Creative financing minimizes turnaround time and maximizes capital
Our client, an Alberta-based aftermarket customizer of trucks for the oil and gas industry, was seeking capital that would allow him to invest in creating additional inventory for sale.
As is often the case our broker partner, on behalf of his customer, wanted as much working capital as he could get as quickly as possible. He was looking for up to $200,000 within days. His proposal, to get a sale-leaseback on a specialized heavy truck the client owned, would generate the capital he needed to create additional customized truck inventory. He was pressured for time as there was an immediate demand for his products and the faster he can turn over his specialized vehicles, the higher his return.
Larger deals like this tend to require more underwriting steps which conflict with expectations of quick turnaround time. So, to meet the customer’s requirements, we got to work first reviewing the appraisal of the client’s collateral asset. Then we presented two options: financing $130,000 based on the appraisal, his good credit and proof of income; or financing $200,000 with the addition of property security. Unfortunately, securitizing property in Alberta adds about two weeks to the process; not ideal in this situation.
To meet our client’s time and capital requirements and immediately get the ball rolling our solution was to split the deal into two leases. We financed $130,000 within two days and got the property securitization started. Next, we financed a second lease for $70,000 using another equipment asset which had nominal value but was backed by the property security. This way, the customer got 65% of their financing in record time and the remaining 35% two weeks later. It solved the challenge of minimizing turnaround time and maximizing working capital generated.