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The Benefits from a Partnership with a Specialty Equipment Finance Company
May 28, 2014
By Matt Lightfoot
Asset-based lenders and factoring companies are typically thought of first in situations where a company is in need of liquidity, whether it is for working capital, debt restructuring, bank workouts, partner buyouts, leveraged acquisitions, etc. They are often deemed to be the path of least resistance for companies, advisors, workout officers, private equity groups and anyone else with these types of initiatives. A specialty equipment finance company is similar to these lenders in that the underwriting of the transaction weighs heavily on the underlying asset allowing them to lend into credit profiles where banks and more traditional lenders are unable. The difference is that a specialty equipment finance company’s underlying asset is equipment whereas the asset-based lender and factoring company usually find comfort in accounts receivable. With that being the case, there is an unlikely chance of overlap in regards to collateral and an opportunity to combine efforts in order to achieve the maximum liquidity in a given scenario. Asset-based lenders often try to stay away from an excessive percentage of their transaction being made up of term debt while factoring companies rarely provide it. In these equipment-intensive industries, a specialty equipment finance company is both non-threatening and complementary in many cases where there is a difference between the advance an asset-based lender or factoring company is willing to provide and the dollar amount needed for the initiative.
Where there is a relationship between two such complimentary lenders, advisors are more likely to reach that magic number the special assets department of a bank is willing to accept; private equity groups are able to make the acquisition with less upfront capital or capital structured with a longer term; and owners exiting their company through a partner buyout are able to exit holding back less paper.
Specialty equipment finance companies come in all shapes and sizes. To truly create a beneficial alliance, it is important to find a group that has a complimentary focus on industry, collateral type and transaction size.