B2B Payments

Linking Capital And Equipment In 2016

As 2015 draws to a close, SMEs are in the midst of planning capex – and looking for working capital funding. Here’s why the founder of Abba Equipment Leasing is sanguine about his new lending business, and the months ahead.

‘Tis the season for holidays, shopping and, for small and mid-sized businesses, capital budget planning.

The end of the year means that firms must begin planning for the upcoming 12 months, and for one company, Abba Equipment Leasing, the stage is set for growth, not just in its core new and used equipment leasing (hence the name) but in its nascent business of providing working capital loans, too.

In an interview with PYMNTS, Richard Reichmann, company founder and chief executive officer, stated that the stage is set for the target borrower for which Abba Equipment is targeting for loans: enterprises with roughly $1 million to $2 million in annual earnings and with the need for loans that span the “sweet spot” range of $65,000 to $250,000, chiefly to start up or maintain operations.

There’s a real need for loans of this range, posited Reichmann, particularly because traditional lenders “have been known to misuse the rates that they charge, with some charging anywhere from 20 percent to 30 percent or more” on working capital loans, a practice that can ensnare SME owners who take on loans that might be for emergency purposes to cover expenses or who have had cash flow issues. By way of contrast, continued the executive, Abba charges mid-to-high single digits on the loans, which typically extend from three-year to six-year terms.

One way the firm is able to lend with such relatively attractive terms is by a multifaceted process of vetting and approving applicants for the working capital loans, even for firms that have been in business for little more than a year. Reichmann told PYMNTS the considerations given weight extend beyond the traditional paperwork of tax returns and bank statements, though these, of course, are part of the application. All approvals are done in house, said Reichmann, with personal interviews conducted in each case, which offer up insight that a FICO score can’t. Abba has said it loans to businesses with 600 scores, a threshold many lenders won’t approach.

There’s also safety in the fact that, as an equipment leasing company, Abba can, of course, realize value in equipment offered up as collateral in the event that loans do go sour, and that, in fact, added Reichmann, it is the very broad, deep knowledge the firm has of the equipment market that brings Abba into the lending business.

Based in part on equipment demand, Reichmann noted that 2016 is shaping up to be one of the best years in decades, with broad-based growth strategies gelling across industries as diverse as restaurants and aircraft companies — even printing and embroidery — in short, “operations that some traditional lenders would never give a second glance to extend a loan.” Production rates are increasing, along with necessary transportation services. That means that with the demand for physical, capital equipment to be leased — with leasing that cuts across core businesses — Abba gets the opportunity to cross-sell its lending operations as well.

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