Finance Facilitators

Before a car rental company opens its doors — before fleet and business equipment are purchased, before land is leased and staff is hired — it needs financing to make it all happen.

Four car rental companies share insights into their relationships with their lenders, taking us from the beginning of their businesses, through the ups and downs to today. The connective tissues in each of these stories are trust, transparency, communication and personal bonds.

GUIDANCE AND FLEXIBILITY

At the turn of the millennium, the Thrifty franchise in Indianapolis consisted of 160 leased units. At the same time in Los Angeles, Fox Rent-A-Car had but two stores. Thus began a growth path for these two car rental businesses that were facilitated by 1st Source Bank.

Brad Meyer bought that Thrifty franchise in 2001. “I started with a small line and 1st Source was the first through the door,” he says. Now Meyer owns not only the franchise in Indianapolis, but he also owns franchises in Fort Wayne, Ind.; Flint, Mich.; Springfield, Mo.; all of Arkansas as well as in Mobile and Montgomery, Ala. And as of June 1, Meyer is also a Hertz licensee in Montgomery.

Fox Rent-A-Car opened its doors in 1989, though its expansion trajectory really began after 1999, its first year with 1st Source. Fox has spread from its West Coast roots to 21 U.S. locations today, including five recently added Florida locations. The company counts 35 international affiliate locations as well.

Both companies made the right moves to give their lenders, including 1st Source, the confidence to fund with increasing lines.

While Meyer was a new franchisee in 2001, he was no stranger to car rental. Meyer has a management history that stretches back to 1986 and spans work for four different car rental brands at franchises and corporate offices.

“Before taking the Indianapolis operation, Brad had already proven himself as someone who was effective in the industry and brought a lot of experience to the table,” says Chris Craft, president of auto/light truck and specialty vehicle fleet divisions (also known as Truckers Bank Plan) for 1st Source Bank.

That initial stamp of approval netted him a $500,000 line with 1st Source. In the following years, he worked to execute well, grow prudently and build on that trust, and his credit limits grew commensurately. “I worked with Cindy Trenerry, 1st Source relationship officer, who helped take the credit limit up to $15 million and then to $20 million in support of our profitable growth opportunities,” said Meyer. Later as the Hertz franchise deal unfolded, “I asked for — and got — $25 million of credit limit to support my fleet needs,” adds Meyer.

Craft and others cite Meyer’s market expertise and longtime key personnel as facilitators of those line increases. Meyer is quick to credit his team, including John Harbison, whom he hired to sell his cars in 2001 and is still with him today. “[Meyer] is willing to spend the money to put the right people in place to make sure that the operation is running as smoothly and efficiently as it can,” Trenerry says.

As such, 1st Source will even call on Meyer and his staff for advice. “We hold them as some of the best people in the industry for best of practices,” Trenerry says.

Similar to other car rental companies of this size, Meyer works with more than one lender. Nonetheless, “1st Source has been the one constant in our business since 2001 as far as lenders go,” he says.

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Allen Rezapour, co-owner of Fox, concurs. Since 1999, Rezapour says that 10 of the company’s lenders have exited the car rental business. “1st Source has not only provided great service and competitive interest rates, but they have always been there for us,” he says.

Fox works with six major lenders. While Rezapour will shop for a low rate, he says rate isn’t everything. “Besides rates, we need to make sure that they can be our partner and we can utilize the relationship to come up with creative financial solutions for our business,” he says.

In 1st Source’s case, this included flexibility during difficult times. “After 9/11, 1st Source allowed its customers to postpone amortization payments for a few months,” Rezapour says.

Similar to Meyer’s case, the lender-client partnership is a two-way street when it comes to advice. According to Rezapour, he is not afraid to bounce an idea off his lenders, since they can provide a view of the market based on their overall portfolio.

The ongoing Florida expansion (Fort Meyers opened June 27) is the company’s biggest initiative in its history, and Craft says that Fox’s transparency was paramount to funding. “Allen provided the financial plans to show that the Florida expansion was a good move and made sense,” Craft says.

Meyer echoes the transparency theme: “At the end of the day, one of my goals as an operator is to always make sure that my lender knows about us and everything going on, good or bad.”

CLOSE AND TRANSPARENT

Dustin Valenti, a Dollar Thrifty franchisee with four local market stores in New Jersey and a location near the airport in Albany, N.Y., opened for business in 1999. One year later, Valenti secured a commercial line of credit with MAFS. Valenti’s line of credit has grown, along with his relationship with the company, to $1 million.

In 2013, MAFS and DSC merged to become NextGear Capital. In addition to managing car rental accounts like Valenti’s, NextGear Capital offers qualified dealers commercial lines of credit for retail, wholesale and salvage purchases. Qualified dealers may also finance heavy-duty trucks, RVs and motorcycles through NextGear Capital’s specialty finance department.

For rental accounts, NextGear Capital will generally offer commercial lines of credit from $25,000 to $5 million with an average line of credit around $200,000, according to Ray Waltz, NextGear Capital’s director of specialty finance. “More importantly, we are looking for an operator that’s focused on the business and dialed in,” he says. “The credit line doesn’t really distinguish for us who we’ll work with.”

How did Valenti manage to grow his line? According to Waltz, “He did things to earn our trust, and that trust starts with a confidence that the customer understands the business, as Valenti does.”

“At the onset of the relationship, the lender looks at a number of financial factors, including a dealer’s financial statement,” Waltz says. However, “A financial statement doesn’t always tell the whole picture. When you talk about trust, you get a feel for and an understanding of the customer so that you can go a little further, even if the financial statement might not warrant it,” Waltz added.

The trust built in this relationship has paid off for Valenti on numerous occasions. For instance, when Valenti took over his New York operation, MAFS was able to process a credit line increase quickly. And when he recently needed a line of credit to purchase and begin selling used cars, a representative from NextGear Capital was at his location immediately. “It was well underway in a few weeks,” Valenti says.

For lenders that work in the car rental business, “It’s important to know the seasonal patterns and understand that utilization rate may drop for certain reasons throughout the year,” Waltz says, adding that lenders need to “offer some flexibility with customers in that regard.”

While Valenti says his line of credit with NextGear Capital is very competitive, “It’s not just about rate.” “Other factors come into play, such as where the car is sourced from, whether there are flooring fees or monthly fees and can I extend a loan,” adds Valenti.

Having a close and transparent working relationship is a hallmark of NextGear Capital. “You want a customer to call you when there are concerns,” Waltz says, “so we can better answer the question, ‘how can we as a lender help our customers?’”

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SMALL BUT PROFITABLE

Dave Capps’ relationship with GE Capital started unusually, to say the least, in 2008 when the economy was crumbling and his lender of 25 years decided to exercise its demand notes on Capps’ company, Texas-based Capps Van and Truck Rental.

“We weren’t behind; [the lender] had no reason to call the note other than they could, and they didn’t have any money,” Capps says.

So Capps did the extraordinary. He put up a billboard that read, “We need to buy 1,000 GM vans now.” The billboard generated local media publicity and allowed him to buy enough time with the lender to allow Capps to find new funding. The new lender was GE Capital.

“From a pure underwriting standpoint, it was a non-issue,” says Jeff Iverson, vice president sales - rental and OEM programs at GE Capital. “There was nothing wrong with Dave’s company in how they operated the business, other than he was put in a very difficult situation with the previous lender,” adding that the landscape at the time was difficult for all lenders.

“The cards would have been way stacked against us if GE hadn’t come along,” according to Capps.

Capps bought a whopping 30,000 General Motors vehicles from 2004 to 2006. Today, the business is about half of its size five years ago. That’s fine for Capps. “I need to have a good, profitable business rather than a big business,” he says.

GE Capital doesn’t have a “sweet spot” per se on type or size of operator, though Iverson says the company does require a minimum of three years of operating experience.

According to Iverson, the credit market has bounced back since the recession and is growing at a comfortable pace. “Rates have come down because the industry has done a great job,” Iverson says. “Coming out of the crisis, operators had to get smaller and become more efficient.”

Iverson notes that the market has become competitive again, and the three major captive financing companies are back to lending to car rental.

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Today, Capps uses six lenders to finance fleet; his largest line is with GE Capital, followed by 1st Source. In addition to the lenders that specialize in car rental, Capps also uses a local bank in Texas.

Capps makes a point to exercise all six of those lines. He’ll choose a lender based on rate but also their appetite for certain types of vehicles. “Every lender likes something a little different,” he says, though “GE is wide open on everything.”

The banks that concentrate on car rental understand the seasonality of the business, Capps says, and they understand that in such an asset-heavy environment, their clients will be leveraged at a higher ratio than other business types. And they understand that “Every now and then you are going to have a ‘clunker of a month,’” according to Capps.

Capps says his company is less affected by the current trend of softening used car values than companies that rent passenger vehicles, and this provides an extra level of comfort to a lender. Regardless, “People like Dave and his team know how to sell vehicles as well or better than anybody,” Iverson says.

Capps understands the need for transparency with lenders, so his team sends GE monthly financial statements, even though GE only requires a quarterly statement. “Capps does a great job of not only monthly tracking but also providing their projections so you can see how they did against their plan,” Iverson says.