Editor’s note: Mike Arness is the president of ClearView Financial, Ephrata, Wash., which offers financing services for the equipment rental industry. The

Arness

company has been an exhibitor at The Rental Show and an American Rental Association (ARA) member since 2000. Arness recently discussed the state of the credit industry and what it means for equipment rental companies. An edited version of his conversation with Rental Management follows.

RM: Credit to finance equipment purchases has not been readily available over the last two years. Why?

Mike Arness: We, as lenders, are historians. We look at facts, figures or trends to determine if we are looking at a good loan. At the end of the year, you look at defaults and look for common denominators that may have contributed to those defaults, which have usually been too much credit card debt, not enough time in business and geographic location. When the economic storm of 2008 hit, it made history unusable. Every common denominator you wanted in a good loan was there, yet these guys were filing for bankruptcy. When you go from a 2 percent default rate to 9 or 10 percent, you become scared to deploy money. In 2010, 150 banks went out of business. In 2009, it was 149. In 2008, it was three. The real reason credit has not been available isn’t lack of funds, but fear of deploying the money and not seeing it come back. It would be like people renting equipment and not bringing it back. When that happens, it’s hard to stay in business. However, normal curves are starting to reappear. The companies that would go down are now out. Those who survived are going to survive.

RM: What is the current credit environment like? Is credit loosening and, if so, what does that mean for equipment rental stores?

Arness: What we look for is new money. The U.S. Chamber of Commerce has said that businesses are holding on to more cash right now than ever before. Banks and big companies are holding more cash because of uncertainty. In the credit industry, however, it works like a rental store. If you’re not renting equipment, you’re not making money. If we don’t lend, we don’t make money. We are now finding new money emerging again. Sources of funding want to be leaders to get things moving again. Underwriters say they are starting to deploy money and taking more risk to get back to normal business. This started happening in mid-2010. We are getting calls from people who are saying they have to get back into business or shut their doors. However, we are back to bare bones, vanilla-flavored lending without the fancy programs that used to be available. That said, funding is becoming available again and I’m feeling more optimistic about finding funds. This is the best period in two and a half years.

RM: What role does a company like ClearView Financial play in lending money for equipment purchases?

Arness: We have multiple roles. We have our own lines and lend some money on our own. We also are agents for other underwriters, banks, private investors and money management funds. We are more in the role of a broker and this gives us more opportunities to place transactions. As a client’s credit deteriorates, we try to find a home for these transactions. We have close to 20 or 25 sources to draw from, but everyone is pickier these days. We try to match criteria to the lender. The equity position of equipment rental companies is not as strong because the business is loan intensive. Companies need a lot of equipment and are highly leveraged. They can come to a broker like us and we seek out sources that understand the equipment rental business and are willing to take the risk.

RM: What credit advice would you give those planning to attend The Rental Show?

Arness: I would recommend having preapproved lines of credit before you go to Las Vegas. Our credit procedures have changed dramatically. In 2007, we had programs with applications up to $250,000. You could fill out an application at the booth and have approval in a couple of hours. Now it can take three or four days to set up a line of credit, so I recommend that this is done in advance of the show. Also, we attended an amusements show in November and it was the best show we have attended since 2007 because everyone was optimistic. The difficult thing was there were so many applications to handle. That’s another reason to arrange for preapprovals.

RM: If some unexpected deal came up, would it be possible to be approved at the show?

Arness: A small dollar amount of maybe $50,000 could be approved in a couple of hours depending on what the loan is for. Up until the summer of 2008, we were very liberal on the assets we would lend on. Nobody was defaulting and no one was concerned about collateral. Today, asset managers play a bigger role. They look at things like linens, china and cutlery to be a “soft” cost and not retrievable or easily remarketed. Nothing has changed with iron, but you still need to talk with your bank or finance company to find out what you can finance now. Things have changed.