Can You Still Finance the Company Car?
In order to keep employees loyal, some managed service providers offer company cars to their field support staff. But continuing that company perk over the long haul could become more difficult during the credit crunch.
Fact is, lenders increasingly reject applications from people with good credit scores. Across the US, fewer than two-thirds — 63.7 percent — of car buyers who applied for loans are receiving approvals, accoring to a story in today’s Newsday, a major newspaper on Long Island. For “subprime” applicants, barely one in five of all car loan applications are getting approved.
The MSP Connection
I realize that only a small percentage of MSPs offer company cars to their employees. And I also realize most of those cars are leased rather than purchased with auto loans. One Long Island-based MSP, whom I met at the ConnectWise Partner Summit last week, says he offers company cars and hightened salaries as a way to avoid confusing sales commission programs.
However, it’s becoming clear that the Wall Street financial meltdown is starting to impact Main Street USA in multiple ways. If you need financing to expand or rotate your auto fleet next year, your business needs to establish and maintain strong credit.
According to the Newsday report, which was based on data from CNW Marketing Research, the drops in percentage loans approved from last year are sharpest in Nevada (down 29.2 percentage points), California (-28.9%), Arizona (-21.6%) and Florida (-28.6%).
(Side note: I read the Newsday story in good-old print. But Newsday’s site is far too confusing for me to find a link to the story.)
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Joe,
Good post. We’ve seen the first effects of the credit crunch in our business, just this week. We had two long standing clients denied technology refresh leases and they are now scrambling to arrange another source of financing. What was interesting was that the denial was based on the principals credit, not the businesses. In other words, the businesses themselves seemed to have reasonable credit history, however, the owners personal credit was not so hot and that killed the deal. Interesting lesson there…in this economy it may not matter how successful your business. If you personal credit is questionable, it may very well kill your ability to obtain credit for your business.
Keep up the good work JP,
MJ
MJ: I’m disappointed to hear that two of your customers just hit a credit bump. But I’m also happy to hear that you’re tuned into the situation.
I suspect IT vendors will be working extra hard to keep the credit flowing to their customers in the months ahead.
I’m optimistic — very optimistic — that the entrepreneurial spirit, work ethic and can-do attitude will pull the US out of the financial crisis. But let’s all keep our heads out of the sand and our ears/eyes open. The financial challenges are real.
Knock on wood; we have good luck on funding deals for resellers so far. I will say that based on the situation described, that this is not uncommon practice. Under 2 years in business personal credit is a must. If the business is over 2 years in business but less than 5 years, Personal Credit becomes less of an issue but still a factor. Over 5 years business credit seems to move things along OK.
With the credit crunch we may start to see everything move upward as far as credit guidelines, Higher Personal scores and higher PayDex Scores. Which means things will get approved but with higher rates so banks can catch up on the losses quicker. Either way the small business guys will pay because we will not have many options to choose from.
Somehow all businesses are going to have to find a way to increase their profits by 10-15% NOW. My estimate on what is going on with credit and the economy suggest that if you are not profitable and cash flowing now, you are in real trouble. If you are at least cash flowing, you need to find 10-15% increase in profit now in order to weather things out.
Look at industries that are making headway in this economy and try to model your offering around what they do or how they offer their products…..
MJ, I have a refereshing financing plan that works with wider varieties of credits if you still need a hand with that for your clients.
As to financing cars and other transportation, the big 3 US automakers are out of that business now but the independents like me still do it. Are my approvals down this yr? Definitely, but I have more resources and funders who are better than I did a year ago and that’s kept them from being down much more like the #’s in the post.
I like leasing cars and trucks and can do so with a similar lease structure to what the dealers used to offer…..
Stu
For every small closely held business, the personal credit of the owners and the Paydex are looked at equally, especially if that business is less than 10 yrs old……Just an FYI to all you guys out there. Me and my people check both routinely so verify who your trade lines are with and that they are in good standing…..
Stu
Ramsey, Stu: Keep the money flowing to MSPs (at least the MSPs with good business and personal credit…). Thanks.