Construction Today - September 2016 - 119

IN THIS SECTION
Patillo Co.
Lending Arrangements
Construction can seem like a pretty commoditized business from a
lender's perspective. There is no shortage of collateral - if the borrower's credit goes sour, the lender can take possession of the underlying
equipment. But what many fail to understand is that equipment
prices within the industry can fluctuate significantly depending
on where you are in the business cycle. The equipment also is long
lasting, meaning it can retain residual value for years.
Given this, the best arrangement from both the lender's and
borrower's vantage points is often to match the credit terms to the life
of the equipment, individually or as a pool of assets. The trouble is,
that tried-and-true structure doesn't always align with the financing
packages offered by captive finance companies and certain other
lenders. Captive finance companies want to keep loan terms short
and attract customers through subsidized financing options at apparent rates of zero percent. They do this in part to help sell equipment
and to influence customers' buying habits. 
If you're the customer, it looks like you have landed a great deal
- until you need additional capital to help your company grow.
Because you're spending so much each month to finance your equipment, you have much less cash on hand to invest in your business.
You also have a problem if you go to another lender to secure more
debt: those high monthly payments have driven down your fixed
charge coverage ratio, a measure of how much cash or income you
need to pay your fixed costs each month. Many banks aren't interested in lending to companies with a fixed charge ratio of less than
one-to-one, because they know their underwriters won't approve
it. Further, if you're doing short-term financing, no matter what the
interest rate is, you're paying a considerable amount of money each
month from day one. That means you're leaving lots of money on the
table in the form of the residual value your equipment will hold for
years to come.

New Opportunities
If you find yourself in this situation, you may still have options. In
many cases, you might be able to refinance your debt into a new loan
with a longer-term structure that lowers your monthly payments,
gives you access to more liquidity and improves your credit profile to
the degree where a lender might be interested in providing additional financing.
Take the example of a construction firm growing at a healthy clip,
both in terms of revenues and book of business. Short-term equipment loans may have met the firm's needs up to this point, but now it
needs additional liquidity to grow and many banks won't extend the
firm more credit because its fixed charge ratio is too low. If the company can't obtain more capital, it won't be able to acquire the equipment it needs to work on its pending projects. In this case, refinancing

Jp.120
Large manufacturers nationwide look to Patillo
for its building expertise.

MJ Electric
Jp.122
MJ Electric's Eastern
operations are seeing
increased demand.
Company Profiles
120 Patillo Co.
122 M. J. Electric LLC - Utility
Division/Eastern Operations

the debt into longer-term financing would
accomplish two things: alleviate the firm's
cash crunch by lowering its monthly debt
payments and put the firm in a position to
improve its financial profile so it can receive
more credit.
With market conditions stabilizing and
new opportunities likely to appear in the
coming months, construction firms would be
wise to think ahead about how they're going
to finance the equipment they will need to
grow and seize the opportunities in this environment. Seeking longer-term financing from
a company that has an extensive history of
partnering with construction firms is one way
to keep your financial profile healthy and all
of your options on the table.

Eric Miller is group head and managing director of CIT Capital Equipment
Finance, where he is responsible for overseeing financing activities for
large ticket equipment leasing and lending, as well as project finance
related activities. For more information, visit cit.com/capitalequipment.

119

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Table of Contents for the Digital Edition of Construction Today - September 2016

Contents
Construction Today - September 2016 - Cover1
Construction Today - September 2016 - Cover2
Construction Today - September 2016 - 1
Construction Today - September 2016 - Contents
Construction Today - September 2016 - 3
Construction Today - September 2016 - 4
Construction Today - September 2016 - 5
Construction Today - September 2016 - 6
Construction Today - September 2016 - 7
Construction Today - September 2016 - 8
Construction Today - September 2016 - 9
Construction Today - September 2016 - 10
Construction Today - September 2016 - 11
Construction Today - September 2016 - 12
Construction Today - September 2016 - 13
Construction Today - September 2016 - 14
Construction Today - September 2016 - 15
Construction Today - September 2016 - 16
Construction Today - September 2016 - 17
Construction Today - September 2016 - 18
Construction Today - September 2016 - 19
Construction Today - September 2016 - 20
Construction Today - September 2016 - 21
Construction Today - September 2016 - 22
Construction Today - September 2016 - 23
Construction Today - September 2016 - 24
Construction Today - September 2016 - 25
Construction Today - September 2016 - 26
Construction Today - September 2016 - 27
Construction Today - September 2016 - 28
Construction Today - September 2016 - 29
Construction Today - September 2016 - 30
Construction Today - September 2016 - 31
Construction Today - September 2016 - 32
Construction Today - September 2016 - 33
Construction Today - September 2016 - 34
Construction Today - September 2016 - 35
Construction Today - September 2016 - 36
Construction Today - September 2016 - 37
Construction Today - September 2016 - 38
Construction Today - September 2016 - 39
Construction Today - September 2016 - 40
Construction Today - September 2016 - 41
Construction Today - September 2016 - 42
Construction Today - September 2016 - 43
Construction Today - September 2016 - 44
Construction Today - September 2016 - 45
Construction Today - September 2016 - 46
Construction Today - September 2016 - 47
Construction Today - September 2016 - 48
Construction Today - September 2016 - 49
Construction Today - September 2016 - 50
Construction Today - September 2016 - 51
Construction Today - September 2016 - 52
Construction Today - September 2016 - 53
Construction Today - September 2016 - 54
Construction Today - September 2016 - 55
Construction Today - September 2016 - 56
Construction Today - September 2016 - 57
Construction Today - September 2016 - 58
Construction Today - September 2016 - 59
Construction Today - September 2016 - 60
Construction Today - September 2016 - 61
Construction Today - September 2016 - 62
Construction Today - September 2016 - 63
Construction Today - September 2016 - 64
Construction Today - September 2016 - 65
Construction Today - September 2016 - 66
Construction Today - September 2016 - 67
Construction Today - September 2016 - 68
Construction Today - September 2016 - 69
Construction Today - September 2016 - 70
Construction Today - September 2016 - 71
Construction Today - September 2016 - 72
Construction Today - September 2016 - 73
Construction Today - September 2016 - 74
Construction Today - September 2016 - 75
Construction Today - September 2016 - 76
Construction Today - September 2016 - 77
Construction Today - September 2016 - 78
Construction Today - September 2016 - 79
Construction Today - September 2016 - 80
Construction Today - September 2016 - 81
Construction Today - September 2016 - 82
Construction Today - September 2016 - 83
Construction Today - September 2016 - 84
Construction Today - September 2016 - 85
Construction Today - September 2016 - 86
Construction Today - September 2016 - 87
Construction Today - September 2016 - 88
Construction Today - September 2016 - 89
Construction Today - September 2016 - 90
Construction Today - September 2016 - 91
Construction Today - September 2016 - 92
Construction Today - September 2016 - 93
Construction Today - September 2016 - 94
Construction Today - September 2016 - 95
Construction Today - September 2016 - 96
Construction Today - September 2016 - 97
Construction Today - September 2016 - 98
Construction Today - September 2016 - 99
Construction Today - September 2016 - 100
Construction Today - September 2016 - 101
Construction Today - September 2016 - 102
Construction Today - September 2016 - 103
Construction Today - September 2016 - 104
Construction Today - September 2016 - 105
Construction Today - September 2016 - 106
Construction Today - September 2016 - 107
Construction Today - September 2016 - 108
Construction Today - September 2016 - 109
Construction Today - September 2016 - 110
Construction Today - September 2016 - 111
Construction Today - September 2016 - 112
Construction Today - September 2016 - 113
Construction Today - September 2016 - 114
Construction Today - September 2016 - 115
Construction Today - September 2016 - 116
Construction Today - September 2016 - 117
Construction Today - September 2016 - 118
Construction Today - September 2016 - 119
Construction Today - September 2016 - 120
Construction Today - September 2016 - 121
Construction Today - September 2016 - 122
Construction Today - September 2016 - 123
Construction Today - September 2016 - 124
Construction Today - September 2016 - 125
Construction Today - September 2016 - 126
Construction Today - September 2016 - 127
Construction Today - September 2016 - 128
Construction Today - September 2016 - Cover3
Construction Today - September 2016 - Cover4
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