News Makers: What Credit Crunch?

Jack Snow claims he’s been slowing down, traveling and working less lately. Yet the only time slot he had available to talk with Lawn & Landscape was a Sunday afternoon.

So much for slowing down.

The man who has driven Sheffield Financial to the top of the equipment credit market was born and raised in Clemmons, N.C., and earned his accounting degree from Guilford College after serving in the army. After school, he worked for a company that distributed graphic arts equipment – printing presses and large format cameras used in production. Then, in the mid-70s, with interest rates at 23 percent and long lines at the gas pump, he suggested the equipment company begin leasing products to make things easier on customers.
Just like that, a credit career was born.

Snow later started his own company, Signet Financing, to expand financing to other industries. One day, he got a call out of the blue from Mike Ariens, owner of Gravely, who was looking for someone to give credit to a chemical company that wanted to purchase a fleet of mowers. Snow swung the deal. A week later, Ariens called again to ask if Snow wanted to sell him his company because no one else was independently financing equipment purchases in commercial mowing at the time.

Over the next five years, Snow expanded his business, learned more about the market and, in 1992, he and his wife Bonnie started Sheffield Financial, doing an amazing $4 million in revenue the first year. The company, which they sold to Branch Banking & Trust (BB&T) in 1997, now finances $750 million annually in the commercial mowing and all-terrain-vehicle markets. Major customers include Scag, Grasshopper, Wright, Land Pride, Ventrac, Husqvarna, Yazoo Kees, Dixon, Encore, Dixie Chopper, Walker, Hustler, Bush Hog, Woods, Bobcat, Bunton and, of course, Ariens Gravely.

Lawn & Landscape caught up with Snow to ask him about the current state of the market, what the future may hold and how contractors can ensure that they aren’t squeezed by the credit crunch.

For the average contractor, how serious is the credit situation right now?
For our customers, the ones that have been doing business with us for years, it’s going to be pretty much status quo. We have a philosophy that relationships mean more to us than anything, and we have relationships with 8,000 dealers and probably 150,000 end-users. For those folks, it’s not going to be that difficult. For new folks just trying to break into the market, it may be a different story.

This has been almost a perfect storm scenario. In 2007, we had drought. In 2008, sky-high gas prices. And, now it’s the housing downturn. We’ve seen past dues and bad debt increase a little, but we’ve always stuck to our knitting. We don’t finance refrigerators or boats and we don’t do crazy stuff like offers to finance mowers for $29 a month and then jumping it to $300 a month a year later.
We don’t have unlimited capital. We have ample capital. We’ve built a very good base of dealers, end-users and manufacturers. Obviously, we’re watching past dues and bad debt but it’s pretty much business as usual.

Are you hearing horror stories about firms that are really up against a wall because of this?
We are getting quite a few calls from end-users to let us know that things aren’t as rosy as they used to be. We work with them until the spring – until they can start mowing again. We routinely rewrite loans and payments. We’ve always done that. For example, on every installment loan that we make, we allow them to skip six payments throughout the course of their contract. It might be a problem with seasonality, weather, taxes or whatever. We give them six coupons they can use to buy some time. We also push back due dates for 90 days in some other cases. You have to be flexible and work with the customers. If you don’t, everybody loses.

What are the most important things contractors should be doing to protect their credit and ensure continuity?
The first thing is every business needs a good accountant. The owner needs to have someone who can look at their expenses and income and give them guidance. I have seen plenty of good businesses that didn’t know if they were making or losing money until it was too late. Watch your expenses, be smart.

The second is to get close to your favorite dealer. Our relationships with dealers allow us to finance things simply because the dealer knows and vouches for that customer. About 95 percent of the time the dealer is right and things work out fine. We have to know a customer has the ability and desire to pay us off and, when times get tough, a loyal dealer is the best source for that information.

The final thing is if contractors get in trouble, they shouldn’t be afraid to communicate with us or other creditors.

What do you mean by that?
If I was a commercial cutter and found myself in that position, the first thing I’d do is call the finance company and let them know I have a cash-flow problem. All they have to do is ask and we can nearly always work something out. It’s the one’s who don’t contact you and just hope the problem will go away that really get in trouble. It’s exactly the same as the people with sub-prime mortgages who now face foreclosure because they hoped a miracle would come along. Miracles happen once in a while, but good communication with a lender is a far more realistic solution.

What kinds of things is Sheffield Financial doing to help ease the pain?
We’re working proactively with the commercial cutters. We’ve installed a bunch of new software that, when the customer gets past due 10 days or so, they automatically get a call. We have people dedicated to working with them. As long as we understand the situation, we can help them. We work with them. It does us no good when they default. If we have to repossess equipment, we can usually only sell it for 50 cents on the dollar.

Are repossessions common?
Unfortunately, we have to do it sometimes. At around 90 days past due, if nothing is happening, we ask for the equipment back. That’s very, very rare. Our repo inventory is only one-tenth of 1 percent annually.

Jack, bring out your crystal ball. How will the market look different in the future from a financial standpoint?
I think you’re going to see the industry go back to basics. Commercial customers are going to be buying features and benefits instead of just jumping at a purchase based on financing. In my opinion, financing had become too prominent in the sales process. The days of the crazy financing stuff are over for the next four or five years.

Other than that, I actually think 2009 is going to be a great year and we’re going to be a big part of it because we’re solid. More folks will eventually come in and compete with us and the crazy financing options will emerge again, but we’ll stick to basics. I’ve seen a lot of those companies come and go. We’re still here.

So, what’s the bottom line on the credit crunch for equipment?
As far as we’re concerned, it’s over. We have ample capital and we’re already through the crisis. There will be some bumps in the road, but grass is going to grow and need to be cut. That means people are still going to need mowers, and we’ll be right there with them.

Jack Snow is president and CEO of Sheffield Financial. He can be reached at jack@sheffieldfinancial.com or 1-800-438-8892.