Equipment Financing RBC Royal Bank Anthony Bergamo – Senior Commercial Manager Bob Link – Equipment Financing Specialist
Dec 24, 2015
Equipment Financing
RBC Royal Bank
Anthony Bergamo – Senior Commercial Manager
Bob Link – Equipment Financing Specialist
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Agenda
Forestry Outlook & Current Market Conditions
Equipment Purchasing Process
Financing Options
Keys to Credit Availability
Questions
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Forestry Outlook
Year Total Starts (000)
YOY
Change
Single
Family
YOY
Change2001 1,601 2% 1,272 3%2002 1,710 7% 1,363 7%2003 1,854 8% 1,505 10%2004 1,950 5% 1,604 7%2005 2,073 6% 1,719 7%2006 1,812 -13% 1,474 -14%2007 1,342 -26% 1,036 -30%2008 900 -33% 616 -40%2009 554 -38% 442 -28%2010 586 6% 471 7%2011 612 5% 434 -8%2012 784 28% 537 24%2013 930 19% 621 16%2014 1,001 8% 646 4%
2015 YTD 989 -1% 645 0%
US Housing Starts
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Forestry Outlook
› US housing starts averaged ~1.0 million in 2014; this level is 31% below the 50-year average of 1.45 million starts and the seventh-worst year in over half a century.
› With supply declining and demand accelerating, homebuilding activity will continue to gain momentum and should being to return to historical norms in 2017/18.
› The RBC forestry team expects US starts to rise 10% year over year in 2015, followed by an 11% increase in 2016.
› Consensus market expectations are for a year over year increases in 2015 of 16% and 2016 of 20%.
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Forestry Outlook
050
100150200250300350400450500
2014A 2016E 2018E
RBC
FEA
W.SPF Forecast per mbf…W.SPF prices ended April 10 at $269
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Forestry Outlook
142% Increase in softwood lumber prices from Nov 2008 to April 2012
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Equipment Purchasing Process
› Separate your decision with respect to purchasing equipment and financing the equipment
› These are two completely different processes and should be independent of one another
› Investigate all of the available financing options
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Equipment Financing in Today’s Marketplace
Banks
Captive finance divisions of original equipment manufacturers (OEMs)
Non-traditional financial services/independents
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Equipment Financing in Today’s Marketplace
Investing in productivity is required in order to maintain competitiveness and long term profitability
Currently in a Low Interest Rate Environment
There are reasonably priced sources of financing available in order to preserve cash
Fixed-rate and floating-rate transactions are available
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Commonly Financed Forestry Assets
› Forestry assets commonly financed– Skidder– Forwarders– Harvesters– Chippers– Excavators– Dozers– Loaders– Trucks– Trailers
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Equipment Financing Solutions
Equipment term loans
Conditional sales contracts
Equipment leases
Short-term rental contracts
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The Equipment Term Loan
Ownership remains with the client; lender has a security interest/collateral charge
HST due on purchase
Lenders often require that the client have some form of down payment
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The Conditional Sales Contract
Tri-party point-of-sale purchase agreement between a client, a bona fide equipment supplier/dealer and a lender
Vendor assigns the payment stream to the lender
Client is deemed to obtain title to the asset on the basis that they will make a required number of payments
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The Equipment Lease
› Up to 100% financing available
› Capital lease vs. operating lease
› HST paid on the monthly rental payments
› Lessor has title to the asset; lessee has control (or quiet possession) and use of the asset
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The Case for Lease Financing
The #1 reason to use equipment lease financing: Management of working capital and cash flow…Cash Is King
The continuing uncertainty in global economies has clients maintaining a comfortable cash cushion
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The Case for Lease Financing
Interim financing — multiple suppliers, multiple delivery dates, consolidate various pieces of equipment into one lease
Sale and Leaseback
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Short-Term Rental
Contracts between clients and equipment vendors are normally under 12 months
Vendors may reduce purchase price of equipment by the amount of rent client has paid
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Keys to Credit Availability
› New Company– Equity into transaction
– Reasonable level of debt expectations
– Personal Guarantee
– Strength of personal credit history
– Industry Experience
– Realistic Projections
– Contracts / Customers
– Canada Small Business Loans
› Established Company– Strength of financial statements
– Balancing tax minimization and credit availability
– Potential higher levels of financing available
– Revolving Equipment purchase facilities
– Contracts / Customers
– Concentration Risks
›New Company vs Established Company
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Keys to Credit Availability
› Most businesses can qualify for equipment financing. How much you qualify for – and the interest rate you’ll pay – depends on the value of the equipment, your business history, and your credit rating.
› Understand your business credit needs and organize your financial information before contacting a financial provider
› Be prepared to explain in advance any negative business results and / or past personal credit problems
› Describe how the proposed equipment purchase will benefit your business
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Keys to Credit Availability
› Develop pro-active relationships with your suppliers and financial partners
› Identify short term, mid range, and long term goals
› Where are you going and how are you going to get there…is it achievable
› Capital Lease vs. Operating Lease
› Opportunities to partner with industry and First Nation
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Keys to Credit Availability
› Consistency of performance in strong and challenged economic times
› Financial capabilities of the company– Ability to produce timely and accurate financial reports– You need to know your financial position in order to make timely
and accurate decisions
› Amortization of equipment vs. useful life
› Don’t fall in love with excess Equipment
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Questions