Looking back at the last decade of finance

This month marks the 10th year I have been writing a column for Canadian Metalworking and, to be honest, time has flown by.

Only a few years removed from the closing of Gross Machinery Group, my family’s machine tool distributor, I was asked to write something about equipment financing for the magazine and I immediately jumped at the chance. I figured it would be a good marketing tool to promote my new role within an industry that I truly cared about and allow me to move beyond being the grandson of Harold Gross.

For my 10-year anniversary, here are 10 things that I have seen change in equipment leasing during the last 10 years.

1. Rates

The cost of borrowing money was extremely cheap for eight of the last 10 years. It was only in 2022 when rates started to rise as the Bank of Canada tried to curb inflation.

I have funding sources that had not updated their rate cards since 2017, so to be honest, we were long overdue for an adjustment. When leasing, however, you can often take the interest rate out of the conversation by evaluating the transaction based on your monthly lease expense versus the revenue generated from adding a new machine to your shop floor.

The reality is, if the lease payment is only a small percentage of the monthly revenue, then adding the equipment is a no brainer.

2. Structured Deals

I have seen funders become much more accommodating over the past 10 years when it comes to structuring transactions. Deals can now be structured to allow the borrower to pay less for the first few months while the machine gets installed and debugged. Also, in situations where a deposit is required, funders will now spread it over the first six to 12 months of the lease instead of taking it all upfront. The competitiveness of the financing market has created more than a few payment deferral options for potential borrowers.

3. Efficiency

I am not going to revisit all the negative problems that COVID-19 created, but there were a few positives. First, working from home or really anywhere other than an office, created efficiency through all the time saved by not driving to see my clients. Many clients are now happy to have a Zoom or Teams call instead of an in-person visit. Although I am a big proponent of face-to-face meetings, a video call is a pretty close second, and I can schedule many more of them in one day than I ever could by driving to see each client.

4. Scanned Documents

Ten years ago, and really up until the pandemic, almost every lease document needed to be signed in ink, which meant my clients needed to print, sign, and then send it back via courier. Because COVID-19 did not allow many of us to leave our homes, much less visit anyone in person, all my funders started to realize inked documents were no longer realistic and scanned copies became sufficient.

5. Electronic Documents

However, use of electronic documents, which can be signed on a computer or smart device, was a real game-changer. Today, I can literally send documents and get signed copies back in a matter of minutes, if not seconds.

6. Less Financial Information Required

There are a lot of information requirements when submitting a lease transaction for review, including corporate financial statements.

When I started in this industry, I would ask the potential client to provide the last two years of accountant-prepared statements as well as interims for the current year for a lease transaction that reached $75,000.

Over the years, that amount has increased to a point where I have funders now who will review a lease application for up to $250,000 without requiring all of this financial information.

In reality, there are a few factors like established commercial credit history (ideally one that includes previous leasing) and time in business that really determine what documents are required. However, it is now common for me to get a client approved for a machine in the $150,000 to $200,000 range without providing the funder with a lot of information.

7. Banks Buying Lease Brokers

One of the bigger changes that I have seen within the finance industry is small lease brokers and small funders being bought by large banks.

There is no doubt that banks are always looking to increase their profits, however, they don’t really do a great job servicing, supporting, and providing capital to small to medium-sized manufacturers. The path of least resistance has led the banks to buy businesses that do.

I always get a good laugh when anyone asks me how I compete against banks because of the disparity in the cost of funds. The truth is a guy like me stays in business because of the way most banks handle their clients.

8. Professional Growth

I would say the biggest change in the last 10 years for me personally is how I handle my clients’ inquiries. With age comes experience, so if I think a deal has been unjustly declined, I now ask for a reassessment or make suggestions for additional terms and conditions that will get the deal done.

9. The Use of Multiple Funders

When one single institution cannot finance the entire deal, I now break the transaction apart and send them to multiple funders. For example, I often get one lender to fund the machine and a second lender to fund the automation and accessories.

10. Finance More Than Just a Machine

I have also moved beyond arranging leasing for only a machine. I will put together a lease to handle accessories, software, parts and service for repairs, and anything else a manufacturer needs to support its business, even if it is a new computer or a phone system.

I want to thank Joe Thompson and Canadian Metalworking for making this space available to me for the last 10 years. If you are reading this column for the first time or have followed along over the years, my hope is you have enjoyed reading as much as I have enjoyed sharing my experiences and insight within the Canadian manufacturing industry with you.

Ken Hurwitz is vice-president of Equilease Corp., 416-499-2449, ken@equilease.com, www.equilease.com.