Imagine a situation in which a piece of equipment unexpectedly breaks down, and to make it worse, imagine it happening right at the end of your most productive season.
Now you're looking at a repair bill at the most inconvenient time when your cash flow is tightest. If your bank is flexible enough to help with that situation, consider yourself lucky. But when you have a revolving credit account, luck has nothing to do with it.
Trying to run a contracting business without a revolving credit account is like trying to play a round of golf without a putter. You could do it if you wanted, but why in the world would you?
The fact is a revolving credit account can be just as important as the relationship you have with the lender you use for operating loans and other big-ticket financing, it will make some of your everyday purchasing decisions as easy as a 3-inch putt.
What is a Revolving Credit Account?
A revolving credit account is essentially a line of credit that allows you to borrow funds at any time and repay them on schedule. You can choose to pay your balance in full each month, or make monthly payments at a competitive interest rate, just like the credit card you use for personal purchases. In fact, the reasons you use that personal credit card are the same reasons you need revolving credit for your business: convenience and cash flow management.
Consider all the transactions your business makes in a single month: parts, service, attachments and the occasional equipment rental. If you're paying cash for these transactions, you might find yourself dipping into your reserve more than you like. If you're using store credit from a number of different suppliers, you're adding to your mounds of paperwork.
A revolving credit account can help you manage all of this and more.
The Benefits
"It's all about peace of mind," says Jamie Kane, manager of product market development at John Deere Credit. "It's about knowing you don't have to worry about the unexpected. If there's a breakdown, you have instant purchasing power, so you can concentrate on the equipment, not on how you're going to pay for it."
The residual benefit of that peace of mind is the ability to keep downtime to a minimum. With a revolving credit account, you won't have a crew idled when you're dealing with payment hassles, and your productivity won't take such a hit.
"Revolving credit gives the contractor much greater control over his owning and operating costs," says Kane. "One statement each month, one payment and it's always there when you need it."
John Deere was the first equipment manufacturer to offer revolving credit through their financial arm, John Deere Credit, though today it's no longer alone in that regard. The company has loaded its revolving credit account, known as PowerPlan, with a number of features aimed at today's busy contractor. The "Major Purchase Option," for instance, gives contractors a fixed rate and term on purchases of over $3,000.
"It's a competitive business," says Kane, "and all lenders do what they can to sweeten the pot." He suggests that at a minimum, a revolving credit account should offer online access, occasional "same-as-cash" and other financing specials and a year-end summary of purchases.
So take a minute to take a little inventory of all the financial tools you're using now. If there's something missing, a revolving credit account might be just what you need.
Constructions Business Owners, April 2006
