Equipment Financing

RBC Royal Bank

Anthony Bergamo – Senior Commercial Manager

Bob Link – Equipment Financing Specialist

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Agenda

Forestry Outlook & Current Market Conditions

Equipment Purchasing Process

Financing Options

Keys to Credit Availability

Questions

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Forestry Outlook

Year Total Starts (000)

YOY

Change

Single

Family

YOY

Change2001 1,601 2% 1,272 3%2002 1,710 7% 1,363 7%2003 1,854 8% 1,505 10%2004 1,950 5% 1,604 7%2005 2,073 6% 1,719 7%2006 1,812 -13% 1,474 -14%2007 1,342 -26% 1,036 -30%2008 900 -33% 616 -40%2009 554 -38% 442 -28%2010 586 6% 471 7%2011 612 5% 434 -8%2012 784 28% 537 24%2013 930 19% 621 16%2014 1,001 8% 646 4%

2015 YTD 989 -1% 645 0%

US Housing Starts

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Forestry Outlook

› US housing starts averaged ~1.0 million in 2014; this level is 31% below the 50-year average of 1.45 million starts and the seventh-worst year in over half a century.

› With supply declining and demand accelerating, homebuilding activity will continue to gain momentum and should being to return to historical norms in 2017/18.

› The RBC forestry team expects US starts to rise 10% year over year in 2015, followed by an 11% increase in 2016.

› Consensus market expectations are for a year over year increases in 2015 of 16% and 2016 of 20%.

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Forestry Outlook

050

100150200250300350400450500

2014A 2016E 2018E

RBC

FEA

W.SPF Forecast per mbf…W.SPF prices ended April 10 at $269

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Forestry Outlook

142% Increase in softwood lumber prices from Nov 2008 to April 2012

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Equipment Purchasing Process

› Separate your decision with respect to purchasing equipment and financing the equipment

› These are two completely different processes and should be independent of one another

› Investigate all of the available financing options

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Equipment Financing in Today’s Marketplace

Banks

Captive finance divisions of original equipment manufacturers (OEMs)

Non-traditional financial services/independents

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Equipment Financing in Today’s Marketplace

Investing in productivity is required in order to maintain competitiveness and long term profitability

Currently in a Low Interest Rate Environment

There are reasonably priced sources of financing available in order to preserve cash

Fixed-rate and floating-rate transactions are available

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Commonly Financed Forestry Assets

› Forestry assets commonly financed– Skidder– Forwarders– Harvesters– Chippers– Excavators– Dozers– Loaders– Trucks– Trailers

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Equipment Financing Solutions

Equipment term loans

Conditional sales contracts

Equipment leases

Short-term rental contracts

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The Equipment Term Loan

Ownership remains with the client; lender has a security interest/collateral charge

HST due on purchase

Lenders often require that the client have some form of down payment

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The Conditional Sales Contract

Tri-party point-of-sale purchase agreement between a client, a bona fide equipment supplier/dealer and a lender

Vendor assigns the payment stream to the lender

Client is deemed to obtain title to the asset on the basis that they will make a required number of payments

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The Equipment Lease

› Up to 100% financing available

› Capital lease vs. operating lease

› HST paid on the monthly rental payments

› Lessor has title to the asset; lessee has control (or quiet possession) and use of the asset 

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The Case for Lease Financing

The #1 reason to use equipment lease financing: Management of working capital and cash flow…Cash Is King

The continuing uncertainty in global economies has clients maintaining a comfortable cash cushion

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The Case for Lease Financing

Interim financing — multiple suppliers, multiple delivery dates, consolidate various pieces of equipment into one lease

Sale and Leaseback

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Short-Term Rental

Contracts between clients and equipment vendors are normally under 12 months

Vendors may reduce purchase price of equipment by the amount of rent client has paid

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Keys to Credit Availability

› New Company– Equity into transaction

– Reasonable level of debt expectations

– Personal Guarantee

– Strength of personal credit history

– Industry Experience

– Realistic Projections

– Contracts / Customers

– Canada Small Business Loans

› Established Company– Strength of financial statements

– Balancing tax minimization and credit availability

– Potential higher levels of financing available

– Revolving Equipment purchase facilities

– Contracts / Customers

– Concentration Risks

›New Company vs Established Company

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Keys to Credit Availability

› Most businesses can qualify for equipment financing. How much you qualify for – and the interest rate you’ll pay – depends on the value of the equipment, your business history, and your credit rating.

› Understand your business credit needs and organize your financial information before contacting a financial provider

› Be prepared to explain in advance any negative business results and / or past personal credit problems

› Describe how the proposed equipment purchase will benefit your business

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Keys to Credit Availability

› Develop pro-active relationships with your suppliers and financial partners

› Identify short term, mid range, and long term goals

› Where are you going and how are you going to get there…is it achievable

› Capital Lease vs. Operating Lease

› Opportunities to partner with industry and First Nation

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Keys to Credit Availability

› Consistency of performance in strong and challenged economic times

› Financial capabilities of the company– Ability to produce timely and accurate financial reports– You need to know your financial position in order to make timely

and accurate decisions

› Amortization of equipment vs. useful life

› Don’t fall in love with excess Equipment

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Questions