How to Finance Your Next Drill Rig

It’s important to know what lenders are looking for.

By Mac Nehring

When working with a lender on a new rig purchase, there are key financial documents the lender will need to see. Photo courtesy GEFCO/BAUER Equipment America Inc.

Times have changed. When purchasing a drill rig it used to be a simple, pain-free process at your local community bank, but it can now turn into hours of paperwork, frustrating phone calls, countless emails, and total confusion.

It seems like some lenders today want to know a borrower’s blood type and the birth weight of their firstborn son! As Jerry Seinfeld famously asked, “What’s the deal?”

Anyone involved in the groundwater industry knows that acquiring a drill rig, no matter the manufacturer, demands a large amount of capital. Often the best solution to the high capital requirement is financing, which allows a company to distribute the burdensome upfront cost into smaller payments over a set period of time.

According to the Equipment Leasing and Financing Association (ELFA), “Nearly eight in 10 U.S. companies (79%) use some form of financing when acquiring equipment, including loans, leases, and lines of credit. . . .”[1] In other words, both loans and leases are common financing structures used for acquiring equipment, and depending on the circumstance, both have unique benefits.

For purposes of this article, both banks and independent leasing companies are referred to as “lenders.”

Knowing the Standards

When applying for credit, there are industry standards you should expect. Lenders, both large banks and small independent finance companies, often request financials confirming that the borrower has the ability to repay the borrowed amount.

These documents include, but are not limited to the items below:

  • Tax returns (both personal and corporate)
  • Balance sheet and income statement (P&L)
  • Corporate debt schedule
  • Personal financial statement.

In cases where the borrower requests a larger dollar amount (e.g., more than $500,000), the lender might request a brief write-up detailing the company’s founding, relevant industry experience, future business goals, and revenue projections.

Nearly eight out of 10 companies use financing when purchasing equipment. Photo at South Atlantic Jubilee 2022 by Thad Plumley

While independent finance/leasing companies are more streamlined than banks, and often require less documentation, responsible lenders will require most of the documents listed above. This has become the industry standard, and in most cases, lenders are asking all potential borrowers to provide this information.

Some lenders offer app-only approval programs for companies with stronger credit. App-only means the borrower is only required to submit a credit application, and due to their credit strength, can be approved immediately without having to also submit the financials listed above.

While this may be ideal for companies seeking to borrow a small amount of money, these programs generally go up to $250,000 (or occasionally $500,000) and are reserved for companies with the strongest record of corporate credit.

However, for large-dollar items such as drill rigs, app-only programs are generally not an option, and borrowers should be prepared to submit the items listed above.

Analyzing the C’s

At this point, you might be wondering why lenders ask to see these items in the first place. What information are they trying to gain (assuming they are doing more than just being nosey)?

Lending is an inherently risky business because not all borrowers repay their debts. Just as you need to borrow wisely, lenders need to be sure they are making wise investments. Lenders seek comfort knowing that your company will be around to continue making future payments.

In order to responsibly manage risk and avoid losing money, lenders will typically analyze the Five C’s of Credit:

  1. Character: Whether a borrower will repay
  2. Capacity: Whether a borrower can repay
  3. Capital: How much money the borrower currently has
  4. Collateral: What the lender will receive if the borrower does not repay
  5. Conditions: What structure, interest rate, and term are appropriate for the deal.

While every element of the Five C’s of Credit is critical to obtaining financing, if you can show your lender how the drill rig will generate more revenue, you will have a much better chance of having your application approved.

Explain to the lender the basics of your day-to-day business, and how acquiring another drill rig will pay for itself. For example, are you turning down work because you do not have the needed equipment to do the job? Will acquiring another rig help you expand your geographic footprint and allow you to take on more jobs?

If you can clearly and effectively show your lender that financing another rig will help you increase revenue, thereby making both you and them more money, you will have a much greater chance of having your credit application approved. You may even be offered better terms and more competitive pricing as the lender moves from being cautious, to proactively trying to win your business.

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If you decide to seek financing for the acquisition of a drill rig, be ready to submit financials from the last two years (tax returns, balance sheets, P&Ls) and be prepared to explain how acquiring the drill rig will help increase revenue.

Your goal should be to convince your lender that helping you acquire equipment is a wise financial decision for them. Remember that lenders view their business as inherently risky, and while you are confident that you will meet your payment obligations, lenders need to be made to feel confident too.

Lenders are trying to answer one fundamental question, “Will we be paid back?” The more prepared you are to answer this question before you speak with a potential lender, the easier it will be for you to obtain financial support to acquire your next drill rig.

If you are prepared in advance, you may end up being surprised at just how easy the credit application and approval process can be!

[1] Elfaonline.Org. Industry Overview. Accessed 29 May 2022. www.elfaonline.org/about/industry-overview.


Mackenzie “Mac” Nehring is a sales and marketing associate for Vision Financial Group Inc. (VFG Leasing & Finance). He specializes in equipment financing for various niche markets including construction, energy, and drilling (groundwater, geotechnical, environmental, geothermal, and foundation). Previous to his current position with VFG, Nehring spent five years managing local bank branches in the Greater Nashville area. He can be reached at macnehring@vfgusa.com.