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Tom Reilly didn’t understand what his boss meant when he said that if he cut his vein, he’d bleed yellow — not until years later, after working alongside contractors on job sites and in their shops, did the phrase become personal. In this conversation, Monitor Editor-in-Chief Rita Garwood talks with Reilly, division president of Construction Equipment Finance at 1st Source Bank, about the relationship-first philosophy that has shaped his 35 years in the industry, why his team refuses to call financing a ‘deal,’ and what’s really driving equipment costs. They also cover what separates same-day funding from one that takes weeks, where contractors most often get their financing math wrong, and the one question Reilly thinks every contractor should ask their lender before a big purchase. They close with Reilly’s advice for young people entering the industry, and what it really means to bleed yellow.
Rita Garwood: Hi, everyone, welcome back to the podcast. My guest today is Tom Reilly, division president of CONSTRUCTION EQUIPMENT FINANCE at 1st Source Bank. Tom, thanks for being here — I’m excited to talk with you today.
Tom Reilly: Thanks for having me, Rita.
Garwood: Today we’re talking about your article, and the piece opens with your boss telling you that if he cut his vein, he’d bleed yellow. You say you didn’t really understand that until years later. What changed for you during that time?
Reilly: That was an interesting first town hall for me. I sat in the audience, and my boss referenced that if he cut his vein, he’d bleed yellow. This was the same person who’d encouraged me to really learn the construction industry by moving outside the corporate office in New Jersey and working in the operations center in Tempe, Arizona. So, I was there for the town hall, and when he said that I came from an environment that was very black and white — my background was accounting. Here we are talking about cutting veins and bleeding yellow, and the only thing I could make of it was that most of the construction equipment was yellow. So, I understood that part, but not much else.
It was maybe four or five years later, when I moved into a position as a lender covering construction equipment financing in New Jersey — back in my home state — that I started working with contractors on a regular basis. My goal was always to finance their equipment, but it became much deeper than that. I got to know them. I got to see how hard they work, in very difficult environments, where the weather isn’t conducive to operating equipment. It’s not the cleanest or easiest work, and I got an appreciation for them. But I think they also recognized I could help them.
There was even a time I got invited into a contractor’s office for a Saturday planning meeting — they reached out and said, ‘Tom, would you come in and meet with us Saturday? We need to right-size our balance sheet, and we want to talk about structuring our loans and leases to get it in order.’ I was happy to do it, but it also made me feel like part of their team — almost part of their family. They had a very close-knit group, and I became part of it. Later on, there were other contractors, too — I even got invited to their holiday parties. It’s a very loyal, close-knit industry, and the people were great to work with. That’s when I really started understanding that term — why he’d say bleeding yellow. He really felt like he was part of that family.
Garwood: You mentioned you started in accounting, then moved into equipment finance operations in Arizona before eventually financing construction equipment back in New Jersey. What did that operations background teach you that you couldn’t have learned any other way?
Reilly: The operations side, to me, is the backbone of our industry. I often encourage people to try to capture that experience, and to really do it, you need to work in it. You learn about UCC filings, which are critical to our industry — we’re secured lenders, and to be properly secured against that equipment, you have to file the right way, file timely, and get the documentation correct. All the work done ahead of time by the credit team or the sales team won’t matter if we don’t get it right on the back end in operations. We’re almost the last set of eyes making sure transactions are booked properly and the customer is protected with the proper filings.
Today, we’re also protecting against fraud. So much is done by wire now — back when I was in operations, it was mailing out checks, but with wires you have to be very careful, and there are a lot of best practices in place to protect our customers. It’s an important part of the industry that sometimes gets overlooked. Everybody talks about credit and sales, but he was right — to really learn the business, you need to work in operations. It was a good experience.
Garwood: At this point, you’ve been in and around the industry for over 35 years. What keeps you here?
Reilly: I really enjoy it — working with customers and helping them grow their business. There’s a lot of satisfaction in that. This equipment is expensive; there aren’t many contractors who can pay cash for it, and they need a lender they can count on to acquire what they need to work their jobs and grow their business. I really enjoy being that person for them. They’re a pleasure to work with, and they work very hard. We always hear the term ‘building America,’ and that’s what they do — so it’s nice to be a small part of that.
Garwood: In the article, and earlier, you mentioned that construction is built on generational commitment. How much of the business today do you see that’s still family- or second-generation-owned? And how does that shape how a contractor approaches financing?
Reilly: I work with a lot of company owners, and interestingly, they don’t necessarily encourage their children to join the business right away. They’ll actually encourage them to go to school, get an education, and even explore other businesses. Then it’s really interesting to see how many of their children come back and want to be part of the business. In other cases, kids are part of the business from the moment they can swing a hammer. It varies, but if I had to put a percentage on it, I’d say close to 75% of the contractors I work with have family members in the business and a younger generation coming up. Some are multigenerational — I’ve worked with the children, the parents, the grandparents, and even some great-grandparents. So, there’s definitely a lot of that generational element.
As for how it shapes the industry — if they come up through their family, they get to know the finance companies and the lenders, so there’s a sense of trust, and it works the other way, too. When I’ve worked with their parents and now, I’m working with their children, there’s mutual respect and admiration. We know both families, so I think it makes the financing process a little easier for them.
Garwood: The equipment itself has changed a lot, too. A Caterpillar D8, for example, went from about $10,000 in 1935 to nearly $1 million today. What’s driving that curve — inflation, technology, regulation, something else? And how are contractors adjusting?
Reilly: It’s probably all of the above, to a certain degree. One that jumps out: about 10 or 12 years ago, regulation required changes to emissions for pollution control, and Tier 3 engines were phased out. All the new machines needed Tier 4 engines, which are much more emission-efficient but also cost more — and the maintenance is more, too. So, regulation had a factor. Material costs — steel, inflation, especially post-COVID — have also driven up the cost of equipment. And then there’s technology. Think about how much cars have improved over the years — they’re much safer, and they can do things they couldn’t do before. It’s very similar with construction equipment: GPS and other technology let the operator work in a safer, better environment. Twenty years ago, the cabs operators sat in didn’t have air conditioning, and it was 110 degrees out on long workdays. Now they have air conditioning and technology that lets them work not just better, but more safely.
From the contractor’s standpoint, keeping employees safe and in a good environment is important — retaining operators is a big challenge, so if they can offer a better working environment and better equipment, that’s a good thing. Contractors are definitely focused on that for their employees, especially the operators out in the field.
Garwood: You mentioned changes to equipment like GPS, automation, and now AI capabilities. How has that shifted what a lender needs to understand about the asset itself before financing it?
Reilly: All of that increases the value of the equipment. As a lender, we’re not expecting to sell it — most of our financing is loans, we do some leases, but construction tends to be more loan-heavy, so we don’t expect to be selling the equipment. But there are times we do have to sell it, and knowing the value of a GPS system, the latest technology, or the brand, make, and model all factor into its marketability — our ability to sell it. In fact, most lenders, including us, have an asset manager on the team — an extension of the credit arm that specializes in understanding the value of the equipment and what those additional extras, like a GPS system, add to its value in a situation where we have to sell it.
Garwood: In the article, you described the lender’s job as helping contractors move forward quickly while keeping controls in place that protect against fraud and payment risk. Where’s the line for you? What’s a request you can turn around the same day, and what cases require you to slow down?
Reilly: I’ll start with the easy one — the same-day turnaround. What we do at 1st Source is try to establish pre-approved guidance lines, or credit limits, for our customers. That means they know they’ve been pre-approved to borrow a certain amount, and we’ve already got the financial information in place. So, when they find equipment, it’s just a matter of them sending us the invoice. We look at it, make sure the terms and the collateral match what we’d expect based on the guidance line we set up, and credit can typically clear that in about half an hour. We send it to operations, who prepare the loan documents, and with DocuSign today, the contractor can sign on his phone. So, it can happen fast — we can produce loan documents in a couple of hours, send them out, and if it’s someone who’s done multiple transactions with us and is comfortable signing, they send it back and we can fund the same day.
Then there’s the type that takes longer — typically when the customer is purchasing equipment from someone who isn’t a bona fide distributor or dealer. When equipment is sold through a dealer, there’s usually a PMSI — a purchase money security interest — in place, which protects the lender and the customer with a first lien position. But if a contractor is buying equipment from another contractor who no longer needs it, there’s no PMSI, and we have to search and clear to make sure there aren’t any liens on that equipment. We can order that search right away, but every state is different — in some states the turnaround is a day or two, and in others it can be two weeks. We can’t proceed until that search comes back. Once it does, we look for any blanket or specific filings, and if there are any, we have to work with the seller’s lender to get releases on those liens, or make sure the proceeds go to pay off the other lienholder. That process can take another week or two.
So it can range from a single day to two or three weeks. It doesn’t mean it’s a bad transaction — it just takes longer to make sure we’re protecting the customer through the process, and we want to make sure we get that right.
Garwood: What does a contractor typically get wrong or underestimate about how equipment financing decisions are actually made?
Reilly: Usually, a contractor knows exactly what equipment he needs for a job, finds it, and comes to us — or any lender — to finance it. Where it can go wrong isn’t necessarily a mistake, but it can be a case where the job that equipment is for only runs six, nine months, or even a year, while most equipment loans run four to five years. So, after he’s done with that job, does he have another one lined up for that equipment? Or is it sitting in the yard while he’s still making his monthly principal and interest payment? That can be a difficult situation if there isn’t another job behind it. In good times, they can usually sell the equipment and come out okay, but if there’s a downturn or no demand for that equipment, he might not be able to sell it right away.
As a lender, that’s usually what we look at — we ask about their work on hand, their backlog, and how much work they have that will need this equipment, to make sure it’s going to work for them, both on that job and for making their monthly payments. In some cases, we’ll tell a customer it might be best to rent the equipment for six months to see if another job comes through and then convert that rental to a purchase once they have more use for it — a lot of equipment distributors call that an RPO, a rent-purchase option. So, we may suggest renting first to make sure they have enough use for the equipment, and if another job doesn’t come through, they can just return it to the dealer. We try to work with them to make sure they’ve asked those questions — a lot of experienced contractors already do, but it’s something we always check into.
Garwood: 1st Source has been in the construction market for 35 years. What’s a lesson from an early deal — good or bad — that still shapes how your team underwrites today?
Reilly: It’s interesting you use the word ‘deal,’ because it always rings a bell for me. When I started on the equipment financing side, I said to the head of our group that I was working on a deal, and he said, ‘Tom, we don’t do deals. We’re a relationship lender — we finance equipment for our customers, our clients, and we help them grow their business.’ That stuck with me, and whenever I hear the word ‘deal,’ if you talk to anyone on my team, they’ve heard me say it, too: we don’t say deal. We try to grow relationships with our customers.
As for a deal that went bad — I think back to 2008, a tough time in the industry when there wasn’t a lot of work, and customers who owned equipment outright couldn’t sell it because there was no demand or market for it. It’s a similar situation to what we talked about before — they would have been better off renting. The lesson learned is that there’s probably an appropriate mix of owned versus rented equipment. Before 2008, most contractors would say it’s great to own the equipment outright — you pay it off in four or five years, it’s still working, and you don’t have a payment anymore, so it’s making you money. But what went wrong was that there wasn’t work, and they couldn’t sell the equipment. So, the lesson is knowing the right mix, so you’re not stuck with too much equipment sitting around when you could have rented some of it and turned it back in.
One thing we look at is that most contractors who’ve been around for 25 years lived through that, but 2008 was a long time ago — there are plenty of contractors who’ve been in business 10 or 15 years who didn’t experience it. So, it’s a good question, because some of them might not be thinking that way until the next 2008 comes along.
Garwood: Having that experience through market cycles applies here, too. Going back to relationships — your team is based in the territories they cover, and you talk about meeting clients on job sites and getting to know their families. As financing gets faster and more electronic, what’s the case for still showing up in person?
Reilly: Besides it being a favorite, most enjoyable part of my job — I’d much rather spend a week out with clients than in the office, though I do need to be in the office sometimes — the real reason is that if you just stay in the office looking at financial statements, balance sheets, and P&Ls, you don’t get a real understanding of the customer. By going out there, we meet them face to face — sometimes in the office, where we’ll meet their team, whether that’s their controllers, CFOs, or operations managers. We’ll see their yard, which is usually where their office and their equipment are, and see how they take care of it. They love to show us their workshop and how they maintain their machines. Hopefully there’s not a lot of equipment sitting in the yard, because usually it’s out working on jobs — but you can see how they maintain it. Sometimes we’ll go to their job sites and see how they work.
So, getting out there in person does make a difference — it lets us see a different part of the company than just their financial statements. One thing I’ll say about 1st Source: our credit team is also very willing to go out and meet customers in person. Our sales reps live in the territories they cover — we’ve got 11 of them covering everywhere from the Northwest to the Southeast and Northeast and in between. Just last month I was in Utah, and our chief credit officer came out to meet with several large clients because he wanted to meet them, too. The week after, we’re going to Texas to meet other clients, and our chief credit officer is coming out for that as well. We find a lot of value in meeting customers in person, seeing their team, and seeing their operations — it helps build the relationship and lets us better serve the client.
Garwood: That’s a good demonstration of relationship versus deal. In the article, you mentioned missing the days when you’d sign documents on the back of a pickup truck. Is there anything about that old, slower process that you think the industry lost as it gained speed?
Reilly: Definitely — it was always fun signing loan documents on the back of a truck, that little adrenaline rush when you finished. But in today’s world, given the urgency and needs of our customers, contractors need to acquire equipment quickly to get it on the job and working, and in some cases, an equipment dealership may have someone else looking at the same machine. We want to help our contractor get that machine before somebody else does. So, the timeliness of our ability to finance and fund transactions to meet that sense of urgency — I wouldn’t give that up. I wouldn’t go back to the old days. It was fun, but to best serve our clients with the technology we have today, between DocuSign and everything else that speeds up the process of funding, we know it’s important to them. As much as I liked it, I wouldn’t go back.
Garwood: In your article, you also mentioned infrastructure, energy, LNG, and the data centers powering AI as places where contractors’ work is showing up next. Which of those is creating the most equipment financing demand right now?
Reilly: It varies by region. LNG is in the highest demand in what I’d call the Gulf Coast region — southern Texas, Louisiana. If you drove the I-10 corridor, you’d see LNG plants one after another and how much demand there is there. Data centers are actually all over — I looked at a map of current and proposed data centers, and they’re in every state. I was with a contractor and asked what makes a good location for a data center, and he said two things: water and power. If those are there, it becomes a potential data center site, so they’re in demand throughout the U.S.
You also mentioned infrastructure — our roads. Anywhere it snows a lot in the winter and they put salt down, by spring there’s pothole after pothole. In South Bend, it sometimes feels like there are more roads closed than open because they’re still repairing from rough winters. That’s another place the bleeding yellow comes in — back in my accounting days, if I hit a roadblock or a lane closed for construction, I’d be complaining. Now I can’t wait to get by and see if it’s one of our contractors or clients — if their name is on the crane or the sign. So I have a different perspective on road construction now, because it’s a big part of our business and, a lot of the time, our clients.
Garwood: What’s the biggest risk you see facing contractors in the next few years — rates, labor, equipment costs, something else? And how should financing strategy respond to it?
Reilly: They’re all factors. Fuel costs are one thing we talk to clients about, and tariffs are another — have they built escalators into their bids for rising fuel costs or interest rates? A lot of contractors, when they quote a job, factor those things in and price accordingly so they don’t lose money on it. But the biggest challenge, I think, is labor. That’s been going on for two decades — qualified operators have been the industry’s biggest challenge, and contractors are well aware of it. They try to encourage the educational side of it through trade schools, sponsoring them to get more people focused on operating equipment rather than a generic education without a clear direction. In some cases, contractors will put their own employees through trade school to develop the skill set needed to operate the equipment. That’s their biggest challenge — making sure they have the right operators, and that they can keep them.
Garwood: If a contractor is listening to this and thinking about their next major equipment purchase, what’s the one question they should be asking their lender that most don’t ask?
Reilly: The question I’d ask is: what happens in the bad times? What happens if you have a really rainy season — in states like Georgia, where the mud that accumulates after heavy rain means contractors can’t run their excavators and can’t work? As a lender, we can help, because there’s usually equity in the equipment — most loans are four- to five-year terms, but the equipment will usually run for 10 years, so there’s equity building up. If a contractor is in that kind of situation, will the lender give them skips on their principal payments — a couple of months where they can skip principal just to keep cash flow in the green, so they can take care of their employees and keep their equipment, without it costing them the full payment?
When I was covering New Jersey, I’d always ask my customers if they wanted winter skips, since contractors in the northern states deal with frozen ground in the winter — January, February, March. Sometimes someone would say they just need January and February because they figure they’ll be back to work in March. It helps them, because the equipment is basically sitting there anyway — a lot of what contractors are doing in those months is maintenance and repairs, not working. So, we’re more than comfortable providing winter skips for that equipment, and once they’re back working, they go back to their full principal and interest payments.
Garwood: The last question I have for you — I want to circle back to the bleeding yellow story from the beginning of our conversation, since it’s obviously become very personal to you. What would you want a young person just entering the equipment finance industry today to take from that phrase?
Reilly: There’s another phrase — knowing your customer — that’s always important, especially in a lending environment. But bleeding yellow, to me, is really about knowing the whole industry and knowing the customer, going a little deeper. Whether you’re in credit, operations, or on the lending side, understand how that equipment is going to be used, and what the customer’s goals and objectives are — really understand it, rather than just closing a loan and moving to the next one. Take the time to really know, for instance, that you financed an excavator for a company because they’re doing a specific job in a specific town. The more details you can find out, the better a resource you become for your clients.
Garwood: Well, Tom, thank you so much for being on the podcast. I really appreciated this conversation.
Reilly: Thank you, Rita. I enjoyed it.
