Armada Credit Group on equipment financing: borrow early to stay flexible

Armada Credit Group CEO Danny Lebovics said his firm offers fixed-rate term financing for equipment, often with a repayment schedule of 48 to 72 months.

Instead of saving and waiting, firms can buy the tools they need and get working, as the most popular financing Armada offers is a lease-to-own option often referred to as a capital lease.

“What we’re doing in our industry is we’re changing the equation from ‘what’s my payback period,’ to ‘how much positive cash flow am I generating every single month’,” Lebovics said. “You’re almost (return on investment)-positive from the get-go.”

Canadian businesses financed $139 billion worth of equipment, vehicles and machinery in 2021, while 2022 spending on equipment rose by 6.3 per cent, according to data compiled by the Canadian Finance & Leasing Association (CFLA).

Even so, only 43 per cent of equipment purchased by businesses in Canada last year was financed, the CFLA said, up only one per cent from 2020.

Equipment financing is for anyone, even early stage-startups, but if you’re new in business, there are some opening considerations.

First, Lebovics said if your business has no credit history of its own, lenders will rely on your personal borrowing history or the history of someone close to you and your business who is willing to co-sign.

“How you run your personal finances is going to be a really good proxy for how you run the finances of your business.”

Second, borrow early, before the struggle of the early years in business clouds your attractiveness to prospective lenders.

“Go out before you start the business, take out your loans, take out the equity loan on your home, for the additional capital you might need,” Lebovics said. “Because before you start the business is your best time for the first couple of years until you achieve profitability to borrow money.”

And borrowers who are looking to grow their businesses should not be deterred by how much rates have risen in the past two years, he said.

“Everybody in business in the last eight to ten years got spoiled by uncharacteristically low rates,” Lebovics said. “Some businesses got used to that especially if they were capital-intensive, they got used to the fact that their cost of borrowing would be three to four per cent. Which is way out of line with traditionally where rates have been in the last 40 years.”

From July 1983 to today, prime interest rates in Canada have ranged between 14.75 and 2.25 per cent.

Today, the prime rate is 6.95 per cent — not double digits — but enough for some prospective equipment customers to tap the brakes.

“I’m not a fan of it, but what we’re seeing is a lot of our customers are reimagining or going back to the drawing board and tweaking their business model to make sure they can still turn a profit with the seven or eight per cent cost of capital,” Lebovics said.

Some are opting for used equipment, if it has enough operating life left. Others are just holding off for now, something Lebovics said is completely understandable.

“You have to respect somebody who is a business decision maker who says they’re just not comfortable taking on that additional responsibility for their business.”

But with no one expecting rates to fall for the next several years, now might be better than later to finance a new piece of equipment.

“There is an urgency if someone is trying to make a decision to buy, it’s a much better decision to buy now and lock the rates in rather than wait until the need becomes dire and have to commit when the rates have gone up,” Lebovics said.

While the team at Armada navigates the headwinds, he said they’re focused on accelerating the most tedious bits of how deals get done; the paperwork.

“Bottom line is, so long as we’re competitive on our rates and our terms, really the most important thing in our industry is speed.”

So when a customer selects a piece of equipment to lease, there are often reasons they want the deal to get done fast.

Perhaps it’s the end of the month and the vendor is offering a discount to make their numbers. Maybe a promotion is on offer that will only last a week or two.

To take advantage of a sale, the lease financing process can’t be slow or clunky. Automation can help speed up the process.

“We’re automating document generation. Probably 80 per cent of all of our document packages are electronic signature right now,” Lebovics said. “We’re looking at automating some of the insurance because that seems to be one of the key sticking points when you’re doing a transaction; getting the equipment insured.”

It’s just the next step for Armada, who Lebovics said is “a little company” with “big plans.”

“We want to continue to do a good job and stay ahead of the curve and bring innovation to (our customers) to help them grow their businesses.”