2. ο Show me the money
ο Equipment Leases
ο Loans
ο Current equipment
ο Inventory or floor planning
ο Purchase orders
ο Factoring
ο Cost Segmentation
ο Benefits
ο Expectations and cautions
ο Best bets to find money
Neil Morstad Capstone Equipment Finance 512-653-6345
3. ο Operating lease
ο Lessee makes payments to use equipment
ο Apartment
ο Capital lease
ο Lessee make payments to own equipment
ο House
ο Very similar to loan
ο Risk of ownership for accounting and tax purposes
Neil Morstad Capstone Equipment Finance 512-653-6345
5. ο Expense full payment for operating lease
ο Expense interest payment of capital lease
ο Minimize Alternative Minimum Tax (AMT)
ο Depreciation preference item from capital assets
ο Expense payment faster than depreciation
ο Non-tax payer realize tax benefits
ο Non-profits, start-ups, NOL carryforwards
Neil Morstad Capstone Equipment Finance 512-653-6345
6. ο Off balance sheet financing (with a note on f/s)
ο Changes due from IASB next year
ο Match expense with revenue
ο Better budgeting
ο Fixed payments for fixed term
ο Avoid capital budget constraints
ο Operating lease pmt paid from operating budget
ο Popular at end of year when capital budget exhausted
ο Improve ratios, ex. ROA, Debt/Equity
Neil Morstad Capstone Equipment Finance 512-653-6345
7. ο Multiple end-of-term options
ο Purchase, return, renew
ο Eliminate problems of equipment disposal
ο Simplified documentation
ο Master Lease Agreement with schedules
Neil Morstad Capstone Equipment Finance 512-653-6345
8. ο When does equipment title get transferred?
ο Loan β when equipment purchased by borrower
ο Lender files lien as secured party to perfect interest onUCC1
financing statement
ο Lease β After last payment is made, residual is paid, and
any other outstanding charges are paid
ο Capital lease β Lessor files lien with UCC1
ο Operating lease β Lessor files βinformation onlyβ UCC1
Neil Morstad Capstone Equipment Finance 512-653-6345
9. ο Too much money tied up in non-cash liquid assets
ο Current equipment (also sale-leaseback)
ο Inventory
ο Depletion of other sources of cash and debt
Neil Morstad Capstone Equipment Finance 512-653-6345
10. ο Uncompleted work orders
ο Acquiring additional inventory
ο Ship product from manufacturer to suppliers
Neil Morstad Capstone Equipment Finance 512-653-6345
11. ο Lender evaluates accounts receivables/Aging report
ο Lender determines risk then advances funds
ο Better AR receives larger advance (70 β 95%)
ο Your company still invoices for payments
ο Customers send payments to lockbox
ο Lender responsible for collecting receivables
ο If more payments received than expected, additional
amount paid by lender to seller
ο Fee kept by lender from collection receipts
Neil Morstad Capstone Equipment Finance 512-653-6345
12. ο Costs
ο Service Fee
ο Giving up control of some/all collections function
ο Collection amount still risk for business owner
ο Benefits
ο Improve amount and consistency of current cash flow
ο Eliminate/Reduce costs of collections department
ο Manage rapid growth of business
ο Take advantage of supplier discounts
ο Extend credit to customers for large orders
Neil Morstad Capstone Equipment Finance 512-653-6345
13. ο Personal guarantee
ο Additional collateral
ο Security deposit, title vehicles, 2nd residence
ο Corporate/Personal tax returns
ο Corporate/Personal financial statements
ο Previous bankruptcy, tax lien, bad credit
ο Not deal killers
ο Collateral vs. credit lenders
Neil Morstad Capstone Equipment Finance 512-653-6345
14. ο Fees
ο Upfront, during term, and end of term
ο Advance Payments
ο Advance vs. Arrears β Ex: approx 100 bps rate difference
ο One vs. First & Last β Ex: approx 100 bps rate difference
ο Residual/Buy-out amount
ο Documentation
ο Commencement date β Ex: approx 600 bps rate difference
ο Exercise windows
ο Evergreen β Automatic renewal
ο Wintergreen β No renewal unless requested by lessee
Neil Morstad Capstone Equipment Finance 512-653-6345
15. ο National/Regional Banks and Leasing Companies
ο Large accounts
ο Medium /Small accounts with great credit
ο Local Banks
ο Medium/Small companies with great β good credit
ο Start-ups
ο Local Leasing Brokers/Consultants
ο Medium/Small companies with good β challenged
credits
ο Start-ups
Neil Morstad Capstone Equipment Finance 512-653-6345
16. ο Access to best and broadest financial solutions
ο Especially in a diverse and rapidly shifting marketplace
ο Help tailor plan for specific needs
ο (Cash flow, accounting, tax)
ο Consultant to compare options/answer all questions
ο Provide financial objectivity
ο Assistance from credit application to end of term
ο Fees usually based on or capped by equipment cost
Neil Morstad Capstone Equipment Finance 512-653-6345
17. ο Owners of commercial real estate
ο Both real and personal property depreciated at longer
real property life
ο Separate short-term personal property from long-term
real property
ο Reduce current tax payments β Increase cash flow
ο Contact your CPA or Cost Seg specialist firm
Neil Morstad Capstone Equipment Finance 512-653-6345
18. ο Showed you the money
ο Equipment Leases
ο Loans
ο Current equipment
ο Inventory
ο Purchase orders
ο Factoring
ο Cost Segmentation
ο Benefits
ο Expectations and cautions
ο Best bets to find money
Neil Morstad Capstone Equipment Finance 512-653-6345