Financial products for entrepreneuers

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Equipment Leasing, Factoring and Cost Seg

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Financial products for entrepreneuers

  1. 1. Neil MorstadCapstone Equipment Finance, LLC Austin, TX RISE March 28, 2012
  2. 2.  Show me the money  Equipment Leases  Loans  Current equipment  Inventory or floor planning  Purchase orders  Factoring  Cost Segmentation Benefits Expectations and cautions Best bets to find money Neil Morstad Capstone Equipment Finance 512-653-6345
  3. 3.  Operating lease  Lessee makes payments to use equipment  Apartment Capital lease  Lessee make payments to own equipment  House  Very similar to loan Risk of ownership for accounting and tax purposes Neil Morstad Capstone Equipment Finance 512-653-6345
  4. 4.  Conserve bank lines Avoids restrictive loan covenants Avoids compensating balances 100% financing  Software, soft costs (shipping, training) Flexibility for upgrades and add-ons Flexible payment schedules  M/Q/S/A, seasonal, stepped, skipped, uneven Neil Morstad Capstone Equipment Finance 512-653-6345
  5. 5.  Expense full payment for operating lease Expense interest payment of capital lease Minimize Alternative Minimum Tax (AMT)  Depreciation preference item from capital assets Expense payment faster than depreciation Non-tax payer realize tax benefits  Non-profits, start-ups, NOL carryforwards Neil Morstad Capstone Equipment Finance 512-653-6345
  6. 6.  Off balance sheet financing (with a note on f/s)  Changes due from IASB next year Match expense with revenue Better budgeting  Fixed payments for fixed term Avoid capital budget constraints  Operating lease pmt paid from operating budget  Popular at end of year when capital budget exhausted Improve ratios, ex. ROA, Debt/Equity Neil Morstad Capstone Equipment Finance 512-653-6345
  7. 7.  Multiple end-of-term options  Purchase, return, renew Eliminate problems of equipment disposal Simplified documentation  Master Lease Agreement with schedules Neil Morstad Capstone Equipment Finance 512-653-6345
  8. 8.  When does equipment title get transferred?  Loan – when equipment purchased by borrower  Lender files lien as secured party to perfect interest onUCC1 financing statement  Lease – After last payment is made, residual is paid, and any other outstanding charges are paid  Capital lease – Lessor files lien with UCC1  Operating lease – Lessor files “information only” UCC1 Neil Morstad Capstone Equipment Finance 512-653-6345
  9. 9.  Too much money tied up in non-cash liquid assets  Current equipment (also sale-leaseback)  Inventory Depletion of other sources of cash and debt Neil Morstad Capstone Equipment Finance 512-653-6345
  10. 10.  Uncompleted work orders Acquiring additional inventory Ship product from manufacturer to suppliers Neil Morstad Capstone Equipment Finance 512-653-6345
  11. 11.  Lender evaluates accounts receivables/Aging report Lender determines risk then advances funds  Better AR receives larger advance (70 – 95%) Your company still invoices for payments Customers send payments to lockbox Lender responsible for collecting receivables  If more payments received than expected, additional amount paid by lender to seller Fee kept by lender from collection receipts Neil Morstad Capstone Equipment Finance 512-653-6345
  12. 12.  Costs  Service Fee  Giving up control of some/all collections function  Collection amount still risk for business owner Benefits  Improve amount and consistency of current cash flow  Eliminate/Reduce costs of collections department  Manage rapid growth of business  Take advantage of supplier discounts  Extend credit to customers for large orders Neil Morstad Capstone Equipment Finance 512-653-6345
  13. 13.  Personal guarantee Additional collateral  Security deposit, title vehicles, 2nd residence Corporate/Personal tax returns Corporate/Personal financial statements Previous bankruptcy, tax lien, bad credit  Not deal killers  Collateral vs. credit lenders Neil Morstad Capstone Equipment Finance 512-653-6345
  14. 14.  Fees  Upfront, during term, and end of term Advance Payments  Advance vs. Arrears – Ex: approx 100 bps rate difference  One vs. First & Last – Ex: approx 100 bps rate difference Residual/Buy-out amount Documentation  Commencement date – Ex: approx 600 bps rate difference  Exercise windows  Evergreen – Automatic renewal  Wintergreen – No renewal unless requested by lessee Neil Morstad Capstone Equipment Finance 512-653-6345
  15. 15.  National/Regional Banks and Leasing Companies  Large accounts  Medium /Small accounts with great credit Local Banks  Medium/Small companies with great – good credit  Start-ups Local Leasing Brokers/Consultants  Medium/Small companies with good – challenged credits  Start-ups Neil Morstad Capstone Equipment Finance 512-653-6345
  16. 16.  Access to best and broadest financial solutions  Especially in a diverse and rapidly shifting marketplace Help tailor plan for specific needs  (Cash flow, accounting, tax) Consultant to compare options/answer all questions Provide financial objectivity Assistance from credit application to end of term Fees usually based on or capped by equipment cost Neil Morstad Capstone Equipment Finance 512-653-6345
  17. 17.  Owners of commercial real estate Both real and personal property depreciated at longer real property life Separate short-term personal property from long-term real property Reduce current tax payments – Increase cash flow Contact your CPA or Cost Seg specialist firm Neil Morstad Capstone Equipment Finance 512-653-6345
  18. 18.  Showed you the money  Equipment Leases  Loans  Current equipment  Inventory  Purchase orders  Factoring  Cost Segmentation Benefits Expectations and cautions Best bets to find money Neil Morstad Capstone Equipment Finance 512-653-6345
  19. 19. Neil MorstadCapstone Equipment Finance, LLC neil.morstad@capstoneEF.com 512-653-6345

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