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When Financing Equipment, Beware of the Dreaded Blanket Lien

Posted: 25 Jan 2020 08:32 PM PST

By Chris Fletcher

Let's meet John. John owns a tree cutting service in Pennsylvania. He took it over from his father about 20 years ago, and over the years, built the business to be the largest service in the area. On any given day, he can have two to three crews working, and owns several pieces of expensive machinery, including two bucket trucks; a large crane; dump trucks of various sizes; woodchippers; stump grinders; chain saws in any size, shape, and color you like. And more.

About a year ago, John took out a bank loan to buy a new crane. When he got his new crane, he decided to sell his old one privately. A buyer emerged, a final price was negotiated, and the deal was about to commence. But then a startling fact was discovered: John wasn't allowed to sell his old crane, even though he owned it free and clear for years.

Why did this happen? Because when John bought the new crane, buried in the fine print of his loan agreement was a blanket lien. If you don't know what a blanket lien is, it's exactly what it sounds like: it's a lien that blankets an entire business. Every company asset is affected by this blanket lien. Even future assets are affected by it. The bank legally had claim to the old crane, and John needed their permission to sell it.

You read that right. Permission must be given for John to sell something he owns outright. And that permission may or may not be granted. That's how a blanket lien works. The end result of all this was the sale did not happen, and John is stuck with an old crane he doesn't need.

To protect all identities, John's name and details are changed in this story, but this is an easy situation to picture, isn't it? And it's very common in buying and selling business equipment.

Blanket liens are popular with many lenders

Many lenders, including almost all banks, embrace the blanket lien. There are probably a variety of reasons for this. The obvious one is it gives them immense protection against loan default, because it virtually ensures there is recourse if the equipment loan is not paid back. If repossessing the equipment isn't "enough" to satisfy any outstanding balance (and let's face it— with depreciation, it almost never is), there are other assets to go after.

This is why John couldn't sell his old crane—the bank wanted that (and everything else John owns) on standby in case John defaulted on the loan for the new one.

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Here's another layer to this: a blanket lien will follow John's assets, and remains a legal minefield that can be very perilous for a buyer as well. For argument's sake, let's say John sold his old crane privately for cash. No loans, no digging into paperwork, no nothing. Nobody may even be aware this crane has a blanket lien attached to it. However, if John defaults on his new crane loan, the bank will come looking, dig through the paperwork and say, "Where's the old crane?" John will say, "Oops, I sold it privately. I didn't know."

So the bank can legally go after the old crane, and will pay the buyer a visit. And John's buyer can argue, produce a receipt, a bill of sale, etc.—none of that will matter. The law will side with the lienholder. The buyer of John's old crane can actually lose the crane to the bank and will have no recourse at all. Sure, the buyer can try and get their money back from John, but remember, all of this was put into motion because John defaulted, so good luck there.

Why blanket liens exist

Blanket liens are one reason why banks can offer the lowest rates. Since rates are generally arrived at via the amount of risk a lender is willing to assume (lower risk equates to lower rates), a somewhat draconian restriction like a blanket lien lessens risk immensely. But at what cost to the business owner? When you can't sell assets you own outright, well, that's a problem, regardless of the lowest rate.

I've been around the equipment-financing business long enough to speculate on other reasons why banks love blanket liens. In my opinion, one of the other reasons is restrictions like blanket liens keep customers in the fold. If all your assets are tied up with the bank, you may as well get your next equipment loan from them as well.

It becomes a bit of "the devil I know" syndrome. I've spoken to enough small business owners who say things like "I can't stand my bank's restrictions and liens, but what am I going to do? They're my bank."

What are you going to do indeed?

What can you do about a blanket lien?

The most obvious thing you can do as a small business owner is insist that your bank not include the blanket lien clause in any of your equipment loan contracts. But the truth is, this probably won't work. Unless you're someone with enough financial clout to push the bank around, they aren't likely to drop that clause.

A better solution is to find a lender that does not use blanket liens, but still has strong, competitive rates. They do exist. Just search Google for equipment financing companies, and check their websites as to whether they use blanket liens—they'll usually state such right up front.

These lenders will secure the equipment loan by only using the equipment itself as collateral. This means a bit of an increased risk, so they may charge a point or two higher than the bank. But many businesspeople feel it's worth it, because it frees them from restrictions like blanket liens, and allows them full flexibility in what they do with the other assets they own.

In other words, there are equipment lenders out there who would be just fine with John selling his old crane. Because after all, it is his to sell.

RELATED: How a Risky Financing Strategy Paid Off for One Entrepreneur

About the Author

Post by: Chris Fletcher

Chris “Fletch” Fletcher is a Senior VP of National Accounts at Crest Capital, one of the nation’s leading sources for fast, easy equipment financing. Chris has been involved in the equipment financing and leasing industry for more than two decades, and often goes by the moniker “The Lease Guy.”

Company: Crest Capital
Website: www.crestcapital.com
Connect with me on LinkedIn.

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Is Your Business Stuck in a Rut? Ask Your Team These 3 Key Questions to Help Challenge the Status Quo

Posted: 25 Jan 2020 08:05 PM PST

By David Pierce

Despite decades of doing the same old thing, your company does not have to accept the status quo. Let me explain.

As a business coach, I am working with a company in an industry that accepts as the norm leadership by brute force, annual employee turnover rates in excess of 100%, and employee engagement rates in the low teens. If you talk to anyone who has been in that industry for any period of time, they will say this is how it's always been and there's nothing that can be done to change it. 

This company was a victim of the mentality of accepting something simply because it has always been–a living, breathing example of the status quo. However, with our help, they have changed their mindset and realized they have the ability to challenge the status quo. They began a journey to become a destination for team members, not just a stopping point on their career journey.

The process required the team to answer three key questions: 

1. Where are we now?

Before you can plan any journey, you have to know where you are now. This process involves an evaluation of both the people and process sides of the business, as well as an understanding of the marketplace and the company's relationships with customers and vendors.

Team member, customer, and vendor surveys—including NPS (net promoter score), eNPS (employee net promoter score), and focus groups supplemented with best practices from a wide range of industries—were conducted and evaluated to gauge where the company stood regarding compensation, morale, engagement, desires, dreams, and their current state with both customers and vendors. In addition, all processes were evaluated for inefficiencies and bottlenecks so that the company had a complete picture of their current status. 

2. What do we want to be?

The next step was to engage all team members in creating their vision of a future state for the company. This is sometimes called "future casting" or "painted picture," but it involves a no-boundaries, no-judgment "brain dump" of all the possibilities of what the company could become. 

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In this team's case, all of this information was discussed, debated, and distilled to a range of aspirational possibilities, leading to a clearly defined picture of the company's future, stated in present tense language using phrases that begin with "We are …"

3. How do we get there?

We use a phrase in coaching: "Set a goal. Make a plan. Do the work." The fun part is setting goals, but goals are nothing more than numbers and words without a well-defined plan and a commitment to execute that plan—the hard work, which is the final step in this evolution. Numerous studies have confirmed that a written, concise plan with a focus on just a handful of significant outcomes has a high likelihood of success, and when matched with accountability, nearly 100% success is possible. 

The company I was coaching began this phase by briefing the entire team on both the long- and short-term visions for the company, along with an explanation of how each member would play a role in this transformation. The purpose was to build team member engagement and allow staff to "catch the vision" of a better future. 

And so, the journey began.

Although this company has only been on this new path for a short while, they have already seen turnover rates reduced by double digits and employee engagement levels increasing. Additionally, the marketplace "chatter" about the company has been very positive from both customers and vendors.  

This just goes to show that you don't have to accept the norm. Why not be your own "Status Quo Buster" and create the life and the company of your dreams?

RELATED: 5 Essential Qualities of a Successful Leader

Certified Petra Coach David Pierce spent a decade with Deloitte and PwC, and for over 20 years held a C-level post with a regional banking and financial holding company, developing and launching one of the first stand-alone online banks in the U.S. and participating in more than a dozen mergers and acquisitions transactions. A tireless entrepreneur, David also helped launch an apparel manufacturing startup and numerous commercial real estate projects. Contact him at david@petracoach.com. 

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Is Technology Improving or Sabotaging Your Productivity?

Posted: 25 Jan 2020 06:40 PM PST

When it comes to technology, most of us are grateful for it. Computers make everything easier—from researching information to communicating with friends and colleagues—and even once basic devices like phones and cars are getting high-tech makeovers to do more, faster and better.

At the same time, there are critical drawbacks that occasionally prevent technology from working in our favor. When you lose your Internet connection, you're practically helpless. When you do research, it's easy to get distracted by peripheral tasks. When you're online, you're constantly getting messaged and distracted from your work.

Ultimately, is technology increasing or decreasing our productivity?

The results are mixed. Online productivity statistics suggest that workers, on average, are only productive for five hours on the computer during a typical eight-hour workday. Yet, at the same time, Internet access gives us more contact, more information, and greater speed—so those five hours might be even more productive than eight hours of work just 20 years ago. In fact, one study estimates the increase in productivity to be 3% annually since 2011.

So what does this mean?

It means you're far more productive with technology than without it, but you're still highly likely to waste time while you're using that technology. Because of technology, you are probably getting more done than your grandfather did 50 years ago, but also because of technology, you're not getting nearly as much done as you could be.

To improve your productivity using technology and limit its productivity downsides, put these five strategies into practice:

1. Keep track of how you spend your time

This first point is critical. As cited earlier, the average worker who spends eight hours on a computer per day spends only five of those hours doing productive work. What happened to those other three? Blink, and you'll miss them.

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For the most part, workers aren't consciously aware of how much time they're wasting. To properly identify when and how you're wasting that time, set up a time tracker such as one of these productivity tracking tools. Take note of how much time you spend doing each task throughout the day, and make gradual improvements to phase out unnecessary expenditures.

2. Don't stay in constant contact

One of the greatest advantages technology offers is the ability to be in constant contact. You can have an email window, a chat window, an incoming text message, and a ringing phone all active and distracting you simultaneously. Your coworkers, bosses, clients, vendors, partners, and friends can all reach you at any time. On one hand, this is a marvelous advancement for efficient communication, but on the other hand, it's a recipe for constant distraction.

How many times during the day do you interrupt your work on a task to address one of these modes of communication? The solution is to open yourself to communication during certain, designated periods, and avoid excessive communication in the meantime.

3. Eliminate distractions, manually if necessary

Distractions are always only a click away. Eliminating those distractions can prove difficult, especially if you've made them a habit. However, there are manual ways to remove those pesky tech distractions from your life. For example, you could simply disable Internet access on your device while you're editing a written report. If that's not possible, you can use a browser extension like StayFocusd to disable access to sites that habitually cause you to lose focus on your work. You might also want to delete or hide certain apps on your phone during the workday, to prevent yourself from mindlessly opening them for a quick distraction.

4. Plan your day in advance

This is a time-tested productivity tip that goes way back, but in today's tech-riddled age, it's more relevant than ever. Early each day (or the night before), make a list of all the tasks you intend to complete, and prioritize them based on what's most important. Then, allocate a specific amount of time to complete each of those tasks, with short breaks as necessary throughout the day.

If you only have one hour to complete a report, it will force your mind to focus on completing the task at hand, and between tasks you won't have a period of ambiguous idle time that so frequently leads to distraction—you'll know exactly what you need to do next, and you'll be able to easily move on.

5. Spend some time away from your devices

Last, but not least, try walking away from your devices whenever you get a chance. Give your eyes and your mind a chance to decompress from staring at a screen all day by going for a walk or having a stretch. A break from technology itself—that is to say, not on a time-wasting website—can actually improve your productivity overall. Doing some work offline and away from your devices can also help you stay focused—provided there are some tasks you can handle without a digital device or Internet access.

Put these productivity tactics to work

With these tactics in place, you'll keep technology from dragging down your productivity unnecessarily. Technology isn't a great evil that gets in the way of traditional work; instead, think of it as a magnificent tool that most of us aren't using correctly. Once you better understand the benefits and potential liabilities of technology in your own work environment, you'll stand to waste far less time overall.

RELATED: Debunking 5 Time-Management Myths Hurting Your Productivity

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