Blogs

alt

From time to time we will be publishing blogs containing useful information for the Global Commercial Finance Industry, as well as information concerning our services.   We will be announcing new blogs on LinkedIn and Facebook as they are publish

The Certified Leasing Specialist Program
Posted on December 21, 2022

The Founders of Aperio Associates went to Ukraine in 2005 to work on a USAID technical assistance project. One of the sub projects was creating an organization for professionals who worked in the financial leasing business. The organization was called the Ukraine Certified Leasing Specialists Association, or CLS. To become a certified leasing specialist, one had to work in the industry for at least a year. You also had to attend training for three consecutive weekends, and each weekend was a different module. Then, you had to take three exams, one for each module, and if you passed all three, one becomes a certified leasing specialist. The certificates were jointly awarded by the Ukrainian Union of Lessors and the Certified Leasing Specialist Foundation, based in the US.

When we left the project, there were approximately 100 certified leasing specialists in both Ukraine and Moldova. It was then expanded to Belarus, and eventually there were approximately about 400 certified leasing specialists. 

Aperio Associates looks forward to working with leasing companies and leasing associations in other countries, to develop certification programs in commercial finance, including leasing and other forms of commercial finance.   For more information please contact us.

Capitalization and Lease Funding Issues Faced by Lessors in Emerging Markets

Posted on August 26, 2022

  1. Availability of both equity and debt capital are extremely limited.
  2. Lack of term debt (debt maturing in more than 12 months) is even more limited.
  3. Lack of public debt markets in many emerging markets, limiting lessors’ ability to borrow money at a reasonable cost.
  4. Lack of secondary market to facilitate sales of portfolios of existing leases.
  5. Lack of flexibility offered by discounting facilities offered by financial institutions such as warehouse lines.
  6. Limited profitability, resulting from lessor’s inability to borrow more than 100% of its equity.

Lease Funding Issues Faced by Lessors in ALL Markets:

  1. Interest rate risk resulting from funding medium term leases with short-term debt capital.
  2. Interest rate risk resulting from a lack of a local currency government bond market in all markets, limiting a lessor’s ability to accurately perceive risk and price lease transactions.
  3. Interest rate risk resulting from the difference between high cost of borrowed funds and the yield on a lease transaction.
  4. Currency Risk faced by lessors when acquiring equipment in a foreign currency and extending lease payment terms denominated in local currency.

Regulatory Issues Faced by Lessors in Emerging Markets that Affect Capitalization and Funding:

  1. Mandated limitations on yield, reducing spreads to unacceptable levels.
  2. Unrealistic capitalization requirements, including mandated debt/equity ratios.
  3. For bank-affiliated lessors, limitations on use of depositors’ money to fund lease transactions.

Building a Suite of Commercial Finance Products

Posted on May 21, 2022

Commercial finance includes a full-range of commercial finance products, including short-term (less than 13 months) products such as factoring or supply-chain financing, medium-term products such as financial leasing, and longer-term products such as commercial mortgages.   Full service financial institutions must be in the position of being able to advise their customers how to choose one over the other, or often use both in a complementary manner. 

Here is one example:

Financial Leasing and Factoring - A major benefit from using financial leasing to acquire capital equipment is improved use of cash.   Instead of tying up cash in an equipment purchase, a company may use leasing to acquire the equipment, leaving the cash in the business for use as working capital.    However, incorporating new, more efficient equipment into a company's manufacturing process will require purchasing a larger volume of raw materials, constituting a use of working capital.    A factoring transaction, extended alongside a financial lease, provides a company with maximum flexibility in how how it manages cash and maximizes the availably of cash.

Result - The financial institution extends credit with two products that are complementary to each other.  The customer improves its profitability.   A "win-win" for both borrower and lender.

Aperio Associates provides advisory services and workshops designed to show financial institutions and their professionals on how to best assist their customers in taking maximum advantage of the available products.   We offer assistance in marketing & sales, product development, and underwriting & credit, all designed to increase the profitability of the financial institution and the skills of their professionals. 

Building an Effective Credit Package For Larger Transactions

Posted on February 18, 2022

Applying the extensive experience of its Principals, Aperio offers workshops and seminars, both for groups and individually, for commercial finance professionals, on how to prepare an effective credit package for larger transactions.  For smaller transactions, where financial institutions require limited financial information, please visit "New Products & Services."

What is a Credit Package? - A credit package clearly describes how the financial institution will be repaid.   A credit package contains all the necessary information for a credit officer to approve a request for financing from a business customer.   A credit package should contain the following elements:

                                                Summary Information

Summary information is designed to give a credit officer important information about the prospective borrower as well as information about the transaction.   Summary information is similar to a well-wrotten newspaper article - "Who/why/when/where/how."   Summary information should include:

  • Borrower information - Name, and contact information of the borrower/lessee,  and the name(s) of the responsible officer(s) of the borrower and, as applicable, the names(s) of all additional guarantors.
  • Corporate Governance - Legal organization of the borrower, and the jurisdiction where the borrower is located, tune in business.
  • Brief transaction information - the amount requested, and the reason(s) for the request.
  • Requested Terms - Type of loan or lease, requested repayment term, amount and frequency of repayments.

Summary information will likely include the financial institutions's standard credit appliction, signed by an authorized representative of the potential borrower/lessee, authorizing the financial instituton to verify all the information provided by the potential borrower/lessee.

                                                       Narrative

The narrative provides more detail about the propsective borrower/lessee, simplar to the body of a well-written newspaper article.   The narrative provides a credit officr with A narrative should contain the following information:

  • History - Brief history of the potential borrower/lessee, including corporate governance, description of products or services, and major customers.
  • Justification - Why is the prospective borrower/lessee is requesting the loan or lease.  For a lease, the narrative should describe the equipment, the reason why the equipment is needed such as a business expansion or replacing old equipment, the benefits including increase revenues, cost savings, or both.   For short-term transactions, such as a working capital loan, benefits might include the ability to take trade discounts, make bulk purchases of raw materials, and other benefits.     Benefits from extending the loan or lease is the borrower/lessee's primary source of repayment.
  • Financial Summary - Summary information from the potential borrower/lessee's financial statements, a summary of the amount of cash going through the business, from bank references, statements of electronic payments such as M-Pesa in Kenya, and supplier references (especially from suppliers offering credit terms).
  • Address Potential Questions - For every transaction, a good credit officer will raise questions on events that could effect the ability of the borrower/lessee to repay the obligation.   A good narrative anticipates these questions, and directly addresses them, rather than waiting for the credit officer to ask them.

Detailed Financial Information

All information required by the financial institution, likely including:

  • Business financial statements and tax returns.
  • Financial statements on all guarantors (individual and corporate)
  • Information about the equipment supplier.

Considering Cashflow as a Primary Source of Repayment

Posted on January 28, 2022

Many lessors, especially in emerging markets, consider the value of additional collateral, owned and pledged to the financial institution, to be the primary source of repayment of an obligation.   This is an incorrect and often dangerous approach for the following reasons: 

  • Discriminates against service business that do not normally use capital equipment or own real property.
  • Over-reliance on estimates of re-sale value of pledged collateral as a source of repayment.

         Consider the Following Example (from an actual transaction):

  • A company makes chocolate covered crackers, for sale at retail outlets.
  • An enrober, costing approximately $200,000,  is required to place chocolate on the crackers.
  • The company sells both milk and dark chocolate crackers.
  • Without a second enrober, the company must shut down, to shift from milk to dark chocolate.
  • The company incurs $6,682/mo. in direct labor costs from shifting from milk to dark chocolate.
  • Lease payment for a 2nd enrober is $3,804/mo.
  • Net savings from direct labor costs, after lease payments - $2,878/mo.

Lesson Learned - The primary source of repayment are the economic benefits gained from using the leased equipment, not from the value of collateral,  either the leased equipment or additional collateral offered by the lessee to the lessor as additional security.



Aperio Associates provides comprehensive seminars and workshops, given individually and in groups, covering all aspects of credit, underwriting and pricing.



Helpful Forms

Click here to view and print forms for your appointment.

Click Here
No image settings found. Please configure it