The Money Tree

WHAT’S THE DIFFERENCE? Simple Brokerage: –Referrals –Limited fees –Funder controls credit decision –Funder documents the deal –No residual sharing –Few or no representations and warranties

What’s the Difference Discounting brokerage (non-recourse) –Name identification –Possible residual sharing –Broker retains some payments –Fees are limited, but greater than simple brokering –Funder controls the credit decision –Increased reps and warranties

What’s the Difference? Full Recourse Lessor –Flexibility Lessor makes credit decision Unlimited income potential Warehouse lines (short term) Match funding (long term) Discounting agreements –Lessor bills & collects

What’s the Difference? Full Recourse (continued) –Lessor retains fee income Late charges Documentation fees Termination fees Early termination penalties Lessor is fully responsible

Discounting pricing Buy rate: 7% Sell rate: 10% First & last, full payout, 60 months Payment: 2.090% per month Broker retains first & last, funder discounts 58 months, in arrears PV of 58 7% = 102.6% 1+1 = 4.18% % Net fee 6.18%

Discounting pricing Residual sharing (50/50) –Additional fee = 5% –PV of additional 7% = 3.527% –PV of total fee = %

Other Sources of Income Flow- through fees Interim rent –Interest only –Daily equivalent Late charges Security deposits

Recourse Funding $100,000 loan, 60 months, 7% rate, payable monthly, in arrears –Level payments of principal plus interest Principal payment: $1,667 Interest (1 st month) 583 First payment $ 2,250 Lease payment 2,090 Shortfall (160) # months to breakeven: 16

Recourse Funding $100,000 loan,60 months, 7% rate, payable monthly in arrears Level payments of principal and interest Lease payment: $2,090 Loan payment: 1,980 Cash flow-positive $ 110

Building a Balance Sheet Booking leases Using residual income Lessor risk Accounting issues –Accountant types –Financial reporting

Transitioning to Funding Source Bank relationships –What does the bank want? Credit decision-making Risk analysis

Software What to look for –Services –Accounting –Tracking –Reports –Personnel Provider Internal

Policy & Procedures Manual –Purpose and function –Who writes it? –Who maintains it? –Who administers it? Guidelines –Credit –Portfolio Concentrations

Personal Issues True meaning of full recourse –Lessor guaranty –Lessor financial condition

Green flags/Red Flags Funders Portfolio “The only thing that is constant is change”

Thank You! Larry LaChance, CLP Bankers Capital 203 Southwest Cutoff Northborough, MA Tel Fax capital.com Bob Teichman, CLP Teichman Financial Training 3030 Bridgeway, Suite 213 Sausalito, CA Tel: Fax