Over the past several months I have seen a growing trend among rental owners looking for a way out of their current financial situations by using means other than restructuring their debt with their existing banks. Many business owners have contemplated the option of entering into an agreement with an equity partner firm.
First, let me say there are some high-quality equity firms. But, you must always remember they are there to take care of their investors. There are also a growing number of equity firms I will describe as "predatory." They will tell you that your banks are willing to take "haircuts," or discounts, on debt in the 50-70% range, just to walk away from a bad situation.
If the first numbers coming out of some of the auctions in Florida last week are accurate, used equipment values will be up substantially. And I can tell you firsthand that the banks also know this and have very little appetite for taking any type of discount on their loan portfolios.
Used equipment prices are going up, and the banks' appetite - or need - for discounts is lessening considerably. So the message should be clear - be careful. Call references in the rental industry who might have considered this course of action and see if it has worked out as was promised before you pay that large fee to the equity firm.
Questions or comments? Contact Mike Farley at firstname.lastname@example.org.