When most people think about equipment financing, they think in terms of a specific purchase of new or used equipment. However, there are many other reasons to finance, or refinance, equipment; including to improve cash flow and obtain working capital for business operations and growth.
Traditional Financing Method
A standard purchase loan is the most typical means to finance a new or used piece of equipment or other large purchase. You go to a lender, provide them with information about the equipment, a credit application and financial information and if you qualify, they give you the loan terms. If you accept the terms, you make your monthly payments until the loan is paid off.
Less Traditional Financing Method
There are alternatives to the traditional financing method. When cash flow or working capital are concerns, many companies forget about the equity in their equipment. You can use the equity in your equipment to get the cash you need. There are three ways to use the equity in your equipment: 1) refinance; 2) debt consolidation; 3) working capital loan.
Refinance – When you refinance equipment, you obtain a new loan for equipment that has an existing loan paid down where the loan balance is less than the existing value of the equipment. Typically refinancing is done to extend terms so the new monthly payment is less than the original payment, resulting in improved monthly cash flow.
Debt Consolidation – Debt consolidation involves refinancing multiple loans and combining them into one loan. This one new payment can be less than the payments on the multiple loans and helps streamline bookkeeping.
Working Capital Loan – A working capital loan provides cash out to fund business operations or pay taxes and can be secured by existing equipment. Oftentimes a refinance can be combined with a new equipment purchase whereby the equity in the existing asset is used to reduce or eliminate the need for a down payment on the new equipment. Proceeds can also be used for operating expenses.
How Are Cash Out Loans Possible?
Cash out loans are possible when there is equity in the equipment. Oftentimes a company’s balance sheet doesn’t accurately show the actual value of, or equity in, equipment, due to depreciation. A lender that understands equipment values knows to look beyond the balance sheet to determine the amount of “real” equity available. This requires a lender that fully understands the equipment and the industry in which it is used. Very few lenders actually understand the difference between book value and market value and have a difficult time approving working capital loans.
Credit Cycles
Every company goes through business cycles. You need a lender willing to work with you through all cycles, not just the positive stages. A bank may tell you, “we can’t go any further” or “we’re exiting this business segment for a strategic reason”. Banks go in and out of markets and relationships, but that poses difficulties for companies seeking capital as the need typically pops up quickly and may not sync with a bank’s timeline or appetite.
Game-changing opportunities present themselves in difficult economic times and only an industry-dedicated lender will lean in and help its customers come out of the downturn even stronger. It’s easy to lend money to a business in the expansion stage. Finding a lender to stick with you through all the stages is the difficult part.
Every Transaction is Different
Many lenders take a cookie cutter approach to financing. They have a set credit box with specific requirements and parameters and if your transaction doesn’t fit in that box, they won’t consider the loan. But each business is different and has different needs, requirements, customers, and capabilities, so a standard box only works for the lender, not the customer. That’s when working with a flexible lender really has its advantages.
Tell Your Story
A truly flexible lender will listen to your story and ask probing questions to understand your needs to get to know your business. For CCG Equipment Finance Ltd., this is what has helped our customers the most. We have the industry and equipment knowledge to ask the right questions and the flexibility to structure transactions to meet a variety of needs, including:
- Purchase new or used equipment
- Refinance to improve cash flow
- Consolidate loans to improve cash flow and streamline bookkeeping
- Obtain working capital to purchase assets, pay tax liabilities, fund business operations
Tell us your story and we’ll show you how we think differently. Then we’ll design an equipment loan to help you accomplish your business goals.
Anthony Zambon, Vice President and Canadian Division Leader azambon@commercialcreditgroup.com (416) 434-2663
Jesse McConney Regional Sales Manager cmconney@commercialcreditgroup.com (647) 515-2660
