OBJECTIVES

1. Trends in the lending industry

2. Borrowing options available to you

3. What credit analysts are looking for so you receive the right amount of money

4. The importance of managing your cash flow

5. How leases can be structured

LENDING INDUSTRY TRENDS

1. The time to borrow is now

Many competing lenders

Low interest rates

LENDING INDUSTRY TRENDS

2. Shop until you find the perfect match

Borrowers are owner/operators, small companies or large companies

Lenders range from ‘The Big 5 Banks’ to independents

Align yourself with the right lender

LENDING INDUSTRY TRENDS

3. Getting a financing approval

Deals judged on credit history vs. financial statements

Good financial standing = good rates

Some lenders still have an appetite for riskier investments

YOUR BORROWING OPTIONS

1. Operating Loan/Line of Credit

a) Similar to a credit card or personal line of credit, except for your business

b) Best for regular operating expenses needed to be paid in the short term

Pros

Pre-approved source of lending to finance the costs of a borrower’s current assets (inventory and account receivables)

Only pay interest on the credit you’ve used rather than the total authorized borrowing amount

Cons

Potential high administration

Lender reporting requirements and covenant compliance issues

Potential additional borrowing costs

YOUR BORROWING OPTIONS

2. Term Loan

a) A borrowed sum of money, typically used to assist with the acquisition of capital assets

b) The repayment of the loan is over a set and extended period of times (usually years)

Pros

Helps facilitate the acquisition of a business’ fixed assets

Preserves working capital and better matches the value of the asset with its cash cost

Builds equity through ownership versus rental

Cons

Higher upfront and monthly costs

Less buyout and trade up options

Less repayment structure options

YOUR BORROWING OPTIONS

3. Capital Lease

a) Title of asset is with the lender but borrower repays all or the majority of the cost of the asset over the life of the lease contract

b) Title then transfers back to borrower at end of contract for a nominal charge.

Pros

Preserves cash flow – more capital for other business expenses

Flexible payment plans

Down payment not always required

Flexible end of lease agreements with low price buyout options

Cons

Less flexible tax benefits relative to operating lease

YOUR BORROWING OPTIONS

4. Operating Lease

a) Equipment title remains with the lender and the borrower can pay out a term-ending residual and transfer ownership to them

b) Or borrower can finish lease contract and the title of the asset with the lender

Pros

Preserves cash flow – more capital for other business expenses

Low regular payment amount

More end of contract options

Potentially write off payments as a rental expense

Cons

Only used for certain types of equipment

Short supply of lenders

Can be difficult to meet qualifications

YOUR BORROWING OPTIONS

How do you choose?

1. Life of Asset and Life of Debt (Life of Debt should never exceed Life of Asset)

2. Tax implications: Short Term vs. Long Term

3. Available cash must meet repayment obligations

APPLYING FOR CREDIT

Credit Analysts considering the following when deciding how much money to lend:

Credit rating reports

Time in business

Type of asset

Dollar amount

Requested term

The equipment dealer

Financial statements, particularly

Debt-servicing capacity

Working capital

Leverage (Debt vs Equity)

IMPORTANCE OF CASH FLOW

What is Cash Flow? Cash that comes into your company from business revenues and is need to pay all the day-to-day expenses including debt repayment and unfinanced equipment acquisitions.

Why Cash Flow Management is Important Short term bills need to be paid (suppliers, employees) and available cash is

necessary to meet these obligations

Number one reason why companies fail

If money going out is greater than money coming in your business will eventually find trouble

IMPORTANCE OF CASH FLOW

Cash Flow Management Tips

Avoid using cash for long-term assets

Structure your business so your cash inflow is greater than its outflow

Cash reserves are especially important to seize opportunities or

mitigate unexpected events

LEASING BENEFITS AND FEATURES

1. Flexible Payments

Monthly, skip, semi-annual, or annual payment options

2. Sale-leaseback

Sell your purchased equipment for fair market value to a finance company and then lease it back over a fixed payment period

Frees up cash flow

Available only for equipment purchased within the last six months

3. New and used equipment

Lease equipment that’s up to 15 years old

4. Flexible End of Lease Options (capital leases)

Fair market value, 10% buyout, Skip Lease, Stretch lease

THANK YOU FOR WATCHING!