How to Master Financial, Credit Management

Posted on March 1, 2003 by LCT Staff - Also by this author

As a small and mid-size limousine operator, financing is such a huge part of your daily business and profit margin that it’s absolutely essential to properly manage your credit.

You often hear about finance companies promising to “clean your credit” – but like anything that’s so significant in life, it just isn’t that easy. The only way to establish good credit is over time and with consistency.

Of course, there are things to keep in mind the next time you want to ask for a loan or line of credit. Outside of the obvious – paying your bills on time – Bill Cunningham of Acton Lincoln-Mercury in Maynard, Mass., recommends building your case on why you need financing before you meet with lenders.

“People sometimes come in and suddenly want to buy a lot of cars, and the fact is, they might not have a good reason for it,” explains Cunningham. “You can’t just say, ‘I want to grow my company so I need 10 more cars,’ particularly if you have historically only financed one at a time. You have to have a solid, logical plan for how you are suddenly going to pay the additional expense.”

Before setting the wheels in motion with a financing institution, Rick Eichner of City Limousine Sales, Long Island City, N.Y., believes it’s a good idea to obtain copies of your credit reports from the various credit bureaus two to three months before you go shopping for a loan.

“Look for any inaccurate information, including latenesses that might be on the report that aren’t true,” he says. “Sometimes details about someone who has a similar name as yours accidentally ends up on your report. Fix these things before you begin the process. You also need to examine your credit score and know where you stand ahead of time. Ignorance is not bliss in this situation.”

When it’s time to knock on doors, make sure you have a professional package in hand that offers lenders useful information – such as your last three monthly bank statements, your tax returns for the last two years – that you know dealers will be asking for anyway. Show lenders that you will be able to repay the loan. If nothing else, you need to take the time to fill out the application properly.

“There is a saying about credit applications that goes, ‘junk in, junk out,’” says Acton Lincoln-Mercury’s Cunningham. “If they are asking for information, don’t gloss over it. The more good information they have, the more likely it is they will do business with you. If they can’t verify information, they will probably send you back for more information, which not only slows the process, but doesn’t look good in the long run.”

As far as companies who claim they can “clean your credit overnight,” City Limousine’s Eichner points out, “You would be better off taking the money you would pay them and paying your back bills. Cleaning up your credit like that isn’t realistic.”

According to both Cunningham and Eichner, one of the biggest mistakes limousine operators make is financing over too many months. You should always look for the shortest term you can afford, otherwise you risk becoming “upside down” on a vehicle – meaning you’ll end up owing more than it’s worth when you decide to sell it.

“Dig into your pockets if you have to, find money above the rebate to put down,” says Cunningham. “The less you actually finance the better. You will build equity more quickly. If you owe more than what the car’s worth, you’ll end up carrying bad debt into new debt.”

Another common mistake is assuming your lender won’t notice or care if your payments are just a little late. Everyone has late payments, lenders understand that. But you need to be honest with them about it, says Cunningham.

“It really is in your best interest to keep an open line of communication with your lender and let them know if you are having a problem making a payment,” he advises. “Document every time it happens and let them know when you’ll be able to pay.”

“We’ve all been through a difficult time and we are still in a difficult time, so slow pay happens,” adds Kevin Cullum, branch manager for Ford Motor Credit’s Northeast Commercial Lending Office, based in King of Prussia, Penn. “What kills [an operator] are defaults. Those are the things that will really affect your credit rating and ultimately your future financing rates.”

If you own or operate a limousine company with long-term goals, keep in mind there are advantages to developing a relationship with one lender. This not only helps you get the best possible rate; it also means that your lender will know what you do and how you do it, which can help expedite the process of getting a loan or extending your credit line.

If you have been dealing with the same lender for years and its representatives have witnessed your expansion and seen how you have handled growth, there will probably be less scrutiny over the purchases you make, lenders and operators agree.

As long it makes financial sense – meaning that a rate doesn’t come along that’s so low you just can’t pass it up – it’s generally better to stay with the same lender. While still considered the top lending institution for the limousine industry, Ford Motor Credit has been under a certain amount of scrutiny recently for their rates.

“It’s no secret that at Ford we have had some borrowing difficulties in regards to how the market has been performing, which has caused our borrowing costs to go up,” explains Ford Motor Credit’s Cullum. “We have had to pass that along to the customer to some extent, even as we’ve tried to keep our rates consistent. It’s simply due to economic factors, though not necessarily because of how the portfolio has been performing. It’s strictly a fallout of borrowing costs.”

Even so, Acton Lincoln-Mercury’s Cunningham reminds buyers that, “After 9/11, Ford Motor Credit reached out to customers, it deferred payments, it extended a helping hand. If you are communicating with [Ford Motor Credit] and you are having trouble, they will work with you. Not every lender is like that.”

Cullum adds that, “We have a strong relationship with the limousine industry. We know a lot of the major players and have personal relationships with them and have been able to work with them over the last couple years. We try to be competitive with our rates and if they are a little bit higher than some, hopefully you can see the value in having a company like Ford back you as your lender, because we’re still here."

“We’re still supporting the Lincoln product,” he adds. We’re going to ride through this, just like everybody else will ride through it, and emerge on the other side stronger.”

During tough economic times, it’s hard enough keeping your business moving, let alone making it grow. Financing and the rates you secure directly affect the amount of money you pay out each month, so do your homework and arrive at the bargaining table with as much useful information about your company as possible.

When it comes to financing, there are no miracle fixes – you need to build relationships with lenders you can trust and you need to carefully manage your finances over time to secure the best possible rates.

The Low Down on Credit Reports
Businesses and credit agencies are constantly compiling reports and trading intimate, sometimes erroneous, and sometimes embarrassing details of your financial life. In fact, they may know more about you than you do.

These credit reports contain a gold mine of information about an individual, including credit payment status, employment information, civil judgments, tax liens, bankruptcies, child-support payments, Social Security number, date of birth, current and previous addresses, listed and unlisted telephone numbers and other data.

And here’s the scary, but very legal part: anyone with a “legitimate business need” – including those considering granting you credit, insurance companies, and employers and potential employers – can gain access to this credit and personal information with your knowledge or permission.

To head off any potential problems, the Privacy Rights Clearinghouse recommends that you regularly obtain a copy of your report and check it carefully for negative information. Before applying for a loan, consider checking with all three credit bureaus that manage this information because there may be some variations in the file that each maintains on you.

Obtaining a basic credit report from any of these agencies typically costs about $10; all three offer additional services and options based. Copies of your basic report are free if you live in Colorado, Georgia, Maryland, Massachusetts, New Jersey or Vermont. You are also entitled to a free copy within 60 days of being denied credit or if certain other conditions are applicable.

If you find inaccurate information on your report, contact the credit bureau you obtained the report from and request an investigation. The bureau has 30 business days to report the results of its investigation and correct any errors. If the bureau cannot verify the negative information, it must be deleted from your file, according to the Privacy Rights Clearing House.

If you disagree with the credit bureau’s investigation, you have the right to submit a 100-word explanation that must be included in your file. If there is accurate, but negative, information in your credit report you should work to resolve any outstanding issues with a creditor. Negative information in your file should be automatically deleted after seven years or the period allowed by law. A Chapter 7 bankruptcy, for example, should be deleted after 10 years from the filing date. Meanwhile, a Chapter 13 bankruptcy, which includes some debt repayment terms, remains on your credit report for seven years.

Obtain a Copy of Your Credit Report Through These Bureaus
Equifax Experian (formerly TRW), Trans Union LLC
(800) 685-1111, (888) 397-3742, (800) 888-4213
www.equifax.com, www.experian.com, www.transunion.com
Source: Privacy Rights Clearinghouse www.privacyrights.org

Ford Motor Credit Tightens Grip on Lending
While still considered one of the top lending institutions for the limousine industry, Ford Motor Credit is now requiring higher standards from potential buyers seeking to finance limousines.

Without pristine credit and a hefty down payment, operators are hard pressed to get their financing done through FMC, operators reported. A Ford Motor Credit official, however, said his company has no intention of dropping its limousine financing program and blamed the tightening credit situation on the company’s overall financial picture.

“We have had to pass [increases in Ford’s borrowing costs] along to the customer to some extent, even as we’ve tried to keep our rates consistent,” said Kevin Cullum, branch manager for Ford Motor Credit’s Northeast Commercial Lending Office, based in King of Prussia, Penn. Tightening the company’s credit policies is “simply due to economic factors. It’s strictly a fallout of [Ford’s] borrowing costs,” he added.

Cullum insisted that the relationship between the limousine industry and Ford Credit remains strong. “We try to be competitive with our rates, and if they are a little bit higher than some, hopefully you can see the value in having a company like Ford back you as your lender. “We’re still supporting the Lincoln product,” Cullum added. “We’re going to ride through this, just like everybody else will ride through it, and emerge on the other side stronger.” Although Ford Credit has taken some heat from some limousine operators for its tightening credit policies, Bill Cunningham of Acton Lincoln-Mercury noted that the lender “reached out to customers” after 9/11.

“They deferred payments and they extended a helping hand,” Cunningham said. “If you are communicating with them and you are having trouble, they will work with you. Not every lender is like that.”

Some operators are turning to the major banks (like Chase) for limousine financing. Another lender to the industry, GMAC, also continues to finance limousines for operators.

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