Equipment Leasing, Factoring and Cost Seg

1. Neil Morstad
Capstone Equipment Finance, LLC
Austin, TX
RISE March 28, 2012

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.  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.  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.  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.  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.  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.  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.  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.  Uncompleted work orders
 Acquiring additional inventory
 Ship product from manufacturer to suppliers
Neil Morstad Capstone Equipment Finance 512-653-6345

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.  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.  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.  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.  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.  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.  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.  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. Neil Morstad
Capstone Equipment Finance, LLC
neil.morstad@capstoneEF.com
512-653-6345