tend to see this activity increase. These incentives are also used to move slow moving inventory and we frankly do not see that either.

What we do see is that OEMs are becoming more creative with how they finance their supply chain and the terms they offer to their end user customers. Our company provides supply chain finance as well as retail finance, so we see both. It is now more common than ever for suppliers to offer long duration payment terms on their invoices. Since their carrying costs are not high due to low interest rates, they are better able to pass that along to their customers in the form of favorable terms.

I would not say that these OEM programs compete with us. They might change the timing but companies who need to finance cranes base their volume with us much more on their own market activity and demand and their buying plans for the year (which generally do not change much once they are set).


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