Griffith from SEL Equipment Finance. Before I turn it over to Barbara, I'd like to let those of you who are live with us know that you may submit questions during the webinar via the Q&A tab at the bottom of the screen. The slide deck is available as a PDF in the course tab on the webinar home, excuse me, webinar registration page. And this webinar will also be recorded so that you may watch or re-watch on demand at your convenience. With that, I will turn it over to Barbara. Thank you, Liz. Today, we're going to talk a little bit about funding, finding financing, and what has really changed since COVID-19. We'll call it February 15th, I guess, is when the mark is. The banks started to get real worried in March. So now we need to know and have the tools to be able to navigate the financing climate. Because it has changed, it's going to continue to change primarily because banks are overloaded with the economy. But before we kind of step into that, I wanna tell you what I'm hearing. I listen to a lot of economists because of the business that I'm in. Equipment financing. And so we wanna know what is happening with businesses out there from restaurants to construction companies to food processors. And here's what we know. We know that we're bringing back our supply chain to the US. And when you start taking a look over the last five years, we see that companies like Aerospace and Energy, there is a company by the name of Welded Assemblies. They moved from Hungary and China to Torrance, California. They added 80 jobs in the US. And they said the reason that they hired or moved to the US, which was to control issues overseas, and that they have found that customers were willing to pay more for higher precision and higher quality. And this is also going to lead into the rest of our discussion about finding financing. So we take a look at Ashley Furniture, which I think we've all kind of know. Big furniture warehouse, right? They decided not to expand offshore. They invested 6 million in Wisconsin. They also invested 80 million in a 3.3 million square foot plant in North Carolina. They employ 500 people. And the reasons were time to market, lead time, meaning I'm gonna get my product. Quality, we are very much into quality right now. Guess what? There are raising wages abroad. Freight cost was a big one. And so for these reasons, you can see companies moving back to the US. I want you to keep that thought about what I just mentioned so that when you decide to do a business plan, you're gonna have these reasons to be able to tell an underwriter why you should get the financing. Medical supplies company moving from Asia to Pennsylvania. For these reasons, communications, freight cost, automation, skilled workforce, and Buy American Act. We wanna buy American products. So the state of the economy may seem to be a little, you know, kind of a lot, but we do see that we wanna buy American products. We wanna put Americans to work and we are seeing a shift in our supply chain. So now let's move on to identifying the types of funds that your business might need. Production financing, just plain simple working capital to buy materials to produce your product. Let's say that you are a construction company and that you're going to be having a lot of materials that you're going to need to purchase so that you can build something, right? Well, you're going to need production financing so that you can buy and produce your products. You can buy the materials. So that would be called production financing. Purchase order financing. Let's say that a county gives you a large purchase order. A customer, a large customer gives you a purchase order. Your customer issues you a purchase order to ship and that's the thing, to ship your product. So to do the work first, right? So you have a purchase order, but you have not done the work. So you would look for purchase order financing. That seems to be really popular right now. Accounts receivables, we all kind of know that, but when you have already shipped your product, meaning in your case construction, it would be that you've already built the product and you're just waiting for payment. Counties and state governments, schools and municipalities are usually very delayed in payment. Puts a lot of pressure on the business. So accounts receivables are a good way to get money up front. And of course, equipment financing. Equipment financing allows customers to purchase a new piece of equipment and put that equipment on a stream of payments. So those are some of the types of financing that are available today. And you're gonna need to know what type is going to fit your company. You certainly wouldn't go for an equipment finance program if you're looking for purchase order financing. But when you know all of these four and you can identify the four when you're doing your budgetary for the rest of this year, 2020 and 2021, you're gonna have to allocate so much money into different areas. The least expensive way of acquiring funding, in my opinion, is equipment financing. If you know that you're going to be spending a hundred thousand or five million of dollars in equipment, you may want to finance that because remember that the piece of equipment is the asset, which is going to be a little bit easier to qualify. Where accounts receivable, it is a receivable that is owed, but it's still kind of a piece of paper. Equipment financing has a really strong asset. So it's just, in my opinion, a little bit easier to acquire. So as you march down these different types of funding for your businesses, just make sure you understand which is going to play the most important part for your business as you move into the rest of the year and 2021. So tools for seeking capital. What type of capital does my company need? Well, you need working capital for raw materials. You need working capital for overall operations, capital to invest in equipment or to retool your company. And let me talk a little bit about that. You know, when we're using older equipment, we're not really using the best technology out there. So we want to make sure that we're retooling. Retooling doesn't just mean equipment. It means retooling your bank accounts and retooling a lot of different areas so that you have cashflow so that you can continue on. And when we have bumps in the road like we have right now, that you're certainly prepared for it. You know, businesses actually go out of business because of lack of capital, not because they're doing a poor job. Lack of capital is the number one reason why businesses go out of business. A lot of companies right now are expanding. They're being able to purchase other companies that just don't want to be in the show anymore. They're out. They don't want, for a lot of different reasons. People are retiring. They weren't able to cashflow during this economic turndown. So you have an opportunity to buy other companies, to get other work. So expand your facility. So once you identify your capital needs, and it's something to think about right now so that you know what your future holds and what contracts you're going to go after. And then you have to decide, what is my return of my investment? So if I take this job, building a new building, and it's going to cost me X amount of dollars in raw materials, it's going to cost me X amount of dollars in employees, it's going to cost me X amount of dollars in equipment, you know, transportation. What does that investment look like? So that you know the proper charge for your customer. There's an old saying, I'm sure you've all heard it, but the best deal you could make is the one you could walk away from. So make sure that you have your ROI. And so that's going to be very important when you try to seek capital, because even though your financials may not look great, they're going to want to know why they should give you the money. Why should they give you the working capital? The why is going to be bigger than ever right now, because we know that a lot of companies are going to see poor balance sheets and poor profit and losses for about, what, four to six months. Hopefully it doesn't last much, you know, and by we turn into 2021, maybe we see a turn in our balance sheets. But, you know, they're going to want to know how that loan is going to be paid. So balance sheet doesn't look great, profit and loss doesn't look great, but you have a good story, okay? What is that good story? You know, that you got a contract because the company's moving out of another, you know, off shore, coming here. If you were Ashley's Furniture and you were building their building for them, then you could explain that, you know, that they're investing, you know, $80 million in a new building and you're going to take so much of that workflow. You know, that's a good story, right? So I told you that that story, as I told you earlier, how companies are coming back to the US, you know, talk to your customers and find out why they are expanding and why are you doing the work and use that as a part of your brief write-up to the underwriter, because they really want to know how the loan will be paid. What is the difference of short-term and long-term debt and will I qualify? So, short-term debt is going to be something, I think, less than five years. Long-term debt is going to be five to 10, 10 to 20. You're going to need to know what works best. There is no secret. The longer you pay on debt, the more you pay back. Kind of think about it like a 15-year mortgage versus a 30-year mortgage. So allow that to be part of your process when you seek capital. What type of debt are you looking for? I have a customer, very conservative, has plenty of cashflow. They like to do a 24 to 36-month lease because they're conservative. They don't want to go out that far, but they also don't want to spend their capital on equipment. So they're going to take short-term. Okay, so make that part of the planning process. And will I qualify? Well, it's going to be harder to qualify now if you don't have the tools. Because we have our balance sheets, as I said earlier, and our profit and loss sheets are just, and then the workflow and the economy and the banks. I mean, let's face it. In March, when the bankers woke up in the morning and looked at themselves in the mirror, they actually got scared because there were so many people calling and saying, can I get a deferred payment? I lost my contract and so forth and so on. So anybody lending money, whether it's working capital or accounts receivables, they're really considering, how are you going to pay that back? So will I qualify? Let's put you in a position now that you're going to look for some type of a loan, okay? Now, whether that loan is going to be for a building, it's going to be for working capital, it's going to be for equipment financing, you're going to need, kind of you can use this bullet sheet right here too. You know, when you do your write-up to the lender and you have to address some of the negative on the financials, you're going to want to let them know, can the business repay the loan? Well, yes, you got the Ashley Furniture contract. They've issued you a purchase order and you can explain that, right? That sounds really good. Can the individual repay the loan if the business fails? So smaller companies that don't have a lot of employees, a lot of people, they want to look at the individual. How we look at individuals is that if you pay your bills on time, the odds are the business is going to pay their bills on time. That is taken into consideration. Does the business consistently pay their bills on time? So there are, you know, a couple ways that we monitor business debt, which we'll go into in the next slide. And if you've not heard of it, it's called PayNet or Experian or D&B. So we're going to look into those areas and I'm going to help you understand that part of it too on the next slide. Are the officers committed to the business? When you do your write-up to the banks to let them know why you're applying for some type of a loan, you know, are you committed to the business? If you're not committed to the business, do you have great managers that have been there for a long time? Do you have a succession plan? These are kind of things that the banks want to know. Does the business have a profitable operating history? Yeah, you know, 2019 and the first half of 2020, we were really profitable. But what happened after COVID-19? Hmm, and then it took us a little bit of time to get our stability. And so they want to know that. And that's really something that you need to let them understand. Are profits increasing? As I mentioned earlier, your ROI. You want to make sure that you can explain that to your banker, that your ROI is stronger today. Remember why our businesses are buying from us? Why your customers are buying from you? Because they want quality. They want to know that you're using the latest technology. And they want to know that you're here in the US. And for all those reasons, that they're going to pay a little bit more. Is there any discretionary cashflow? Do you have other things inside the business that you can bring back into the business? So always look for those rocks that are uncovered. For example, we had a client that had a lot of equipment and he rented out, he was actually a food manufacturer. But when he was not producing his pretzels, he was actually letting someone else come in and produce off of his machine when he was not using the machine. So that was some extra cashflow. That's a good explanation. He was acting as a co-packer. So that was a good way to explain to the banker that there's other discretionary cashflow. And then of course, we want to know what the future of your industry looks like. Do some research on that. We are bringing our supply chain home. So do a little bit of history on that and let them understand. Remember, banks are looking at thousands of applications. So it's going to be up to you to help them understand why they need to give you the funding. So your company was awarded a new contract to make face masks. Well, you know, you have to understand what is the cost of this expanded contract. Remember back to the ROI. What type of funding will you need? Remember going back, am I going to need monies for materials, my employees? What is my cashflow look like? Do you need new equipment to automate? I was talking to a contractor the other day that if he continued to use the equipment that he used for this new contract, he was going to have to hire 50 new employees. If he were able to purchase new equipment, he could have to only buy, I'm sorry, he would only have to hire 10 new employees. So the ROI on that new equipment paid for itself. Plus he stayed within the guidelines of the rules and regulations with the new equipment, with all the fact that you might have mistakes made while someone is automating, using your equipment. So here's what the lender will look at on your business report. They're going to find out, have you ever borrowed before? So I know this is going to sound funny, but debt is good. Debt is really good. So many people love to say, well, I pay cash for everything. Guess what? You have no credit history for the business and you need a little bit of credit history for the business so that we know how the business pays their bills. What does your business credit look like? So let's hop into that, Experian, D&B and Paynet. So Experian has a business report similar to the Dun & Bradstreet report. If you'd like to have a copy of your Dun & Bradstreet report just email Liz and you can get in touch with me and I'll be happy to give you a complimentary report. But this is in Paynet. So Experian and D&B is your business report. How do you pay your bills? Your UCC filings will be recorded on there. Any judgments and liens will be recorded on there. Are they always correct? No. Do you always have to look at them? Yes, you do. You do have to look at your D&B and Experian report because mistakes happen and then you're out looking for financing and like a customer I have right now, it's got two liens and he doesn't know anything about them and it's erroneous, but guess what? He's not getting his equipment because we can't take a third position with a lien. So look at that D&B, work with your finance company, work with your bank, work with somebody who can help you understand your D&B or Experian report. There's also a report you may not know called Paynet. Paynet came out, I wanna say 15 years ago. Experian just bought Paynet. Paynet records all of the loans, leases that you might have. They don't necessarily report like liens and stuff, but if you ever were late on a loan for the business, business equipment, they're gonna report that. So most banks will report to Paynet. We'll kind of use Paynet, like if you're really, really good on Paynet, but you're not so good on D&B, we'll take Paynet over D&B because Paynet is only very strict and the banks report to Paynet and that's on businesses. Paynet's easy to work with too. So if you see a late pay on your Paynet, you can call them and hopefully dispute that. But Paynet is a big reporting agency. Now that Experian actually bought them, it's going to be even stronger to rate your loans and leases. So those are just some ways to look at your credit report. Let me jump in real quick on this too on the personal credit is something that I like to add. Whenever, there is a website called freeannualcreditreport.com and you can go on that site, this is for you personally, you can go on that site and you can grab your credit report for free one time a year. And if you ask for money, you happen to be on the wrong site. And it's supported by Experian, TransUnion and Equifax. And you can look at all three reports from that particular site. And if you see something on your personal credit report that is derogatory, then you should try to dispute that. Now here's what happens when somebody doesn't understand how to dispute on TransUnion, Equifax or Experian. They will say, dear Experian, I was not late on this medical bill that the doctors such and such didn't report such and such which didn't happen to such and such. Now that's just, that's not how you should correspond. Think about this, you're talking to a lady named Amy in India by email. And all Amy in India wants to know is what do you want her to do with this information that's derogatory on your credit report? So the words that you should be using are, the late payment reported by such and such was not correct information, please delete. So you can, if you have five or six different, you know, issues on your credit report, the same verbiage can be used over and over again. The information being reported is not correct, please delete. And you go through your credit reports, you have to go through each one by the way, because they all feed off each other. So that's TransUnion, Equifax and Experian. And you dispute anything that's negative on your credit report. The way it works right now as a consumer, the credit reporting agencies have 30 days to contact the entity that put the late payment on. If that entity does not respond within 30 days, it automatically falls off. So the 30 days from the point that you push send goes to Amy in India. Amy in India is being instructed by you to delete the derogatory information. And then that 30 days start. If that for some reason chase Manhattan Card or whoever does not respond back, that they verify that you still owe that debt or you were late, then it will automatically fall off, okay? And that's just a little bit about your personal credit. So we wanna talk a little bit about equipment purchases because that's what I'm good at and that's what I know. And that's the business I'm in. And I know that a lot of the AED members have a lot of different funding sources that work with equipment financing. So it all is the same whether you work with us or you work with one of your other partners. There is section 179. Section 179 allows you to expense up to a million dollars in equipment. So for example, if you purchased a million dollars worth of equipment, your first year write-off would be 1 million. You would then have a depreciation of 150,000 and you'd have a cash savings of 402,000. So do you see how that works? So if you bought a piece of equipment for 1,150,000, you can expense the first million. Well, let me back up a little bit. Let's say that you owed a million dollars to in taxes this year or 100,000. It doesn't matter the number, just what is that that you owe the government for your taxes? When you buy a piece of equipment, you can expense that out. Whether you finance it, whether you purchase with it cash, you can use section 179 to expense that piece of equipment up to a million dollars. So in this case, the customer bought 1,150,000 in equipment purchases. He owed the IRS a million dollars and then he expensed that out. He depreciated the 150 and he would have paid because he's at a 35 tax rate, he would have paid 402,000 on that million, right? So he was able to really save 402. So think about section 179 when you are out there purchasing equipment. And when you're doing your game plan, it would be good that you know that. And you can also include that in your write-up to your banker about why you want to get this loan. And then if you were to buy equipment, you can understand that you're gonna have a $402,000 tax saving this year. That means a lot to an underwriter when they know you're gonna have that cash flow, okay? So what is the business outlook? Well, we do know that we're bringing back our domestic products. We do know that advanced manufacturing will be the key to speed. So having the right equipment, having the right technology, having the right inside your operations software, having the right staff members, having the right people working for your company, having the customer service. So advanced manufacturing doesn't just mean equipment. It means everything and taking a look at everything in your business. Today, I find that service is really secondary to a business. And yet we need to make sure that we're doing we need to kind of reverse that and make customer service back on top. And when your clients know that you're in the game and that you can service their account, they're gonna pay a little bit more for your services. People have other things to do than to watch over their contractor. We do know that finding additional opportunities inside your industry. One of the things I think a lot of our customers or businesses in the industry don't do enough is that they don't ring their bell, so to speak. Let's say that you did buy new equipment, let your customers know that you have some of the best technology. If you have a client, if you have an employee that's been with you for 15 years or 20 years, ring that employee's bell and let your customers know that your staff members have been with the company for a long time and that they're seasonal and they know they're seasoned and they know your industry. I mean, really look for additional opportunities because they are there. There are there. You just have to kick a little few stones. You used to have to dig a few stones, but I think if you kick a little stones now, you're gonna find opportunity. And the main reason from what I'm hearing with economists and what other customers are telling me is because we wanna do business with American-made companies and we wanna know that they also are buying American-made products. So how to keep your credit in good standing while we recover? One of the things is stay conservative. I know we talked about financing today, but you do have to stay conservative, right? You have to make sure that you're being conservative about all the things that you're doing, whether that's the best deal you can make is the one you can walk away from, the rate that you're purchasing your loans at, all of these things will make a difference. If you have credit hiccups in your DNB or your personal credit, get those repaired before you start looking for financing so that you can get the best rate so it makes sense to get that loan. And of course, manage your cash flow. Cash is king, it's so true today. Manage that really well. Understand how to borrow right and understand how to manage cash flow. Cash is king, I guess. It's an old saying, but it's true. And then of course, conserve your credit lines. Here's one of the things that I feel as looking at companies use their credit lines, like for example, if you have a $500,000 or $5 million credit line at your bank, a lot of companies will use that particular credit line to buy a piece of equipment. Now, in my opinion, I don't think you should because that credit line is normally a floating rate. That credit line should be used for paying your employees, maybe buying durable goods, and it's not a fixed rate where there's other types of loans that you can choose, especially when it comes to be a harder asset that you would be able to use that would be a fixed rate. So like, for example, on mortgages, fixed rates are preferable even in today's world. They're not that much different than an adjustable. All those teaser's rates that we had known in the past are gone. So conserve your credit lines and really know how to use them to the best for your company. It's gonna make the difference in how you can stay in business. Because as I said earlier, the number one reason why people go out of business is because of lack of cash flow. So I hope you learned a little bit today. I'm Barbara with SEL Equipment Finance and I am a member, our company is a member of AED. So Liz, I'll hand it back to you. Thanks, Barbara. Just a couple of questions that came up. The first, should I ask my lenders for a deferment on my loans and how will this affect my credit profile? So that's a very good question. I get a lot of calls that companies will say, hey, I want a deferment. Can I get three months deferred? Sometimes I say, well, why? And they'll say, just because I can. And that's just not a good enough reason. If you really need it, yes, you can. Every lender that you have out there will give you a deferment. But don't get it unless you really need it because they're gonna wanna see how you recover from it. The deferment means that I'm gonna defer my payment for three months. And by golly, in three months or whatever they defer that, they wanna see you climbing out of it. So if you don't need it, don't request it. If you do need it, definitely get it. It will affect your credit, okay? Because you didn't have enough cashflow to sustain. Okay, second question. If I received an SBA disaster relief loan or the PPP loan during this pandemic, how will this affect getting additional funding for my business? So on the PPP program, the P3 program should be forgiven. So hopefully if you did get that, you do have that forgiven. If not, then I think you have three years at 1%. The SBA is what, 30 years at 3.75. And that is debt to the company. So if you did acquire those, you're gonna have to take that in consideration for your loans, because you will have a loan out there for the SBA at what, 3.75, I believe it is, for 30 years. So you will have to account for it, except for the P3 program, because it will be forgiven. And I don't even believe right now there was some talk about the P3 program not being disclosed. There's some talk out there right now that the government does not want the P3 program to be disclosed. Your SBA program will be disclosed, through a Paynet or an SBA or a D&B, but not the P3 program. And the primary reason for the P3 program not to be disclosed is because there's a lot of confidential information in the P3 program. It was meant for you, with no personal guarantee, for businesses to keep employees employed. And with that, you had to submit to the SBA how much you pay your employees. That is really private information. And for that simple reason that the government is trying to figure out how we don't have to disclose that loan to your company. So I hope that that does pass, and I think it's still out there. Okay, and the last question. I know you talked about personal credit scores. What can I do to increase my business credit score? So you can get a hold of, well, you need a copy of your D&B. Well, okay, so let me back up there. Loans and leases are really good business credit. So you can always take out a small loan or lease to increase your business debt, okay? You wanna make sure that you're paying your bills on time, that you don't have an FF at your bank. And just be very conservative with your business credit. Hopefully you'll see a copy of your D&B report or your Experian report. Like I said, ask your banker, ask someone to give that to you. There's a score in it, by the way. The most you can get in a D&B score is 80. So if 70 is great still, 60 is kind of marginal and anything below 60 is really a problem. So you wanna kinda, and they'll work with you to increase that score. So you do want your business reports to be good. Find out how you're paying through Paynet, through Experian or through D&B and take a look at that as you would your own personal credit. So that's how you can increase your business credit. Okay, well, Barbara, thank you again for joining us today. We will have this recording posted shortly and if anybody else has any other questions, Barbara's contact information is right up there on the screen again. Barbara, thank you so much. You're welcome and thank you, Liz.

funding

financing

COVID-19 pandemic

supply chains

equipment financing

credit management

business credit scores