Issue link: http://read.dmtmag.com/i/462847
February 2015 | Construction Equipment Distribution | www.cedmag.com | 25 have scars on their credit from finan- cial decisions that were made and necessary in order for them to salvage their businesses." According to Cunningham at High- way Equipment, things have definitely been loosening up in terms of credit availability for customers. "We have been able to get a lot more deals through," he said. ere are several reasons for this. "Not only are the banks being more aggressive, but some banks that were out of the market are now back in, and we are also seeing more players in the market." Still, he added, everyone wants A-B credit, which can pose a challenge for the dealership. "Not every customer is an A-B customer, especially small local contractors that don't have the financial history or wherewithal," he said. Shute is seeing strength among dealers' customers. "When we look at the finances of dealers, we see some very favorable receivables aging," he said. "at is, the dealers aren't experienc- ing a lot of bad debt, because their customers are paying. In my experience, the delinquency situation that dealers are experiencing from their customers mirrors our situation." In the Shadows Even when times are good, they aren't perfect. Dealers should consider a few challenges, even in the midst of "boom- ing" economic times. "Lines of credit have more restraint these days, and we the dealers are more conservative with using our lines," said Humphries. "I know that we do our due diligence with our equipment purchases, and our customers are doing the same. We watch our leverage number closely." According to JPMorgan Chase's Linley, one challenge is that, over the last couple of years, more dealers have been increasingly involved in rent- ing equipment rather than selling it outright. As a result, dealers end up with increased inventory carrying levels, which are leading to increased cash flow and balance sheet leverage. "Where is there a tipping point?" he said. "We have internal guidelines in terms of where we like to see maximum balance sheet and cash flow leverages." ere are also potential weaknesses in certain industries and regions of the country, according to Linley. "Highway programs tend to be inconsistent from state to state, depending on the financial health of each state," he said. "ey have been really strong in some states, but fairly poor in others." Another potential challenge lies ahead for distributors that also deal in agricultural equipment, a market that has experienced some soness lately, with reductions in both revenue and equipment sales. On the flip side, said Linley, "Energy production has been strong in certain states, especially Texas, Louisiana, Oklahoma, and the Dakotas," said Linley. "Dealers in these states have been having fantastic results. However, energy prices have been dropping, which could eventually have some impact on dealers in these states." (see MoneyMan column on page 21) (continued on next page) [Dealers] need to take a hard look at their balance sheets to see what the impact of these basically zero interest rates has meant for their bottom line and do some sensitivity analysis.