Restructuring Debt Through Equipment Financing
“Equipment Financing Can Be Successfully Used To Restructure Other Forms Of Debt”
Especially for companies that have been around for awhile, there can be a build up of equity in their equipment that they aren’t or can’t utilize to bring additional cash into the business.
And there can be periods of time when there is a need to restructure short term debt by terming it out into longer term debt with a structured repayment schedule.
Down turns in business operations can see cash flow take a beating and short term liabilities such as accounts payable and government remittances go up.
In order for the business to continue into the future, there is going to need to be a plan to pay up these short term accounts so that trade creditors or government agencies don’t take collection actions against the business.
One of the most effective ways to do this is through equipment financing or equipment refinancing.
The challenge with this type of approach, however, is to get access to the potential borrowing power that exists in your equipment equity.
One of the problems that can arise with debt restructuring is that your senior lender has security over all your assets or most of the assets including the equipment. And while they may be very well secured with the build up of equity in assets held for security over time, they may not be willing to either lend you more money to consolidate short term debt, or are not prepared to release any of their security.
When this is the case, it may be necessary move to one or more different lenders to generate the incremental capital you’re looking for.
This may mean looking for an operating lender that can take accounts receivable and inventory for collateral and a term lender that can provide equipment financing against the equipment you own outright.
Equipment Financing Or Refinancing Can Provide Higher Asset Leverage
The reason you potentially look to more than one lender is to generate greater asset leverage.
Many times operating lenders will provide great leverage on accounts receivable and some leverage on inventory, but not sufficient leverage on equipment.
The result is that you are not extracting enough debt financing out of the equity you have invested in these assets.
So to get the amount of financing you require, you may have to get more focused in on lenders that finance certain types of assets and provide higher levels of leverage due to their comfort level in having the assets as security.
Typically higher leverage providers will require a sale and leaseback transaction to take place in order to further protect themselves against the risk of loss.
They can also be higher cost lenders than what you were previously dealing with.
But when you consider the cost of government arrears, or being cut off from trade credit and having to work from a cash basis, a slightly higher cost of financing on equipment related debt can be small in comparison.
The goal is to get the balance sheet in order so that the cash flow of the business can meet all obligations and keep the business credit profile in tact so that credit is not lost or withdrawn from an extended period of short term financing arrears.
Equipment Financing Solutions
Equipment Refinancing
“Equipment Refinancing To Raise Additional Capital Can Be Done Under Certain Qualifying Conditions”
If you have equipment that does not have any liens registered against it, or has sufficient equity to support paying out the existing loan or lease and providing additional the additional capital your business requires, then it can be possible to arrange equipment refinancing, or a sale and lease back transaction, provided that you can meet all the lender or leasing company requirements.
The first thing that is going to be important is the type of equipment, its condition, and the current assessment of value by the equipment financing source.
The more the equipment represents what we call commodity assets with significant remaining useful life, the better the chances are of getting the equipment refinanced.
The security and lending value attached to the equipment will typically be done under a forced liquidation appraisal, providing a very conservative value of what the equipment would be worth if sold at auction.
A financing company willing to consider an equipment refinancing request, tends to consider a financing amounts at no greater than 60% of the forced liquidation appraised value.
Equipment Refinancing Will Also Depend On The Financial Stability Of The Business
Most equipment refinancing scenarios are required to inject more working capital into the business.
If the business is on solid footing or in the process of getting back on track, then there is a good chance that equipment refinancing can be available.
However, if the business is already in financial distress and its hard to tell if the incremental capital that a potential equipment refinancing will provide will stabilize the financial position, then only the higher priced liquidation lenders are going to be interested in the deal.
Equipment Refinancing Options Have Minimum Funding Requirements
Each equipment financing source that will entertain these types of deals will have their own minimum and maximum lending amounts that they will consider.
In general terms, the minimum request for funding needs to be at least $100,000 with some minimum funding amounts of $250,000 or higher.
Smaller amounts are harder to get someone interested in due to the amount of work required to qualify the deal and get funding in place.
If you’d like to discuss an equipment refinancing scenario, please give us a call and we’ll get all your questions answered right away.
Click Here To Speak With An Equipment Financing Specialist For All Your Equipment refinancing Needs
Canadian Equipment Financing
Equipment Financing Specialist
“Equipment Financing Specialists Can Save Both Time And Money”
An equipment financing specialist is part broker and part financing consultant and has the primary objective of helping you find the equipment financing you’re looking for as quickly as possible.
In order to accomplish this, a financing specialist needs to have a certain amount of experience to be able to quickly qualify your requirements against the available lending sources in the market place, and then help work with you to put an application package together that will properly represent the financing and credit profile for your business.
The key is making sure that once your information has been conveyed and reviewed, that only relevant equipment lending and leasing companies are contacted, otherwise the process can get bogged down with too many applications that may or may not even be able to deliver against your requirements.
This is where time and money can become significant.
Equipment Financing Specialists Need To Provide Great Customer Service
In many cases, the business needs to close on a transaction quickly, either from a successful bid at an auction, or a great deal that a seller will not hold for very long until they can get paid.
In either case, a fast turnaround time with the right type of financing terms and conditions is going to be important to complete the transaction.
This is where the higher level of customer service from an equipment financing specialist can pay big dividends by getting things done in the time period required without taking on a financing commitment that is at the higher price range in the market.
Equipment Financing Specialists Realize That Time Lost Is Money
With any type of business financing transaction, the devil is in the details, so its very important to make sure that an lending situation is fully qualified and properly documented to make sure that the process can progress as seamlessly as possible.
And if there are any snags along the way, the focus is to iron them out as quickly as possible and staying on top of all parties involved to complete a funding transaction.
If you lose out on a great opportunity because equipment financing could not be arranged fast enough, or was insufficient for your requirements, a true equipment financing specialist understands that may cost you money in terms of business you may have to turn down, or other costs you were trying to eliminate.
As as result, they work in a very diligent manner to try and achieve the desired result in the least amount of time.
Click Here To Speak With An Equipment Financing Specialist For All Your
Equipment Financing Needs
Canadian Equipment Financing
Bad Credit Equipment Financing
“We Provide Bad Credit Equipment Financing Solutions For Customers With Strained Credit”
Bad Credit Equipment Financing can be more common than you might think.
It all starts with the definition of bad credit.
Most equipment financing companies have credit score minimums that they need to adhere to in order to provide your business with financing.
These minimums can range from a beacon score of 650 to 600 and anywhere in between on the personal side and the scoring equivalents on the business side of the credit picture.
So even if your business has good credit, but your own personal credit is only fair to poor, you can get pushed in to the bad credit financing category.
How Hard Is It To Secure Bad Credit Equipment Financing?
Bad credit equipment financing is provided by equipment financing sources that have a direct or indirect connection to the equipment liquidation market.
Because bad credit scenarios can lead to payment and loan or lease default a higher percentage of the time than good credit, the equipment loan and lease companies that provide bad credit financing will lend on a forced liquidation value.
What that means is that they are equity lenders and they determine the available equity for financing from what the market value for a given asset would be if it had to be sold within a 30 day period.
If you have good equity in equipment that there is a resale market for, then there is a good chance you can qualify for a bad credit equipment financing facility.
What Are The Rates And Terms That Come With Bad Credit Equipment Financing?
The cost of financing is going to be considerably higher for bad credit than for higher levels of credit.
Also, the loan to value lending amounts will tend to be lower and the repayment terms shorter in order to protect the lender against the risk of loss.
Even though the financing costs are higher, for small financing amounts the actual dollar cost of financing can still be manageable and the shorter amortization periods also reduce the amount of interest that will need to be paid over the life of the equipment loan or lease.
The key determinant as to whether the rate is too high or not is the amount of margin you’re going to be generating from the equipment being financed. If the margin is not sufficient to cover the cost of financing and cash flow repayment, then a bad credit equipment financing solution may not fit your requirements.
Equipment Finance
Recourse Agreements And Equipment Financing
“How To Utilize Recourse Agreements To Help Customers Secure Equipment Financing”
A recourse agreement between equipment dealer or reseller and an equipment financing company can that little extra something required to get an approval for financing in situations where an approval would not otherwise be forthcoming.
In basic terms, a recourse agreement provides the equipment financing company some comfort or recourse to protect themselves from loss in the event of borrower or lessee default. In the manner we are describing, the agreed to recourse is being provided by the equipment dealer or reseller.
Especially for larger ticket items where credit can be tight, a form of recourse can be an effective way for an equipment seller to move more product into the market.
If done properly, recourse agreements can benefit lender, dealer, and borrower.
Potential Benefits From Equipment Financing Recourse Agreements
From the borrower’s or lessee’s point of view, a recourse agreement is going to allow them to acquire the asset they seek. If the benefit of acquisition is significant enough to the borrower or lessee, they may even be prepared to pay a premium for the asset.
For the equipment financing company, recourse agreements are all about reducing their risk against loss while still allowing them to be in a position to add loans or leases to their portfolio which makes them money.
The dealer has the potential to benefit from a recourse agreement in a number of different ways.
As already mentioned above, the buyer may be prepared to pay a premium or at least a non discounted price in order to be able to take advantage of a recourse offer to a lender. This can result in higher average margins to the dealer or equipment reseller.
The dealer can also close more sales which will lead to additional profits as well.
The third potential benefit to an equipment dealer is that a properly structured recourse agreement can provide access to used equipment at or below market price that can be added into inventory and resold.
Equipment Financing Recourse Example
To provide a better picture of what we’re talking about, lets go through a simple example of recourse where by the dealer agrees to repurchase the asset from the borrower or financing company in the event of default, at 50% of the original purchase price.
In order for this to be acceptable to a lender or leasing company, they are likely going to want to see a substantial down payment by the buyer, perhaps in the 15% to 25% range.
With the dealer recourse added into the down payment, the financing company’s risk is greatly reduced. If the offered financing terms is no more than three years, the risk of loss is very low.
If the dealer is confident that the equipment’s market value will be at least 50% or higher at the end of the financing term, the risk of loss to the dealer is low as well.
Assuming the assessment for providing recourse is adequate, then the risk of loss per loan or lease where recourse can be applied should be low and offset by all the profit margin collectively earned from the incremental sales that occurred because recourse was offered to the equipment financing company.
For more information on recourse agreements and how they can be used to increase customer sales, give us a call and we’ll get all your questions answered right away.
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Equipment Financing Requirements
Canadian Equipment Financing