Brent Finlay

01/09/2024

Securing an equipment term loan over of over $500,000 using equity in owned equipment as security involves several steps and considerations:

1. Assessment of Equity Value: First, determine the current market value of the equipment you own. This will involve getting an appraisal from a certified professional to ensure an accurate and credible valuation.

2. Loan-to-Value Ratio: Understand the loan-to-value (LTV) ratio that lenders typically accept. This ratio represents the amount of the loan you can get against the value of your equipment. Lenders will either focus on Orderly Liquidation Value (OLV) or Forced Liquidation Value (FLV). For example, if lenders offer 70% LTV and your equipment is appraised at $1.5 million OLV, you could potentially secure a loan up to $1,050,000.

3. Business Financials and Creditworthiness: Provide the accountant prepared financial statements for the last completed year end and prepare detailed business financials, including balance sheets, income statements, and cash flow statements for the interim period. Lenders will review these to assess your business's financial health and repayment capability. Your personal and business credit scores will also be significant factors.

4. Business Plan and Loan Proposal: Develop a business plan and loan proposal. This should outline how the loan will be used, how it fits into your business strategy, and how you plan to repay it. A strong, well-thought-out plan can increase your chances of approval.

5. Finding the Right Lender: Research and identify potential lenders. These can include banks, credit unions, and online lenders specializing in equipment financing. Compare terms, interest rates, fees, and the reputation of each lender.

6. Application Process: Once you've chosen a lender, complete the loan application process. The application process should be tailored to the lender as their can be significant differences among lender in terms of how they will assess and score your application.

7. Negotiation and Agreement: If your application is approved, you'll receive a loan offer. Review the terms carefully. You may or may not have room to negotiate certain terms, like the interest rate or repayment schedule. Once you agree to the terms, you'll sign the loan agreement. Just remember that lender offers can have different shelf lives, so don’t assume a loan offer will stay valid for longer than a week or two.

8. Legal Considerations: Ensure all legal aspects are in order. This includes having a clear title to the equipment and understanding any liens that will be placed against it. And while all security and contract language can be reviewed with a lawyer, its rare than lenders will change their boiler plate contracts. Lawyers also take time and cost money, so its important to manage this process so that you don’t miss out on an available opportunity to secure financing.

Remember, each lender may have specific requirements and processes, so it's important to clarify these early in your discussions. Additionally, given the significant loan amount, it's wise to seek advice from financial advisors or consultants to ensure that this financial move aligns well with your overall business strategy.

10/31/2023

Used equipment refinancing and sale-leaseback transactions can be facilitated through a variety of sources, but there are three main categories of financing companies that provide the bulk of financing every year on used equipment. Here's a look at the top three and some pros and cons for each.

1. Banks, Credit Unions, and Traditional Financial Institutions:
Pros: Typically offer competitive interest rates and reliable service.
Cons: May have stringent qualification criteria and a lengthy application process. Used equipment typically has to be no more than 1 or 2 years old to be considered for financing.

2. Equipment Financing and Leasing Companies and other Asset Based Lenders or ABL's:
Pros: Specialize in equipment loans and leases, often providing more flexibility and faster approval times than banks.
Cons: Interest rates may be higher compared to traditional banks.

3. Private Lenders and Investors:
Pros: Potential for more personalized service and flexible terms. Financing decisions can be more driven by asset type and equity verus financials and credit.
Cons: May come with higher interest rates and fees as a result of more of an equity driven approach to financing.

Selecting the right source for used equipment refinancing or a sale-leaseback transaction depends on a variety of factors including the business’s creditworthiness, the age and condition of the equipment, and the specific financial objectives of the transaction. It’s advisable for businesses to thoroughly research their options, compare terms and rates, and potentially seek advice from a financial advisor or equipment financing specialist to ensure they make the best decision for their circumstances.

If you want to learn more about equipment refinancing or sale and leaseback transactions, check out www.equipment-leasing.ca as there are lots of articles that go over every aspect of equipment financing and leasing incuding how to get approved and funded.

10/31/2023

Here are the top 6 reasons why companies might consider refinancing their equipment ...

1. Improved Cash Flow:
By securing a lower interest rate or extending the loan term, a business can reduce its monthly payments, freeing up cash for other operational needs.

2. Consolidate Debt:
Businesses can consolidate multiple equipment loans into a single loan, simplifying finances and potentially securing better terms.

3. Release Trapped Equity:
If a piece of equipment has been mostly paid off, refinancing allows a business to access the equity tied up in that equipment, providing a source of capital for other investments.

4. Avoiding Balloon Payments:
Some equipment loans come with large balloon payments at the end of the loan term. Refinancing can restructure the debt to avoid or lessen this financial burden.

5. Hedge Against Inflation:
Locking in a fixed interest rate through refinancing can protect a business from future increases in interest rates due to inflation.

6. Equipment Upgrades:
Refinancing can provide the necessary capital for a business to invest in newer, more efficient equipment.

Refinancing equipment can be a strategic move for businesses seeking to lower their financing costs, improve cash flow, and gain operational flexibility. However, it’s crucial to carefully consider the terms and potential benefits to ensure that refinancing is the right choice for your specific situation. Consulting with a financial advisor or equipment financing specialist can provide valuable insights and help guide the decision-making process.

If you want to learn more about equipment refinancing or sale and leaseback transactions, check out www.equipment-leasing.ca as there are lots of articles that go over every aspect of equipment financing and leasing including how to get approved and funded.

10/31/2023

The top 5 types of equipment that are most easy to refinance are ...

1. Construction Equipment:
Excavators, bulldozers, and loaders tend to retain value over time and are in high demand, making them attractive to lenders.

2. Medical Equipment:
High-end medical devices like MRI machines, CT scanners, and other specialized medical equipment are often easier to refinance due to their long useful life and stable resale value.

3. Manufacturing Machinery:
Industrial machines and equipment used in manufacturing, especially from reputable brands, have a predictable resale market, making them easier to refinance.

4. Agricultural Equipment:
Tractors, combines, and other essential farming equipment tend to have a longer lifespan and retain value, making them good candidates for refinancing.

5. Transportation and Vehicles:
Commercial vehicles such as trucks, trailers, and buses, if well-maintained, can be easier to refinance.

Considerations for Refinancing:
Equipment Age: Lenders prefer to refinance equipment that is not too old and still has a significant remaining useful life.
Condition and Maintenance: Well-maintained equipment in good condition is more likely to be approved for refinancing.
Brand and Model: Equipment from well-known and reputable brands with a known market for resale or trade-in is preferred.

If you want to learn more about equipment refinancing or sale and leaseback transactions, check out www.equipment-leasing.ca as there are lots of articles that go over every aspect of equipment financing and leasing including how to get approved and funded.

10/31/2023

Considerations for lenders when it comes to equipment refinancing are comprehensive, focusing on various factors to determine eligibility and terms.

Equipment Age:
Lenders are inclined towards refinancing equipment that retains its utility, favoring items that are relatively newer with substantial remaining operational life.

Condition and Upkeep:
Equipment in excellent condition and well-maintained stands a higher chance of gaining approval for refinancing.

Brand Recognition and Model:
Items from established, renowned manufacturers, particularly those with a solid resale or trade-in market, are highly preferred for refinancing.

Although specific equipment types are typically more straightforward to refinance, the detailed terms and approval are influenced by multiple criteria, such as the equipment's age, state, manufacturer, and market demand. Businesses in the process of refinancing equipment need to be ready to provide ample documentation to substantiate these aspects, aiming to bolster their chances for approval.

For an extensive exploration of equipment refinancing, sale, and leaseback transactions, go visit www.equipment-leasing.ca. The website encompasses a wealth of articles covering all dimensions of equipment financing and leasing, including insightful guides on approval and funding processes.

10/31/2023

How to Assess the Total Cost of Equipment Financing?

Calculate not just the interest rates, but also any fees, down payments, and other costs associated with financing to understand the total financial commitment.

Assessing the total cost of equipment financing is crucial to understanding the full financial commitment and ensuring that it aligns with your business’s budget and financial goals. Below is a comprehensive guide on how to evaluate the total cost:

1. Interest Rates:
Fixed vs. Variable: Understand whether the interest rate is fixed or variable. Fixed rates remain constant, whereas variable rates can change, impacting your payment amount.
Annual Percentage Rate (APR): Look at the APR, as it includes both the interest rate and any lender fees, providing a more comprehensive view of the loan’s cost.

2. Fees:
Origination Fees: Some lenders charge an upfront fee for processing the loan.
Application Fees: Check if there are any fees associated with applying for financing.
Late Payment Fees: Understand the penalties for late payments.
Prepayment Penalties: Some agreements include penalties for paying off the loan early.

3. Down Payment:
Amount: Calculate how much money you need to put down upfront. A larger down payment might reduce your interest rate and total loan cost but requires more immediate capital.
Impact on Cash Flow: Ensure that the down payment doesn’t negatively impact your business’s cash flow.

4. Loan Term:
Duration: A longer loan term means lower monthly payments but can result in higher total interest paid over the life of the loan.
Amortization: Understand how the loan is amortized, as this affects how payments are split between principal and interest.

If you want to learn more about equipment financing, refinancing or sale and leaseback transactions, check out www.equipment-leasing.ca as there are lots of articles that go over every aspect of equipment financing and leasing including how to get approved and funded.

10/30/2023

An equipment sale and leaseback transaction involves a company selling one of more pieces of equipment to a finance company, and then leasing it back for a specific period of time. This arrangement allows the company to free up capital while retaining the use of the equipment.

Here are key requirements and considerations for a sale and leaseback transaction:

1. Asset Valuation:
The assessment of value is determined by the finance company and is completed by an internal desk top appraisal or through a third party appraisal company. The choice of valuation approach will depend on the finance company involved.

2. Financial Stability of the Seller:
Creditworthiness: The seller (lessee) must have a strong enough credit profile and financial statements to reassure the buyer (lessor) of their ability to make lease payments.

3. Lease Term. The estimated average use rate going forward and the remaining useful life of the equipment will determine the maximum lease term available.

4. Rent Amount: The rental rate will vary according to the length of the lease term, the type of lease, and the financial repayment assessment performed by the finance company.

5. Legal Title: The seller will need to provide proof of ownership and clear title and the finance company will need to confirm that there are no legal encumbrances on the equipment.

6. End-of-Lease Options: Define the options available to the seller at the end of the lease term, including renewing the lease, purchasing the asset, or returning it.

7. Tax and Accounting Implications: Understand how the sale and leaseback will be treated for tax purposes. Ensure the transaction is accounted for correctly on financial statements, following the relevant accounting standards.

A sale and leaseback transaction can provide numerous benefits, including freeing up capital and improving liquidity. Engaging professional advisors can be very helpful in navigating the complexities of the transaction and ensure it aligns with the company’s strategic objectives.

If you want to learn more about equipment refinancing or sale and leaseback transactions, check out www.equipment-leasing.ca as there are lots of articles that go over every aspect of equipment financing and leasing including how to get approved and funded.

10/27/2023

Financing equipment that a business already owns outright (often referred to as a sale-leaseback or equipment refinancing) can be a strategic way to free up capital for other business uses. However, this approach also comes with its own set of challenges:

1. Equipment Valuation:

Refinancing of the equity in equipment is going to first relate a finance company's assessment of current equipment value. Depending on the lender, orderly liquidation value (OLV) or forced liquidation value (FLV) are the most commonly used estimates of current value for financing purposes. The valuation process is either performed by an in house desk top appraisal process performed by the finance company, or through a third party appraisal company that has been qualified by the finance company. Valuations can vary from one finance company to the next and from one appraisal company to the next, which can make it difficult to determine how much financing can be made available on a specific list of equipment at the outset of a financing application process.

2. Creditworthiness:
Business Credit Score: The credit score and credit history of the individual shareholders and the business will play key roles in determining loan terms. Equipment refinancing or sale and leaseback transactions can be approved and funded with less than stellar credit, but weaker profiles will eliminate some financing companies from considering your application and it will also increase the cost of financing from companies that will still consider the application.

3. Overall Financial Health and Debt-to-Income Ratio: A high level of existing debt can impact the business’s ability to secure favorable financing terms. A new financing company is going to need to understand the full debt servicing requirements of the business and if current and future business revenues are going to be sufficient to make all payments after equipment financing on a timely basis. Up to date financial information will be important to this process and needs to be readily available both for past operating years and the current operating year.

4. Impact on Business Operations:
Operational Disruptions: The financing process may require equipment inspections or appraisals, which could temporarily disrupt business operations. The more information you can provide about the equipment offered as security the better as source information is key to accurate valuations. Picture files, maintenance logs, current condition, purchasing documentation to confirm ownership, and accurate usage such as hour meter and/or odometer readings are all important to the valuation process so its important that the necessary time is invested to have the equipment in good operating condition and have all the supporting documentation available.

5. Use of Funds. It will be important for a finance company to understand what the funds made available from refinancing will be used for. If the business is in financial distress already, it will be important to determine if equipment refinancing will stabilize the operations an allow for ongoing operations. If funds are used for expansion, additional capital assets can potentially be used as additional security to increase loan or lease funding, or to increase the financing security offered to strengthen the application. If funds from refinancing are going to be used by another entity, then greater disclosure could be required by the finance company to understand the inter-relationship between or among the different businesses involved.

Financing equipment that a business owns free and clear can provide a source of capital for other business needs, but it requires careful consideration of the potential challenges and impacts on the company’s financial health. Businesses should consult with financial advisors to weigh the benefits against the costs and to navigate the complexities of the financing process.

If you want to learn more about equipment refinancing or sale and leaseback transactions, check out www.equipment-leasing.ca as there are lots of articles that go over every aspect of equipment financing and leasing including how to get approved and funded.

10/27/2023

There are times when a business has considerable equity in their existing assets would like to undergo equipment refinancing to leverage that equity for working capital, debt consolidation, or business expansion.

In order to accomplish this, the business can either get a term or demand loan against the identified assets or undergo a sale and leaseback transaction with a leasing company.

With respect to a term or demand loan, this is can be provided by any number of financial institutions, but regardless of the lender you speak to, this type of equipment refinancing will only take place if the existing cash flow of the business is capable of servicing the debt.

If the business is in a situation of distress or development, where cash flow is projected to be solid, but isn’t at the present time, it is less likely that a term or demand loan can be secured.

An equipment loan provides very little financial disruption to the business as the equipment pledged as security remain in the ownership and control of the business owner or owners.

A term or demand loan lender will also require first position security so it will be important that no general security agreement is in place against all business assets, or the GSA holder is prepared to remove the equipment you want to refinance from their GSA.

A sale and leaseback transaction will require the sale of the equipment to a leasing company in exchange for a capital or operating lease and the exclusive right to use the equipment for the term of the lease. Most sale and leaseback transactions provide capital leases where the business will repurchase the equipment at the end of the lease for a nominal cost.

Because of the change of ownership requirements, sale and leaseback transactions can trigger income tax effects so its important to review a proposal for this type of equipment refinancing with your accountant before going forward.

Asset based lenders and leasing companies that offer sale and leaseback equipment refinancing will consider situations where the business has cash flow distress or is looking at expansion to increase cash flow. The effective financing rates in these situations will be higher than for a company with a stable cash flow.

The amount of business financing that can be secured for either loan or lease is going to range from 50% to 75% of forced liquidation value of the equipment that you want to refinance.

The forced liquidation value will be established either by a third party appraiser or through the lender’s own internal equipment appraising resources.

Terms for repayment will typically range in the three to five year period, depending on the assets and the financial and credit profile of the business.

If you are in need of equipment refinancing or want to know more about it, visit www.canadianequipmentfinancing.com or give me a call and we’ll go over your requirements together as well as potential options that may be available to you.

10/26/2023

When a business owner or manager is trying to secure business financing for their enterprise or operation, they inevitably will have to follow a process to get the capital their after.

The question largely is which process do you follow?

This needs to be answered in a couple of different ways.

First, all business financing processes can be classified into one of two different categorizes.

Process #1 we will call the off the shelf business financing process while process #2 is a customized approach.

With process #1, the lending institution has a product or program that they provide on mass that has very specific requirements and a process to follow. The off the shelf process tends to be very rigid in terms of the requirements and therefore is not very pliable with respect to being able to adapt to an application that does not meet the stated requirements.

To get business financing from an off the shelf program, you may need to adjust or adapt your requirements to fit the lender. While this may seem counter intuitive to a business owner, the reality is that swimming against the current with these well defined programs will not likely get you anything but frustration and a lack of funding.

Process #2 is a customized business financing process.

Now this is where things get really interesting.

Customized processes are typically provided by private investors that will consider a wide range of debt, equity, and debt/equity scenarios.

The process for trying to arrange this type of financing will also typically involve some type of intermediary or front man for the money that brings deals forward to the private investing group.

This can be done through a formalized system like investment banking, hedge funds, or even IPO's.

Every financing strategy that is pursued will have to be vetted through a chosen group of advisers which will likely include lawyers, accountants, business consultants, and even boards of directors.

The big challenge with the customized business financing approach for the borrower or applying entity is that the process costs money to pursue and the outcome is uncertain as the process will ultimately dictate the outcome.

This is also why most business owners spend most of their time working with process #1 in that the path to money is typically more clearly defined.

That being said, even though process #1 can provide a road map to money, there still is no guarantee that you will get the money you're looking for if you follow it.

So regardless of whether you choose to pursue process #1 or process #2, the are no guarantees that one will be more successful than the other.

So getting business financing in place is more about increasing or maximizing the probability of success which will occur when you 1) select a process that is highly relevant to your requirements, and 2) stick with the process long enough to achieve the desired results.

In terms of point #1, it can take some work to figure out who's process to follow and who you should be working with. There are all sorts of intermediaries making all sorts of claims out there and it can be difficult to choose a path that increases the probability of success just as its very easy to get sucked into the promises of a low probability gig that says all the right things, but is lacking in terms of substance and the ability to follow through.

In terms of point #2, because business financing in general takes time to complete and can be frustrating to complete, its easy to jump from one process to another without getting the desired benefit.

The goal in seeking business financing is not to secure optimal financing in my opinion, although that can be a secondary goal.

The primary goal is to secure financing that works within the time period you have to arrange it and then work to improve upon your balance sheet over time once you have capital in place to do the things you want to do in your business.

So selecting a solid and relevant business financing process and then sticking too it are going to be keys to getting the financing you are looking for.

10/26/2023