I made a deal with a very large publicly traded timber company yesterday and signed a contract for 10 years worth of work at 18 million board feet per year, More if we need it to keep us busy through the year. The only catch is we need to purchase a grapple yarder to do these jobs. With the current economic and political climate I don't know of any places that would touch yarder financing right now. Who would you recommend as our local institutions are out as that is too high of a dollar amount for them.
With a signed contract for the work, I can't believe any business orientated bank wouldn't be able to swing 1.2 million. I grew up around farming and construction geared banks, and 1.2 - while its a big number, wouldn't make very many of those bankers blink. Does the contract wording give the big company too many "outs" for them to get out of the work? Of course any contract is worth the paper its written on, and I'm guessing they could afford more lawyers for longer than you can. I could see that making them pause. If the numbers work though, most bankers don't care if you are ant farming or hot air balloon racing- as long as they get their money next friday. Of course, they will expect you to not really need the banker i.e. you actually have the money, or a bunch of collateral they could take, if things don't work out. My experience is that's their preferred method, that you actually don't need the banker, and really just enjoy paying interest. I've always felt like if I didn't need the banker, I probably wouldn't be there asking for the money. All of that said, I am not familiar at all with the logging game, and wouldn't know how that lending works. I've always borrowed "locally" and have stayed away from the larger nationwide/ "equipment financing " sources. They are always calling and offering financing, but I don't read fine print too well, and I don't trust my local bankers further than I can throw them, I'm sure not throwing in with someone over the internet, or with someone that telemarkets me. Good luck and I hope the contract works out, sounds like it could be a great opportunity.
I'm sure you've already thought of this, but anyone have one that isn't being used that would rent it or maybe rent/operate it for you? Something you wouldn't be tied into as tightly as a bank loan. Do you see yourself having a use for one after this job is finished? Just a thought.
Nobody rents a yarder as you can destroy them in a hurry and a new one to have built is about two and a half million dollars. It is such a highly specialized piece of equipment that people just do not rent them out and the people that have them care for them dearly as the ones we have. Yes I've got work lined out till I retire for one The problem is just getting somebody to get in on the note with it. It's been a pretty rough year and a half over here with the skyrocketed fuel prices and the up and down lumber market on the coast so everybody's very leery.
Hallback we financed a new 325FL through the Bank of the West in 2018. They had cheaper rates than Cat Financial at the time. Not sure if they still have a strong equipment lending department though. Same here. Kinda pisses me off they send letters in the mail offering up to $300K in financing per truck or piece of equipment, blah, blah, blah.. Just seams this is fertilizer to the identity thieves out there.
I wouldn't finance a lawnmower at todays rates. My LOC is currently 9%..............I wont even use it.
We're getting 4.8% for 48 months through Cat Financial on Next Gen 325. IIRC The Bank of the West rate was 3.6% for 48 back in 2018. Local credit union is just under 6% for new auto loans. Not like they used to be but historically rates are still low. I would guess financing for something as specialized as a yarder used is going to be much higher.
Then my bank is greedy.
Kind of tough to make money without gear isn't it?
And it's stupid expensive to boot! We're having to invest in GPS to compete on the grading portion of our jobs. I used to bid $.35 per SF for final grading for parking lots, sidewalks, etc. Now we can do it for $.20 PSF and have to in order to get the job. Auto GPS on the dozer has enable us to do that and make money at $.20.
Just curious if you've found anything and what rates are. I looked over my stuff and my line of credit has jumped to around 8. My building is at 5%, but I bet it will jump also when renewal time comes around.
I'm hearin 9 to 9.65
Moving forward with this, The timber Company has not said no to them purchasing the machine and it's worked its way up the chain through the next two bosses higher than the ones I proposed it to. Always hope I guess.
They would buy the machine and you would work it off over a period of years (they'd basically finance it for you) or they would keep it at the end?
No, they would purchase the machine and hold X amount of dollars retention per ton produced until it was paid for. These companies are realizing they have to start doing this. The machine I'm looking at up there on the interior BC that's exactly how it was purchased new. There are quite a few machines down here the same way, every one of those new Tigercat yarders was timber company backed down here as well. These big companies all know that they're going to have to do it but it's like the elephant in the room that nobody's talking about. If they want contractors to step up into late model cable logging procedures & gear, that's what they have to start doing.
With the price of lumber as it is they can afford 2 or 3 of them. Joe H
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It's nice the lumber companies help foot some of the cost to get the lumber. I think an advantage for you is that since they own the yarder it would be easier for them to extend the contract with you. They don't normally harvest the lumber themselves do they? They need someone to run the yarder or try to sell it at the end of the contract. Since they still need lumber everything is in place.
Well if you take a thousand board foot of log by the time it gets milled they will have about 2,200 board feet of lumber. And even if lumber is at the lowest price it has been in a few years they're still making a killing.
No, they do not run company logging crews anymore. As a matter of fact the one harvest manager that was 100% for this to happen was the one who was head of company crews when they had them. The way I explained it to him in our meeting was you take a highway contractor, if they have a project they get generally 25% of the contract price up front and then construction draws as they go. Same as a home builder, etc. Loggers are the only ones that are dumb enough to do the work first and front all of the cost waiting for it to trickle in afterwards. I told them that I wasn't going to operate that way anymore. I'm going to operate as a contractor on any large scale project would.
We do not get any money upfront in the commercial world. Billing is done every month on the 20th or 25th then wait 30 days at the earliest for a check. Sometimes it gets drug out to 45-60 days. Industrial construction can go 90-120 days. Worst situation is starting a job at the end of the month then bill next month and wait for 30 days if you are lucky. So 60 days out on pay in that situation. Retention of 5-10% is held on each pay request to be paid at the end - eventually. We are waiting on retention on a school project that was final'd out and occupied in November of last year. Lumber prices being where they are is the reason the wife and I getting ready to start our house.
That's much different than the construction world up here. If you're doing a government project it's just as I stated as we have done many of them when I was partners in CEI. (PRE-2008)
A guy I met was working on building a large medical facility and slipped net 15 on regular billing into his contract. They signed it. When the money started coming due, they were not real happy to notice that. In fact they had no ability to pay so quickly. He allowed them to pay net 30 but made sure they knew they had to stay on top of it. No 60 day billing on that job. I doubt any timber company would let something like that get past them.
We get paid weekly from some companies and twice monthly from the others.
If somebody's going to do the net 30 after 30 billing on a contract they're going to be paying plus 12% or I won't do it.
Sounds like your farm'n. lol
Funny you mention it because I also do some of that.
I always do the work first before I get paid anything. The big guys are the worst about paying, mostly 60 days and you aren't getting any interest $ from them. Getting paid weekly sounds like you have it pretty good.
I've heard some of the oil companies are 90 days. Rediculous.
I would imagine you guys have profit margins greater than 3% at best
A friend of mine had to agressively ask to get paid after already waiting over 90 days working for one of the oilfield drilling contractors. I know some gov't. contracts have progress payments if they're satisfied the work is progressing at the right pace.
Yes my margin is better than 3%. It has to be or we could not stay in business with the amount of material we have to buy.
3%? Isn't that like grocery store and LTL freight cutthroat margin territory?
Exactly! We survive on cash flow not windfall profits.
In emergency repair work busted water mains collapsed sewers stuff like that it can take 5 months to get paid but you know that going in and charge accordingly Seems like a good move on the timber company are they taking interest against financing the machine
Thats what i was thinking, I’d hope it’s many times that but IDK, never been in commercial or heavy construction, sounds like I don’t want to be lol. I realize all the numbers are a LOT bigger, and at the end of the day that means more profit, but sometimes it also just ends up moving around big numbers for the same money.
Do you have a contact at a bank that might be able to help with this? Another question too: how are your financials? Are they clean, showing profit, do you have a clear understanding of how this contract will impact your bottom line? It shouldn't be too difficult if you're working with a banker in your industry and your financials are clean and up to date.
Washed my hands of it when the timber company wasn't willing to share the risk
Ah probably a good idea if they weren't willing to get in themselves.