The portable storage industry is growing, the economy is strong, rental rates and equipment prices are on the raise. To be prepared for growth look into the possibility of obtaining capital from different sources; banks, leasing companies, State and Federal programs as well as investors and your own untapped assets.
Growth in the portable storage industry requires capital. For each new container that goes out on hire the capital outlay is somewhere in the range of $1,000-$3,000 depending on equipment type, company location and the improvements made to the container.
Another challenge is timing. Do you have capital available when equipment prices are low or opportunities present themselves? Take a moment and reflect on the growth of your container rental fleet during 2004. How much money would you have saved if your purchases for the year were done in Jan-Mar instead of Apr-Aug? Most likely, it was a fair amount.
This is a seasonable business. When containers are off hire during the winter and early spring, prices are lower. When containers are on hire during the late spring, summer and fall, prices are higher. Yet, most rental companies purchase equipment when they have a customer rather than when the container prices are low. Well, it is a more conservative approach to purchase when you have a customer, but what is the cost you pay for being conservative? For example, let’s say that you buy a container for $1,500 in January instead of $1,800 in May, using an average interest rate of 9% the cost of owning the $1,500 unit for the period January through April, four months, is 3% of $1,500 or $45, while your price increase was $300. Quite a difference!
Be prepared for growth and be prepared to take advantage of purchasing opportunities by contacting potential funding sources long before you have the need for capital. Here is a list of different types of lenders.
The most obvious place to seek additional capital is from your bank. Make sure you have a relationship with them long before you need to borrow money. Meet regularly with your local branch manager; explain your business, how your company operates and how you expect to grow. If you do not already have a loan, get a small credit line. If necessary, secure it with cash and use it actively over six to nine months so that you get a credit history.
Equipment Leasing Companies
Lease financing differs from bank financing in several ways, first of all the financing is earmarked for specific equipment. Secondly, lease financing is typically for 100% of the equipment value while bank financing most often requires some equity participation from the borrower.
State Government Programs
Portable storage companies generate jobs, such as, drivers, mechanics and administrative staff. Most States have small business financing programs for companies that create job opportunities. Check with your Secretary of State.
Federal Government Programs
The Small Business Administration provides guarantees to your bank for up to 80% of the loan principal. In particular, the 7(a) Loan Program is suitable for portable storage companies. It provides a long term, fixed rate loan for equipment. SBA is not a lender, but if you qualify for their program, SBA will provide a guarantee to your bank. To find out more, talk to your local banker about SBA or visit www.sba.gov.
For a company that experiences rapid growth it may be more advantageous to invite investors to provide capital rather than to borrow money. While the owner has to give up some of his share of the company, the knowledge of one or several professional investors is a complement that, in the long run, can be far more valuable than the shares the owner has given up.
Small Business Investment Companies
SBIC’s are investment firms licensed by the SBA to provide equity investments and long term loans to small companies. To find our more visit www.sba.gov/inv.
An angel investor is someone who invests in a business expansion either through debt or equity financing in a very early stage of growth. A typical “Angel” is a wealthy individual, a supplier with interest in the growth or a customer in need of the company as a solid supplier of services.
If none of these alternatives is a way for you to find the capital you need, you can only look to your own untapped sources. The options you have for finding more money in your own backyard are often limited but here are some alternatives.
Home Equity Financing
If your home has unused equity, use it for your business as long as you invest in good equipment that generates steady income and doesn’t lose its value. This is one of the better and most inexpensive ways to finance an expansion. A key question is how many containers can you buy with this money?
Do you have money in an IRA’s or 401K plan? If so look into the opportunity of converting them into loans to your company by creating a self governed trust. To find out more, visit http://www.sterling-trust.com/ and talk to your CPA.
Friends and Family Members
As a last resort, you may want to borrow money from friends and family. Most often, this is an easy way but it has pitfalls. First of all financial matters can be very difficult to deal with when friends and family are involved. Secondly, this category of lender is not going to scrutinize your loan proposal as thoroughly as a professional lender which may lead to unrealistic expectations and cause conflict.
Most likely, you will approach several different sources to explore what is best suited for your situation. To be prepared for the financing process make sure you have done your homework and can present a viable case. Here is a list of material that you will need.
- Two years of financial statements
- Professionally prepared financial and cash flow projections
- A market, industry and company presentation
- The owner’s personal financial statements
- The back ground and resumes of the owner and key management
Be realistic, it takes time for a lender or investor to evaluate your application. Unless you have an established relationship, it is very likely that a financing process can take six months or more. Therefore, be proactive, contact your prospective lenders and investors early so that you have the funds available when the prices are right and the equipment is available.