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Risk Management Issue | Nov/Dec 2018

RISK MANAGEMENT–Best Practices Prove Critical

When Selling Non-Performing Accounts Makes Sense

Financing Equipment to the Cannabis Industry – Emerging Issues

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National Equipment Finance Association

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Nov/Dec 2018 NEWSLINE 1


Nov/Dec 2018Volume 10 Number 6

FEATURES16RISK MANAGEMENT STRATEGIES: WHEN SELLING NON-PERFORMING ACCOUNTS MAKES SENSECommercial debt selling is an effective strategy for managing risk via the selling of non-performing accounts. TBF Financial’s Brett Boehm explains the key issues to consider in this process and important steps to making it successful for all players.By Brett Boehm

18ADVANCEMENTS IN MANAGING RISK – A KEY ELEMENT FOR EVERY FINANCE COMPANYFor a company to thrive in an increasingly competitive industry, it needs to understand not just whether to approve or decline a deal, but how to price it. James Truran, of Amur Equipment Finance, explains the nuances of risk management for equipment finance companies.By James Truran

20FINANCING EQUIPMENT TO THE CANNABIS INDUSTRY – EMERGING COLLATERALIZATION AND SECURITY LIEN ISSUESThe financing of equipment for companies in the marijuana industry presents unique issues for lessors and lenders. As the industry grows, understanding these issues will become critical for companies willing to provide financing to this industry.By Dennis A. Dressler and Ella Khazanova

23LENDERS AND BROKERS – BUILDING COMMITMENTS FOR SUCCESS AND MANAGING RISKThree steps are key to building successful relationships between lending sources and their brokers: setting expectations, establishing a process and following through with practices that ensure expectations are met and the process is followed.By Scott Lipka and Shannah Berger

20ALSO INSIDE...3 From NEFA’s President

4 From NEFA’s Executive Director

5 In the News…

14 neFACTS

15 NEFA’s 2018 Funding Symposium Pictorial

18DEPARTMENTS25 ASSOCIATION

Passing the Baton — A Look Back and a Focus on What’s AheadAs we wrap up a record-breaking year and one of transition for NEFA, Newsline spent time with NEFA’s 2017-2018 President Mike Coon and his newly elected successor Marc Keepman to review the past 12 months and the opportunities ahead for the association.

27 SPECIALTY LENDINGHow Providing a Working Capital Solution Can Reduce the Overall Risk for a Lender/LessorUnderstanding why and how a company will utilize working capital is critical. RapidAdvance’s Jeff Schubert explains how to determine if a company is seeking working capital for the right or the wrong reasons.By Jeff Schubert

23

2 NEWSLINE Nov/Dec 2018

NEFA Newsline ©2018 is published bi-monthly by the National Equipment Finance Association. All rights reserved. The opinions and views expressed in this publication including all editorial and advertising content are not those of the National Equipment Finance Association and/or Equipment Finance Advisor, Inc. Reproduction, duplication or redistribution in whole or in part is not permitted without express written permission of the National Equipment Finance Association and Equipment Finance Advisor, Inc.

NEFA HeadquartersP.O. Box 69Northbrook, IL 60065-0069847.380.5050 Main847.380.5055 [email protected]

NEFA Executive Director & CEOMichael [email protected]

NEFA Senior Association CoordinatorKim [email protected]

Newsline Design & ProductionEquipment Finance Advisor, Inc.d/b/a Advisor Publishing Group975 Mill Road, Suite GBryn Mawr, PA 19010

Editor-in-ChiefMichael [email protected]

Associate Editor Chris [email protected]

Associate Editor Michael [email protected]

Director of Sales & MarketingDenise [email protected]

Design & Production Eliza Whitney www.elizawhitney.com


A Message from NEFA’s President

I’m writing this letter on Halloween. Nothing scary about that, just another day in the life of an equipment lessor. Looking back on the 40 years I’ve been in this business, not much has changed over all this time. Businesses still need equipment to stay competitive and to grow their companies. Manufacturers still build big-ger and better machines that support our enor-mous economy. Vendors continue to provide avenues to move and distribute products and services, all the while trying to be more efficient and to sell more volume. This is working well for almost everyone in our industry.

So, why with a solid economy, growth pros-pects on most every horizon, fairly available capital from lenders at decent rates, are we con-cerned about margins? Building and maintain-ing margin is where the rubber meets the road. This is where we either make or lose money. I would say we are in a cycle where margins are tougher to build and easier to lose.

What do I mean by this? In the post-Great Recession era, the survivors of that horrific eco-nomic storm were blessed with ample business availability and pricing that was robust. This has drawn many competitors to our market. Additionally, technology has improved deliv-ery, storage and data recall. That said, technol-ogy isn’t everything.

This is, and always will be, a people business. People buy from and sell to other people. Employees interface with other people to get work done, to make decisions and to fix prob-lems. I am not taking anything away anything

from the need to be efficient, to use technology and to invest in good sys-tems. But, we will never not need good people.

The thing I love most about our association is the people. Take away the people and we are just machines. It is the humanity that brings us together, that makes us better, that propels us to greatness. I hope we can approach the end of 2018 and the beginning of the new year with the vision of building secure and depend-able bridges with each other. Let’s have the goal of improving ourselves, our team mem-bers and our relationships with our NEFA family. I believe this is where we will find our greatest success and fulfillment. This path is a good investment of time, capital and effort.

This is where we will make our margins. Peo-ple are still willing to pay for better service, better ideas and for the knowledge that they have placed their faith in and the success of their business in capable hands. I look forward to working with all of you over the next year to build our businesses and to make our dreams a reality.

Marc Keepman, CLFPNEFA President

EXECUTIVE COMMITTEE

presidentMARC KEEPMAN, CLFPKLC FINANCIAL INC.

vice presidentDENNIS DRESSLERDRESSLER & PETERS, LLC

treasurerDARYN LECY, CLFPOAKMONT CAPITAL SERVICES, LLC

secretaryLAURA CARINI, CLFPFINANCIAL PACIFIC LEASING, INC.

immediate past presidentMIKE COON, CLFPNORTH STAR LEASING COMPANY

BOARD OF DIRECTORS

ADAM PETERSONCHANNEL PARTNERS CAPITAL

ANNE DALGAARD, CLFPECS FINANCIAL SERVICES, INC.

GUY SELINKA, CLFPSTREAMLINE FINANCIAL

JAMES JACKSONTHE ALTA GROUP

LORI LITTLEFORD, CLFPHANMI BANK

ROBERT HORNBYCHIESA SHAHINIAN & GIANTOMASI PC

SCOTT LIPKAFIRSTLEASE, INC.

SCOTT WHEELER, CLFPWHEELER BUSINESS CONSULTING

2018-2019 BOARD OF DIRECTORS


A Message from NEFA’s Executive Director

Where shall I begin my first letter for NEFA Newsline? Perhaps the best place to start is by expressing my thanks to the individuals respon-sible for selecting me to be the new Executive Director of NEFA. Unbe-knownst to most, the Search Com-mittee, Executive Committee and Board of Directors dedicated a tre-mendous amount of time and sacri-ficed countless personal hours in this selection process. I should know…I

was a part of it! So, I would be remiss if I did not acknowledge these individuals and express my sincere gratitude for being chosen for this very important position. It’s truly an honor to be selected to lead NEFA. As the new Executive Director, I am fully committed to the advancement and long-term success of our association and its members. I believe that by working closely with each of you, we can create a strategy that will raise NEFA to new heights while simultaneously making NEFA an integral part of each member’s strategic business plan. This can only be accomplished by providing innovative resources that can and will positively impact all types of members both today and into the future.

I would also like to express my thanks to my predecessor, Gerry Egan. As many of you already know, without Gerry, there may not be a NEFA today. He dedicated tireless hours over his term as Executive Director and achieved numerous accomplishments during his tenure – not the least of which was growing NEFA to the largest membership base in its his-tory and closing out his tenure with the association’s two larg-est conferences in terms of attendees and exhibitors. His devo-tion to the success of NEFA and its members has positioned our association as a leading and highly relevant association for a diverse pool of professionals working within and serving the equipment finance industry. His passion for our association

will never be forgotten. Finally, I am also grateful to Jamie Egan and Kim King for their tireless work and devotion over the years. It takes a team to run an association and achieve such success, and this team was tops!

While I have been active in NEFA for many years – dating back to the EAEL and UAEL days – I must say the past seven years truly stand out for me. During this time, I have estab-lished countless friendships and professional relationships with our lessor, broker, funding source and service provider members. And, while I already know many of you personally, there are many of you I do not know…yet. I am looking for-ward to getting to know each of you during my first year – but don’t be surprised if I have a lot of questions for you!

NEFA is a unique association that has grown dramatically, and we are now positioned better than ever to bring NEFA to the next level as a leading-edge association serving the equipment finance industry. Over the coming months, I will be studying the many programs, regional and national conferences, edu-cational programs and other intricacies of this association. I am also looking forward to working with Marc Keepman, our newly elected President, and the entire Executive Committee and Board of Directors to develop a long-term strategic plan that will elevate this association to new heights and create effective programs that meet our members’ current and future needs. In short, it is my mission to position NEFA as a “true center of influence” in the equipment finance industry.

Lastly, I want to wish each of you my very best wishes for the holidays, and a very happy, healthy, and prosperous new year!

Michael TogliaNEFA Executive Director & CEO

in the NEWS


INDUSTRY NEWS

Ascentium Capital Closes Its Largest Securitization of $344MMAscentium Capital LLC announced the closing of the com-pany’s tenth small-ticket equipment securitization. The $343,711,000 securitization of Ascentium Equipment Receiv-ables 2018-2 Trust was rated AAA by Standard and Poor’s and Aaa by Moody’s for the senior notes and brings Ascentium’s total securitized volume to $2.6 billion since 2012.

“This transaction represents Ascentium’s second securitization this year and our largest transaction to-date. We make con-tinuous investment in our proprietary platform to diligently manage and maintain a diversified mix of assets in our portfo-lio,” said Tom Depping, Chief Executive Officer at Ascentium Capital.

Evan Wilkoff, Executive Vice President of Capital Markets, said, “Strong investor interest for bonds backed by quality assets demonstrates the confidence the market has in Ascen-tium and the performance of our small-ticket contracts. We are pleased with this milestone securitization.”

Amur EF Closes Sixth Term Securitization Totaling $250.9MMAmur Equipment Finance, Inc. (AmurEF) announced the completion of its sixth term securitization and second securitization this year. A total of $250,944,000 in rated securities secured by equipment leases and loans originated by AmurEF were issued, representing a 27% increase over AmurEF’s February securitization, with $239,703,000 receiving an investment grade rating from DBRS.

KeyBanc Capital Markets served as structuring agent, bookrunner and lead manager; The Williams Group served as co-manager.

“We are very excited about the number of repeat and new investors that partic-ipated in our second securitization this year – all classes of notes were several times oversubscribed. This high level of interest validates the investments that we have made in the company over the last several years and positions us to continue our strong and sensible growth trajectory,” said Mostafiz Shah-Mohammed, AmurEF Chief Executive Officer, and Amur Finance Company, Inc. Chairman and Founder.

The second securitization of 2018 was made possible by AmurEF’s very strong 2018 originations growth; its monthly origination volume is averaging over $30 million through the first three quarters of 2018, a 70% increase from 2017. In total, AmurEF has issued over $1 billion in secured notes across six securitizations since 2012.

CG Commercial Finance Rebrands as Nexseer CapitalCG Commercial Finance announced it is doing business as Nexseer Capital.

Since 1999, Nexseer Capital has employed its deal-structur-ing expertise to offer equipment and project financing, often as a complement to customers’ senior lending relationships. In recent years, growth has been supported by the company’s 2016 acquisition by funds managed by Atalaya Capital Man-agement.

The rebranding to Nexseer coincides with a transformation of the business from a structuring and syndication boutique into a well-capitalized institution with balance sheet lending capabilities built upon the same core deal structuring exper-tise. The company has continued to secure additional capital, established a more robust intermediary funding group and made numerous key personnel additions.


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“We are building on our deal-making heritage to establish a new face to the market. Nexseer Capital is well-capitalized to meet the needs of mid–large corporates while offering the flexibility to fund more complex and challenging situations,” said W. Scott McCullum, President of Nexseer. “We’ve evolved greatly since our inception, and it was time that we embrace a new identity that embodied our bold new direction and thirst for growth.”

Nexseer is the simple combination of the words “next” and “seer,” representing the company’s efforts to see beyond the norm and into what’s next, providing clarity in what is other-wise complex.

ECS Financial Services’ Shareholder Becomes Registered AICPA Peer ReviewerTobey Wilson, Shareholder at ECS Financial Services, recently became a registered peer reviewer for the American Institute of Certified Public Accountants’ (AICPA) Peer Review Program. Becoming a registered peer reviewer demonstrates Wilson’s and the company’s commitment to being a trusted resource to maintain high professional standards for other CPA firms.

“Tobey, congratulations on becoming a registered peer reviewer for the AICPA,” said Sam Oliva, CEO and Shareholder of ECS Financial Services. “Your hard work over the years along with your diligent efforts in becoming a registered peer reviewer for the AICPA will clearly add value to our practice and is very much appreciated.”

To become a registered peer reviewer, Wilson completed a webinar and an eight-hour case study course through the AICPA and the Illinois CPA Society. He also possessed the credentials needed to become a peer reviewer, which include being a shareholder of the firm, having extensive knowledge of quality control and peer review standards, and possessing at least five years of experience in accounting and auditing. The firm said it is excited to support Wilson as he gives back to the accounting profession by serving as a peer reviewer to other CPA firms.

“Over the last several years ECS’ peer reviewers encouraged me to become a peer reviewer myself,” Wilson said. “The pool of qualified peer reviewers has been declining, and the time was right for me to pursue this new practice area for the firm.”

He and ECS’ Peer Review team conduct system and engage-ment reviews. They review a CPA firm’s policies and proce-dures to determine if they comply with professional standards related to quality control, ethical responsibilities and leader-ship goals. The team then reviews selected firm engagements and concludes if the system of quality control for its account-ing and auditing practices is well-designed and complies with professional standards.

ECS decided to start offering peer review services for other firms thanks in large part to the addition of Janice Forgue to the staff as Senior Manager – Assurance Services. Forgue is highly knowledgeable with over 25 years of experience con-

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ducting peer reviews. She serves on the Illinois CPA Society Peer Review Executive Committee and its Peer Review Report Acceptance Committee.

Ascentium Capital Surpasses $2B in Managed AssetsAscentium Capital reached $2 billion in managed assets during third quarter and obtained a 22% increase in funded volume over the same period last year.

“We had another strong quarter of growth with performance driven by the diversity of our equipment vendors and repeat business efforts. Due to the strong demand for our offering, we continue to expand our direct sales division with recruitment efforts for our offices in Texas, California and New Hampshire, as well as expansion of our vendor-specialized sales personnel in Arizona, Michigan and across the nation. This lays the groundwork to ensure momentum continues next year,” said Tom Depping, Chief Executive Officer at Ascentium Capital.

“Ascentium recently enhanced its vendor finance program to further help equipment providers capture sales with greater flexibility and heightened efficiency. This is helping drive high organic sales activity. The right expertise, the ability to listen

to clients, our award-winning platform and customized offering are our compet-itive cornerstones,” said Richard Baccaro, Chief Sales and Marketing Officer.

Channel Partners Capital Honored for Significant GrowthChannel Partners Capital ranked among the 5,000 fastest-growing private com-panies in the U.S. by Inc. magazine for the sixth straight year in 2018. The Inc. 500/5000 list recognizes the nation’s most successful, dynamic small and mid-sized businesses.

“Companies that have made the list, on average, have grown sixfold since 2014,” said James Ledbetter, Editor in Chief, Inc. Media. “Over a stretch when the economy grew around 11 % , that’s a result most businesses can only dream to achieve.”

Of the tens of thousands of companies that have applied to the Inc. 5000 over the years, only a fraction made the list more than once. A mere 6% have made the list six times and fewer still for six consecutive years.

“Our consistent growth results from the strong relationships we build with equip-ment finance partners and their custom-ers,” said Brad Peterson, CEO of Chan-nel Partners Capital. “We work hard to provide convenient, easy access to growth capital for small business customers who are often acquiring equipment at the same time.”

“Leveraging these connections ensures that our partners are in the right place at the right time to help small businesses with their working capital needs,” he added.

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Orion First Surpasses $1B in Assets Under ManagementOrion First announced it has surpassed $1 billion in assets under management. The assets under management consist of small business commercial loans and leases, for which Orion provides all the back-office portfolio management and servic-ing duties on behalf of its clients. This is a significant long-term goal achieved by Orion First, which has been in the com-mercial loan, lease and contract management space since 2001.

“We are proud to celebrate this milestone because Orion has worked hard for our position in the industry and we are hon-ored by the level of trust our clients place in us,” said David T. Schaefer, Co-Founder and Chief Executive Officer of Orion First. “Passing $1 billion under management is a true testa-ment to the strength of our team and demonstrates the value we strive to deliver. Be it by providing transparency through our client portal, by improving risk assessment through our proprietary scoring tool, SAIPH, or by offering unmatched portfolio management services, Orion will continue to lead the small business lending industry in risk management.”

Marlin Acquires Fleet Financing ResourcesMarlin Business Services announced it acquired Fleet Financ-ing Resources, LLC (FFR), a provider of equipment finance credit products focused on the commercial vehicle market.

Founded in 2002, FFR specializes in the leasing and financing of both new and used commercial vehicles, with an emphasis on livery equipment and other types of commercial vehicles used by small businesses. Since its inception, FFR has provided financing solutions to more than 4,300 businesses nationwide while originating over $650 million in leases and loans during that period. The acquisition, Marlin’s second in recent years, is consistent with its stated strategy of augmenting organic growth with strategic acquisitions that extend the company’s existing equipment finance business into new and attractive markets.

“The acquisition of FFR, which originated more than $75 mil-lion in 2017, fits well within our vocational strategy for the transportation market by focusing on the financing of trans-portation equipment used by small businesses,” said Jeffrey Hilzinger, Marlin’s President and CEO. “In addition, approxi-mately 70% of FFR’s origination volume is direct to end users, which is consistent with our emphasis on expanding Marlin’s direct origination capabilities. Overall, this acquisition allows us to significantly accelerate our growth in the commercial vehicle and titled transportation markets with a proven and successful team that has significant expertise in these markets.”

With the acquisition, FFR will become Marlin’s Commercial Vehicle Group, which will now be headed by David Reynolds, FFR’s Co-founder, President and CEO.

The Alta Group initiated this transaction and served as exclu-sive financial advisor to FFR.

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National Equipment Finance AssociationStearns Bank to Break Ground on Major EF Division ExpansionStearns Bank will soon break ground on an 11,000-square-foot addition to its Equipment Finance Division in Albany, MN, to accommodate growing operations.

Driving this growth has been Stearns Bank’s substantial invest-ments in technology, including new mobile phone banking capabilities. Since June 1, 2018, Stearns Bank has added 82

local hires (an increase of 38% ) at its Equipment Finance Division, bringing the current number of employees at the Albany hub to 214. The company plans to hire additional staff through the end of the year to meet the needs of its growing customer base.

“This is an exciting time for Stearns Bank and our local com-munity. The growth we’re experiencing is a direct result of the hard work, innovation and dedication from our employees,” said Stearns Bank President Kelly Skalicky. “Stearns Bank was founded in Albany, and we are so fortunate to continue to have so many ambitious and talented people right here in this community working hard every day to get the job done for our customers.”

PERSONNEL ANNOUNCEMENTS

Tamarack Hires Seven and Expands HeadquartersTamarack has moved to a new headquar-ters in the North Loop in Minneapolis, MN, doubling its space. It also has added seven new positions over the past three months to meet growing demand.

“We feel with the expanded team, we bring the right diversity to better serve our customers,” said Kristian Dolan, Owner and Solution Architect, at Tam-arack.

George Burke, with over 25 years of leas-ing and lending experience and an expert in InfoLease, adds extensive experience to Tamarack’s back office software engineer-ing team. Aimee Ertel is coming to Tama-rack with 15 years of banking experience. Ertel has held positions in lending, project management and process improvement. She earned an MBA in 2017 and is Six Sigma certified. Alex Berg has been work-ing as a Salesforce developer since 2011. His last engagement was with Twitter in San Francisco. Berg is a computer science major and has obtained a Salesforce.com Platform Developer Level 2 certification. Tom Zimmerman brings over seven years of CRM experience and holds Salesforce Admin and Sales Cloud Consultant cer-tifications. Zimmerman has a Bachelor of Science in economics and a minor in French. Zach Austin comes to Tamarack as a Developer with a degree in aerospace with a minor in astrophysics from Uni-versity of Minnesota. Cory Cafferty joins the Tamarack team as a Developer with a bachelor’s degree in mathematics and a minor in computer science from Uni-versity of Minnesota. Nick Adams has

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“We are very excited with our new additions to the Tamarack team,” said Daniel Nelson, Owner and President at Tamarack. “Each of these employees brings something unique to our already strong team.”

North Star Leasing Hires VP, New Business DevelopmentNorth Star Leasing announced the hiring of Ed Testa as Vice President – New Business Development. It is a new position at the company.

“I am very pleased to add Ed to our team of leasing profession-als. Ed’s 33 years of leasing experience adds valuable expertise to our team as we execute on our aggressive growth plan over the coming years,” said Dan Feeney, CEO of North Star Leas-ing.

“I was very impressed with the culture at North Star Leasing when I visited and the plan to substantially grow fundings over the coming years and feel confident that my 30+ years of ven-dor relationships will be serviced properly and professionally by the North Star Leasing team,” Testa said.

Wintrust Commercial Finance Promotes ThreeWintrust Commercial Finance (WCF), a division of Wintrust Asset Finance Inc., announced three internal promotions: Mallori Allen, Senior Operations Analyst; Anthony Ruggi-ere, Senior Financial Analyst; and Kim Lewsader, Operations Reporting Analyst.

“We are pleased to be promoting these three hard-working individuals,” said Kirk Phillips, President and CEO. “Mallori, Anthony and Kim have demonstrated a commitment to going above and beyond to meet our customers’ needs. We value their contributions and look forward to helping them and oth-ers on the team to grow both personally and professionally.”

Allen previously worked for one of Wintrust’s community banks in Illinois as a teller manager, then a loan operations assistant, and, later, a loan administration specialist, before signing on with WCF and relocating to Texas. Allen has a degree in business administration and has more than 12 years of banking experience. She will report to Lisa McNeme, Vice President of Operations, who said, “Mallori has been instru-mental in the growth and development of our operations department where she has done an outstanding job, and we look forward to her contributions in this new role.”

Ruggiere joined WCF upon graduation from the University of Arkansas and will now serve as a Senior Financial Analyst. During his time with WCF, he has balanced his responsibilities while also working toward earning his MBA from Southern Methodist University. He will report to Ryan Berlage, Senior Vice President and Credit Manager.

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Berlage said, “Anthony has quickly picked up WCF’s under-writing, documentation and funding processes, and has become a meaningful contributor to the department.”

Lewsader joined WCF in 2016 as an administrative assistant, and was most recently serving as an operations analyst role.

Jeff Darlington, Executive Vice President and Chief Financial Officer, said, “Kim’s exceptional IT skills, combined with her leasing industry knowledge, will be instrumental as we con-tinue to build out our reporting and management systems.”

North Star Leasing Hires Coon as First Chief Commercial OfficerNorth Star Leasing announced the hiring of Michael Coon as its first Chief Commercial Officer.

“We’re thrilled to have Michael join the North Star Leasing team as we execute on our aggressive growth plan by expanding our sales force and our syndication capabilities,” said Dan Fee-ney, CEO of North Star Leasing. “His significant experience in equipment finance and his involvement in the equipment finance industry, most recently as the President of NEFA, will allow us to take full advantage of his knowledge and bring our business to an exciting new level.”

“I am extremely excited for the opportunity to join North Star Leasing as the future growth potential is remarkable for this 40-year-old company. Dan and his team have built a solid platform and I look forward to contributing to its future suc-cess and national expansion,” said Coon.

In his new role, Coon’s responsibilities will be to extend the North Star Leasing brand nationally with a broader network of brokers and syndication partners as well as recruiting seasoned leasing professionals to complement the company’s existing business development team.

DePonte Promoted to Lead Key EF Clean EnergyKey Equipment Finance announced the promotion of Brian D. DePonte to lead Key Equipment Finance Clean Energy, a unified clean energy and energy efficiency team providing financing solutions for vendors, developers and clients.

In this role, DePonte will lead the company’s finance initiatives across all types of clean energy products, including solar instal-lations, fuel cells, LED and other lighting solutions, energy efficient heating and cooling, combined heat and power, and other new energy innovations.

“Brian is a proven leader who understands evolving markets and how to meet the needs of clients in the energy space,” said Adam D. Warner, President of Key Equipment Finance. “Under Brian’s leadership, the Key Equipment Finance Clean Energy team will strategically deploy capital that positively impacts our environment and energy independence, all of which contribute to our Key4Green sustainability efforts.”

Previously, DePonte was Senior Vice President, energy solu-

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Time to Renew Your Annual NEFA Membership Dues!

Visit: NEFAssociation.org or contact Kim King

[email protected]

http://www.stearnsbank.com/nefa

http://www.nefassociation.org/


Please send your company's news items to [email protected]

tions. He joined Key Equipment Finance in 2011 and was Senior Vice President for Key Government Finance. Prior to joining Key, he was Vice President of Sales and Operations for the Municipal Services Group.

CERTIFIED LEASE & FINANCE PROFESSIONALFOUNDATION

CLFP Foundation Announces 2019 Board of DirectorsThe Certified Lease & Finance Professional (CLFP) Founda-tion announced the 2019 CLFP Board of Directors. They are:

• Sudhir Amembal, CLFP – Amembal & Halladay• Todd Buzard, CPA, CLFP – First

American Equipment Finance• Andrew Eller, CLFP – First Ameri-

can Equipment Finance• Chris Enbom, CLFP – AP Equip-

ment Financing• Nathan Gibbons, CLFP – Innova-

tion Finance• Joe Leonard, CLFP – Oakmont

Capital Services• Tamara McCourt, CCE, CLFP –

LendSpark• Dan Nelson, CLFP – Tamarack

Consulting• Kevin Prykull, CLFP – PNC Equip-

ment Finance• Nick Ross, CLFP – Western Equip-

ment Finance• Pete Sawyer, CLFP – Sun South

Equipment Leasing• Jason Seitz, CLFP – BMO Harris

Equipment Finance• Marci Slagle, CLFP – 36th Street

Capital• Jenny Wood, CLFP – Orion First

Financial

"I couldn’t be more excited and honored to be a part of the CLFP Board of Direc-tors,” Wood said. “It wasn’t so long ago (okay maybe it was) that Reid (Raykov-ich)and I were pulling all-nighter’s study-ing to pass the exam together. I will never forget the late nights and early mornings but looking back it developed a lifelong friendship I am very thankful for. I have always said it’s not about getting to the finish line but about the journey on the way. I know that by being part of this group I will not only help others become more involved and further their careers in

the leasing industry, but also help them enjoy the journey on the way there.”

The CLFP designation identifies an individual as a knowledge-able professional to employers, clients, customers and peers in the equipment finance industry. There are 619 Certified Lease & Finance Professionals and Associates throughout the world.

Arizona - Jennings, Haug

& Cunningham, LLP

California - Los Angeles - Hemar,

Rousso & Heald, LLP

San Francisco - Cooper, White & Cooper, LLP

Colorado - Harry L. Simon, P.C.

Delaware - Fineman Krekstein & Harris P.C.

District of Columbia - Friedman, Framme

& Thrush, P.A.

Florida - Miami Beach - Mitrani, Rynor,

Adamsky & Toland P.A.

Sarasota - Shumaker, Loop

& Kendrick, LLP

Georgia - Hays Potter Martin, LLP

Hawaii - Kessner Umebayashi Bain

& Matsunaga

Illinois - Ashen/Faulkner LTD

Kansas - Young, Bogle, McCausland,

Wells & Blanchard

Louisiana - McGlinchey Stafford, PLLC

Maryland - Friedman, Framme

& Thrush, P.A.

Massachusetts - Cohn & Dussi, LLC

Michigan - Jaffe, Raitt, Heuer & Weiss, P.C.

Minnesota - Messerli & Kramer, P.A.

Mississippi - McGlinchey Stafford, PLLC

Missouri - Jenkins & Kling, P.C.

New Jersey - West Orange - Chiesa

Shahinian & Giantomasi

Voorhees - Howard N. Sobel, P.A.

New York - New York City - Foster &

Wolkind, P.C.

Syracuse - Barclay Damon LLP

North Carolina - Raleigh - Smith Debnam

Oregon - Farleigh Wada Witt

Pennsylvania - Pittsburgh - Bernstein -

Burkley, P.C.

Philadelphia - Fineman Krekstein

& Harris P.C.

Rhode Island - Cohn & Dussi, LLC

South Carolina - Bunch Law LLC

Texas - Fort Worth - Padfield & Stout, LLP

Houston - Wright Law Group, PLLC

Utah - Ray Quinney & Nebeker, P.C.

Virginia - Friedman, Framme & Thrush, P.A.

West Virginia - Bernstein-Burkley, P.C.

Wisconsin - Quarles & Brady, LLP

Murphy Desmond, S.C.

Wyoming - Harry L. Simon, P.C.

Having a Problem withLease Enforcement?

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LEASE ENFORCEMENT ATTORNEY NETWORK

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INDUSTRY EVENTS CALENDARNational Equipment Finance Summit

March 13-15, 2019Newport Beach Marriott Hotel & Spa

Newport Beach, CA

NEFA Funding SymposiumOctober 2-4, 2019

JW Marriott Atlanta BuckheadAtlanta, GA

nefacts2018 NEFA PARTNERS AS OF OCTOBER 2018

HALL OF FAME PARTNERSChannel Partners CapitalLeaseTeam, Inc.Pawnee Leasing Corporation

LEGEND PARTNERSAMUR Equipment FinanceECS Financial Services, Inc.Financial Pacific Leasing, Inc.Marlin Business BankStearns Bank

MVP PARTNERSBeneficial Equipment Finance Corp.Bryn Mawr FundingFirstLease, Inc.Great American InsuranceNavitas Credit Corp. North Mill Equipment FinanceOrion First Financial, LLCQuality Leasing Co., Inc.

WELCOME NEW MEMBERS!

ALL-STAR PARTNERS4 Hour FundingArvest Equipment FinanceBancorpSouth Equipment FinanceDakota Financial, LLCDedicated Funding, LLCOrange Commercial CreditRapidAdvanceRTR Services, Inc.

2019 National Equipment Finance Summit March 13-15 | Newport Beach, CA Marriott Hotel & Spa

NEFAssociation.org

Register Early for

Super Saver Rates!

SAVE THE DATE!

Ailco Equipment Finance Group Broker/LessorAvTech Capital Funding SourceClickLease, LLC Funding SourceEvolve Capital Group Broker/LessorExpressway Capital Group LLC Broker/LessorInternet Financial Partners Broker/Lessor

Lease-Finance Resources, Inc. Broker/LessorMacquarie Corporate & Asset Finance Funding SourceMerchant Flow Financial Corp. Broker/LessorTimePayment Funding SourceUS Equity Funding, LLC Broker/Lessor


https://www.nefassociation.org/events/EventDetails.aspx?id=1031667&group=

NEWSLINE PICTORIAL


NEFA'S 2018 Funding Symposium

October 3-5, 2018Charlotte Marriott City CenterCharlotte, NC

Risk Management Strategies: When Selling Non-Performing Accounts Makes Sense Commercial debt selling is an effective strategy for managing risk via the selling of non-performing accounts. TBF Financial’s Brett Boehm explains the key issues to consider in this process and important steps to making it successful for all players.By Brett Boehm

Most corporate customers enter into a lease or loan agreement intending to honor the terms. A business that later defaults on its agreement may, over time, return someday as a customer in good standing. These are important points to consider when evaluating options for handling non-performing accounts. Your goal is to improve return without perma-nently severing the customer relationship if possible; or damaging your company’s reputation. For many businesses in the

equipment finance industry, a smart way to do this is by selling off non-performing paper.

Sounds a bit counterintuitive, doesn’t it? How can selling off non-performing accounts help protect customer relationships and corporate reputations while increasing revenue?

It can if you understand how commercial debt sale works, are cognizant of the pros and cons, and know what qualities to look for when vetting commercial debt buyers and their brokers. The question of when to sell in the lifecycle of an account is another important consideration for equipment finance companies.

How It WorksCommercial debt selling is a way of selling off non-perform-ing accounts for cash at closing. U.S. equipment finance com-panies have been using this option since 1998, and today it is an accepted practice. Details of the process can vary from buyer to buyer. So can a seller’s desired timing and criteria for selling.

Determining what to sell can be based on several factors. Some sellers designate specific product categories that will be part of the sale. Others select specific geographies, special-ties, balances, pool size and/or other criteria. Then there is the question of when to sell, based on the vintage of the accounts. The diagram to the right illus-trates the main categories typ-ically used to decide what to sell and what to keep.

Most equipment finance companies that use commercial debt-buying services sell off accounts after they have gone into default and been charged off. This is the point when collection attempts have been exhausted and additional in-house efforts would waste time, money and resources. Some businesses prefer to sell off all accounts after they are charged off. Others opt to litigate accounts valued above a certain threshold and sell off the rest.

So how does an equipment finance company get involved in commercial debt selling, or at least consider it? The following are key steps in the process.

• Learn more about commercial debt buying and vet potential buyers. Important questions to ask potential buyers and their brokers will be covered later in this article.

• When contacting the potential buyer to move forward, you will be asked to supply basic information on the pool of accounts being sold. The buyer may request a simple spread-sheet that includes each obligor’s name, address and phone number; guarantor’s name, address and phone number; date of last payment; outstanding balance; and a copy of sample media to be provided upon purchase, such as the agreement and pay ledger.

• The commercial debt buyer determines the value of your pool of accounts and offers a purchasing price. If the price is accepted, a purchase agreement is signed by all parties, and the buyer wires the funds to your company on the specified closing date.


Brett BoehmTBF Financial

Categories for Evaluating Commercial Debt SalesBy Product: small and mid-sized equipment leases, merchant cash advance (MCA), online loans from alternative financiers, bank products, etc.

By Vintage: pre-charge-off, post-charge-off, zero agency, post-agency

By Geography: national vs. state-by-state

By Specialty: Chapters 7 & 13, judgments

By Quality: prime vs. sub-prime

By Pool Size: one-off vs. pool

Out-of-statute vs. In-statute: OSS accounts sell for basis points; ISS have option of being litigated, increasing their value

By Balance: any balance segment can be packaged together for sale or entire pool of non-performing accounts can be sold

Source: TBF Financial | tbfgroup.com


• The buyer works on their own to collect the debt, over time, using their own name without representing themself as part of the equipment finance company.

• Many equipment finance companies establish a forward-flow relationship with their buyer that includes regularly scheduled transactions, typically monthly or quarterly, at a predeter-mined price.

So, how does the buyer make money on the back end? Commer-cial debt buyers have more flexibility than equipment finance companies in discounting payments and offering extended terms. If an equipment finance company were to provide the same flexibility, word could get out that it is lenient, diminish-ing the incentive for other customers to honor their agreements.

Pros & ConsIn looking at the pros and cons of commercial debt selling, we need to also consider the alternatives, which include third-party collections agencies, attorneys or continued in-house efforts.

Compared with all three of these options, commercial debt selling delivers immediate monetary advantages, since debt is replaced by cash at closing and a $0 recovery is transformed into money on the balance sheet. When an equipment finance com-pany has an established forward-flow relationship with a buyer, sellers can project receivables and budget appropriately. Com-pared with continued in-house efforts, commercial debt selling also frees up collections staff for more profitable pursuits.

However, with commercial debt buyers and any other third-party entity (a collections agency or legal firm, for instance) you must take steps to ensure the company you are dealing with is ethical. Make sure the buyer’s processes work to your advantage and pro-vide safeguards should you wish to buy back an account later.

Vetting Buyers & BrokersEvery profession has its good eggs and bad apples. Commercial debt buyers, and the brokers they use as middlemen are no dif-ferent. This checklist will ensure the companies you are dealing with are the real professionals.

• Talk directly to the commercial debt buyer about his/her phi-losophy, collection process and security procedures.

• Contact references who run companies that are similar to yours.

• Ask the buyer if they will be collecting debts over time, in a sensitive way, using his/her own company’s name and not yours. The answer should be “yes.”

• Determine whether the buyer will resell the debt? The answer should be “no.” This means your company can always buy back an account should an issue arise post-sale.

• Insist that the buyer (and their broker, when applicable) have signed nondisclosure agreements (NDAs) before providing them proprietary information.

• Don’t do business with a broker until you verify that he/she has an established relationship with a specific buyer and has done business with that buyer recently.

• Make sure brokers use NDAs to protect the confidential information of all parties.


• Ask the broker how he/she plans to share portfolio informa-tion, who will see it, how non-performing accounts will be collected and if they could be resold at any point. Again, the answer to the last question should be “no.”

• Make sure the closing transaction goes directly from buyer to seller and does not flow through the broker.

Notice throughout this article we have used the term commer-cial debt buyers. You want a partner who has extensive expe-rience collecting business-to-business debts. Commercial debt buying is a whole different animal from consumer debt buying, with different requirements and customer sensitivities.

Evaluating OffersSo, you’ve zeroed in on a reputable commercial debt buyer. How do you evaluate if the price offered is fair? First, do not be tempted to accept an unusually high price. Think carefully about what constitutes a fair offer. Buyers and brokers who offer too high a price to win your business will be desperate to col-lect debt on the back end and may apply untoward pressure on customers.

Know what factors the buyer will consider when setting a pur-chase price and think about whether the offer seems fair given these considerations. What is the likely recovery on the non-per-forming assets? In other words, what is the estimated total net recovery once expenses like costs out, personnel, necessary equipment and asset depreciation are factored in? What is the value of guaranteed money now versus a payment several years from now? The size of the account balance also affects recovery and therefore the purchase price. Larger balances carry more risk and there is a lower percentage of recoveries; smaller balances are more likely to be recovered and carry less risk.

Plan NowAfter climbing to a record high in recent history — 6.3 per-cent in 2009 — default rates plummeted as finance companies purged non-performing accounts from their books and tight-ened lending in the aftermath of the Great Recession. PayNet data show default rates in 2017 averaged just 1.8 percent, well below the 2.9 percent historical average. If an equipment finance company is experiencing unusually low default rates with cus-tomers, however, it can be a negative indicator that signals a business is too risk-averse for healthy portfolio growth. So, we expect to see the current numbers rise closer to the historical average. PayNet forecasts default averages nationwide will rise to 2.1 percent this year and 2.2 percent in 2019.

The current market gives equipment finance companies an ideal pause to reevaluate their processes for handling non-performing paper. Defaults are low now, but they are destined to rise.

ABOUT THE AUTHOR: Brett Boehm is CEO of TBF Financial.


Risk management is a central pillar for all leasing companies that want to stay in business long term. However, there exists a natural tendency to adopt a nar-row field of vision when assessing credit risk: What is the probability of a cus-tomer failing to honor their contract; how vulnerable is a particular customer or industry to the economic cycle and/or macroeconomic shocks; can equip-ment be recovered if there is a default; and what would be the ultimate net loss

to the company?

Industry metrics have become increasingly sophisticated in an effort to efficiently provide answers to these common ques-tions, with large companies such as Experian and PayNet providing shorthand answers in the form of credit scores and borrowing history. However, for a leasing company to not just survive, but thrive, within a growing but increasingly compet-itive industry, it must understand more than just the inherent credit risk of a potential customer.

A financier needs to understand not just whether to approve or decline a deal, but also how to price it. This should be nei-ther left to market forces nor based on a predetermined sched-ule of program rates that artificially creates false equivalence between homogenous transactions. Rather, all dimensions of an application need to be internalized and integrated into a repeatable process which can, in turn, provide precise pricing guidance to allow sales professionals to effectively price and close a deal that makes economic sense for both the customer and the financier. The end result must be to ensure that a con-sistent and profitable mix of business is achieved and sustained for the long term.

Managing credit risk boils down to protecting investable cap-ital – a goal that is best achieved through meaningful invest-ment in human capital. Bureau scores are inherently backward looking; there is no substitute for the innately human ability of a properly trained underwriter to intuitively and holistically understand a customer’s business.

ADVANCEMENTS IN MANAGING RISK – A Key Element for Every Finance Company For a company to thrive in an increasingly competitive industry, it needs to understand not just whether to approve or decline a deal, but how to price it. James Truran, of Amur Equipment Finance, explains the nuances of risk management for equipment finance companies.By James Truran

James TruranAmur Equipment Finance


panies that pride themselves on customer service. The ability of the consumer to discriminate between companies that offer good service and those that do not, based on public customer reviews, becomes a comparative advantage and a reward for good customer care. Companies are also able to promote the brand of the company effectively by sharing the participation of their employees in community or charity events.

A final area that requires careful assessment is compliance: Does a leasing company understand not just the letter of the current environment, but the principles that are driving future reg-ulations? This includes guidance affecting larger institutions, such as banks or insurance companies, that may trickle down to smaller organizations. Can a company not just avoid fall-ing foul of penalties, but take to heart the philosophy behind regulations to pressure-test its own processes and procedures? Similarly, uncertainties regarding tax treatment can prompt a last-minute scramble at audit time, or if understood early, con-tribute to business strategy. Understanding these variables can help companies tailor leasing products to offer the best value to customers under future tax environments.

It may be worth considering whether the same principles used by credit officers to evaluate the merits of applications can be applied more universally within the business. Credit officers tend to be naturally skeptical given their mandate to probe the potential downside of a transaction while assuming an oth-erwise predictable and upper-bound return. In other depart-ments, this discipline may be harder to apply given the absence of metrics. How do you take a credit officer view of a problem, such as deciding whether or not to upgrade a technology plat-form, when there is no convenient bureau score for technolog-ical maturity or an equivalent of “financials” that give insight into the performance and longevity of a piece of software? Ultimately the solution lies with project management disci-pline, training and skilled employees who are both empowered to speak their mind and can reliably identify how a new devel-opment project not only affects each individual department but the company as a whole. A company whose core values encourage honesty and open communication will be able to marshal the collective understanding of subject matter experts to make smart choices.

ABOUT THE AUTHOR: James Truran is the Chief Operat-ing Officer of Amur Equipment Finance.

Additionally, to make decisions that are optimal for its busi-ness as a whole, a company needs each of its departments to function cohesively as a team: for example, collections activity should be shared with underwriters, asset recovery should work arm-in-arm with sales and marketing efforts should be seam-lessly integrated with information technology. Every employee needs to understand how the business operates and makes money – not just how to carry out his or her own role. Com-panies should strive to build cross-trained teams and eliminate sole reliance on any one individual (otherwise known as "key employee risk"). Employees should be sufficiently trained, and adequate processes and procedures should be in place to allow for cross-departmental deployment of resources.

Companies must evaluate all aspects of their human capital: Are new staff employed and trained in anticipation of future growth, rather than rushing to recruit the wrong person when a shortfall is hurting operations? Relatedly, what are the risks/rewards of remote working: Do the benefits of a wider recruit-ment pool outweigh challenges in oversight and inclusion in company culture? What about spreading teams across time zones to provide greater customer coverage – or hiring over-seas: Is it OK to outsource a critical component of the busi-ness?

Another key area of risk is technology. Should a company be an early adopter of new leasing software that promises greater automation, integration and features, or should it hold back and allow others to dull the “bleeding edge” of technology until it matures? One approach introduces the risk of adopt-ing software that doesn’t work; the other allows competitors to get ahead. Technical complications arise when a company is looking to technology to allow it to do something it can’t do today. A shift in business strategy predicated on an unproven technological platform is a high-risk/high-reward event. Here, risk assessment becomes as important in planning as execu-tion: The ultimate question—should we do anything at all—requires a careful analysis based on an honest understanding of what can be done.

Advances in technology have made customer relations an increasingly public event. Whereas even five years ago, a com-plaint was a private matter best resolved through informed dialogue, the advent of social media has created new reputa-tional risks for companies whose business image is increasingly defined by its online profile. But, while malicious content is always a concern, there is a new opportunity offered to com-


“Managing credit risk boils down to protecting investable capital – a goal best achieved through meaningful investment in human capital. Bureau scores are inherently backward looking; there is no substitute for the innately human ability of a properly trained underwriter to intuitively and holistically understand a customer’s business.”

I. Background The patchwork legalization of marijuana presents a unique set of opportunities and challenges to the financing industry. Thir-ty-one states and the District of Columbia have legalized medi-cal-use marijuana1 and nine states and the District of Columbia have legalized recreational adult-use of marijuana2. Canada has just become the first major industrialized country to legalize recreational use of marijuana. The U.S. is the leading finan-cial player in the growing legal cannabis market. In 2017, the global legal marijuana trade reached $8.5 billion, and the U.S. accounted for 90 percent of it. In 2018, U.S. sales are expected to be 85 percent of the 2018 world market ($11.0 billion of $12.9 billion total). By 2022, legal cannabis revenue in the U.S. market is projected to reach $23.4 billion3, however, cannabis remains an illegal substance at the federal level where certain activities are a federal crime4. Despite the discrepancy with fed-eral law, the industry has continued to grow and can potentially open up a new sector to financial institutions, provided they are willing to undertake extensive due diligence and appreciate the risks associated with potential gains.

FINANCING EQUIPMENT TO THE CANNABIS INDUSTRY– Emerging Collateralization and Security Lien IssuesThe financing of equipment for companies in the marijuana industry presents unique issues for lessors and lenders. As the industry grows, understanding these issues will become critical for companies willing to provide financing to this industry.By Dennis A. Dressler and Ella Khazanova

II. Federal Law - Tension-filled Approach to States’ Rights Under federal law, marijuana is a Schedule I controlled sub-stance5. Penalties for engaging in financial transactions involv-ing the proceeds of an illegal activity include prosecution under money laundering statutes, the unlicensed money transmitter statute, and the Bank Secrecy Act. Collateral used to secure a loan with a cannabis-based business, including real estate and account receivables, can be subject to forfeiture under the Controlled Substances Act which allows the federal govern-ment to seize assets traceable to, and used to facilitate, sales of marijuana6. Not surprisingly, financial institutions have been discouraged from entering the market.

On January 4, 2018, the U.S. Department of Justice (the “DOJ”) issued a Memorandum which rescinded the prior administration’s guidance, including James M. Cole, Deputy Attorney Gen.’s, MEMORANDUM FOR ALL UNITED STATES ATTORNEYS: GUIDANCE REGARDING MAR-IJUANA ENFORCEMENT (Aug. 29, 2013)7. The Cole Memorandum de-prioritized the enforcement of federal mar-



ijuana prohibition in the states that “legaliz[ed] marijuana in some form ….)8. The new DOJ guidance provides for more investigative and prosecutorial discretion by U.S. Attorneys in enforcing the federal ban9. It has been criticized for creat-ing uncertainty and potentially having a chilling effect on the cannabis industry10. U.S. Attorneys’ offices across the country issued a statement which provided differing views of the new guidance, with some prosecutors signaling a shift in policy, while others are seeing the new guidance as being consistent with past practices11.

Things may change soon. Congressman Dana Rohrabacher (R-CA) indicated that the White House is planning to address cannabis reform after the mid-term elections. Rohrabacher stated that the president has spoken in support of legalizing medical marijuana on the federal level – and leaving the ques-tion of recreational marijuana use up to the states12. In other words, stay tuned!

III. Key Considerations in Protecting Your Rights in Equip-ment Financing Transactions Involving Cannabis Growers and ManufacturersThe cannabis industry, like many agricultural industries, utilizes a lot of equipment. The cannabis products that are being offered in the form of edibles, inhalants and extracts require sophisti-cated extraction and testing equipment. The market for canna-bis is growing and, therefore, so are the opportunities to finance equipment to the cannabis industry. Ultimately, whether your company wants to enter into this space is a business decision, but if your company decides to move forward in this industry there are a number of important considerations you should be aware of and document correctly. For starters, the main risk that is unique to funding equipment in the cannabis industry is that at any time your cannabis business customer could be raided and shut down by federal authorities. Often, when this occurs, all of the equipment at the facility that has been raided will be seized by federal authorities as evidence of a crime. Recovering equipment seized as part of a crime can take a long time and be costly. Therefore, when underwriting the transaction, the poten-tial fact that you may not recover the equipment being financed should factor heavily into the consideration and affect the rate and terms of the transaction.

On the issue of whether to structure the equipment transac-tion as a true lease under Article 2a of the UCC or a loan under Article 9 of the UCC, there is not one answer but sev-eral factors would indicate that a loan may better protect the equipment financing company. One, doing the deal as a loan would remove the financing company from being the ‘owner’ of the equipment. Second, language concerning the security interest in the equipment can be used to distance the equip-ment financing company from any activities deemed illegal under federal law. Third, a loan would reduce the potential for the equipment coming back into possession of the equipment finance company containing cannabis related residue.

When financing equipment to the cannabis industry, thought should be given on how to structure and document the secu-rity interest being granted. Since the end product, cannabis, is

illegal to cultivate under federal law and various state laws, traditional categories of collateral asserted in blanket liens may be problematic, such as “farm products” “inventory” “crops” “goods” “rents” and “accounts.” One possible way to deal with this issue is to specifically exclude from the collateral description “any proceeds, revenue, profits or real property arising out of or related to the dispensing, dis-tribution, sale, manufacture, production or possession of a controlled substance as defined in 21 U.S.C. Section 802 et seq.” While maintaining a security inter-est in the equipment is less likely to raise issues with the state’s regulators or fed-eral authorities, trying to assert a security interest in marijuana-based inventory or the licensed business itself could be ille-gal and/or raise impermissible control issues13.

A business needs to get comfortable with the level of oversight exercised by local authorities and comply with any disclosure requirements. In Washington, by loaning funds to a cannabis business, you could be deemed a “financier,”14 subject to a financial and criminal investigation15. Prior to funding, a prospective customer must obtain approval from the Washington State Liquor and Cannabis Board16. In California, a lender may be deemed to be a “financial interest holder,” who has to be disclosed17. Your potential customer is required to identify the amount of the loan, date of the loan, terms of the loan, security provided for the loan, and the name, address and phone number of the lender18. Colorado law, too, provides for disclosure requirements for business interests and may conduct a background investigation19.

Structuring a financial relationship with a marijuana business necessitates consideration of several factors not found in stan-dard financing agreements20. The agreement must be designed in a way as to not violate the applicable marijuana rules in a given state, including the manner in which you get paid so that you are not treated as an owner or a hidden profit sharer21. Thus, payments based on a fixed fee schedule should carry less risk than taking an equity interest in the marijuana business or otherwise linking the repayments to the performance of the business. Similarly, any provisions which provide for imper-missible control over the business can be problematic22.

Because federal law, including the U.S. Bankruptcy Code, does not confer legal status to the cannabis sector and by extension does not protect your rights as a secured creditor23, evaluating state receivership proceedings specific to the cannabis industry (which vary state by state), and outlining a foreclosure plan up front in the equipment finance agreement may be a useful collection tool in case of default24.

Another important consideration would be to include provi-sions for private dispute resolution, provide for venue in a state

Dennis DresslerDressler & Peters, LLC

Ella KhazanovaDressler & Peters, LLC


where marijuana is legal for recreational use and mandate that any litigation occur in state court, which is more likely than its federal counterpart to validate and enforce your agreement25.

Given the precarious condition of your security interest, insist on ironclad notarized personal guaranties that state on their face that the guaranties are separate and distinct legal obliga-tions from the underlying equipment financing transaction. The personal and/or corporate guaranties may provide the best source of recovery in the event of a default.

IV. ConclusionUntil and unless the federal law changes, the state-based legal cannabis industry has created a distinct opportunity which tests the financial sector’s risk aversion. Many institutions

have chosen not to participate and others limit participation to account-based servicing. The due diligence and forethought necessary to engage in lending-based transactions with this industry show that this is not easy money. But for some, it may be worth the candle.

ABOUT THE AUTHORS: Dennis Dressler Esq. is an attorney whose practice specializes in the equipment finance industry. Ella Khazanova Esq. is an attorney whose practices specializes in complex commercial litigation and commercial bankruptcies. They are with the law firm Dressler & Peters, LLC.

1 National Conference of State Legislatures, State Medical Marijuana Laws, (June 27, 2018), http://www.ncsl.org/research/health/state-medical-marijuana-laws.aspx2 National Conference of State Legislatures, Marijuana Overview, (October 4, 2018), http://www.ncsl.org/research/civil-and-criminal-justice/marijuana-overview.aspx3 Abby Benjamin, The Arcview Group, NEW REPORT: Legal Marijuana Markets Pro-jected to Reach $23.4 Billion, Employ Nearly a Half-Million Americans by 2022; Effective End of Federal Prohibition is in Sight, June 28, 2018, https://globenewswire.com/news-re-lease/2018/06/28/1531033/0/en/NEW-REPORT-Legal-Marijuana-Markets-Projected-to-Reach-23-4-Billion-Employ-Nearly-a-Half-Million-Americans-by-2022-Effective-End-of-Federal-Prohibition-is-in-Sight.html (discussing the “The State of Legal Marijuana Markets, Sixth Edition” report (SOLMM6) released by Arcview Market Research in partnership with BDS Analytics.)4 Id. 5 See 21 U.S.C. § 812 “Schedule I” (c)(10).6 21 U.S.C. § 881; Daniel Bugbee & Dominique Scalia, Lending to Licensed Marijuana Busi-nesses, (Jan. 16, 2015), https://www.marijuanaventure.com/lending-licensed-marijuana-busi-nesses/7 Jefferson B. Sessions, Attorney General, MEMORANDUM FOR ALL UNITED STATES ATTORNEYS: MARIJUANA ENFORCEMENT (Jan. 4, 2018), https://www.justice.gov/opa/press-release/file/1022196/download8 James M. Cole, Deputy Attorney Gen., MEMORANDUM FOR ALL UNITED STATES ATTORNEYS: GUIDANCE REGARDING MARIJUANA ENFORCEMENT (Aug. 29, 2013), https://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf9 Jefferson B. Sessions, Attorney General, MEMORANDUM FOR ALL UNITED STATES ATTORNEYS: MARIJUANA ENFORCEMENT (Jan. 4, 2018), https://www.justice.gov/opa/press-release/file/1022196/download.10 Brad Auerbach, How Cannabis Entrepreneurs feel about Sessions reversal of the Cole Memo, (March 3, 2018), https://www.forbes.com/sites/bradauerbach/2018/03/03/how-cannabis-en-trepreneurs-feel-about-sessions-reversal-of-the-cole-memo/11 Eric Sandy, Differing Views: U.S. Attorneys address Cole Memo Repeal, (January 12, 2018), http://www.cannabisbusinesstimes.com/article/attorneys-prosecutors-cole-memo-re-peal-marijuana/12 Hillary Vaughn, White House to unveil federal cannabis reform 'very soon,' says GOP lawmaker (October 11, 2018), https://www.foxbusiness.com/politics/white-house-to-unveil-federal-cannabis-reform-very-soon-says-gop-lawmaker13 Hilary Bricken, Marijuana Equipment Leases: What You Need to Know, (April 3, 2017) https://www.cannalawblog.com/marijuana-equipment-leases-what-you-need-to-know/; see also, 1 Colo. Code Regs. § 212-1.204.5 D (“Secured Interest In Marijuana Prohibited. No Person shall at any time hold a secured interest in Medical Marijuana, Medical Marijuana Concentrate, or Medical Marijuana-Infused Product.”); 1 Colo. Code Regs. § 212-2.204.5 D (“Secured Interest In Marijuana Prohibited. No Person shall at any time hold a secured interest in Retail Marijuana, Retail Marijuana Concentrate, or Retail Marijuana Products”).14 Under Wash. Admin. Code 314-55-010(10), “Financier” means any person or entity, other than a banking institution, that has made or will make an investment in the licensed business. A financier can be a person or entity that provides money as a gift, loans money to the appli-cant/business and expects to be paid back the amount of the loan with or without interest, or expects any percentage of the profits from the business in exchange for a loan or expertise.15 Wash. Admin. Code 314-55-035(3) (“WSLCB will conduct a financial investigation as well as a criminal background of financiers”); Wash. Admin. Code 314-55-020(6)(b) (“Financiers will also be subject to criminal history investigations equivalent to that of the license appli-cant. Financiers will also be responsible for paying all fees required for the criminal history check.”).

16 Wash. Admin. Code 314-55-12017 Cal. Code Regs. tit. 16, § 5004

(a) A financial interest means an agreement to receive a portion of the profits of a commercial cannabis business, an investment into a commercial cannabis business, a loan provided to a commercial cannabis business, or any other equity interest in a commercial cannabis business except as provided in subsection (c). For the purpose of this section, an interest in a diversified mutual fund, blind trust or similar instrument is not a financial interest.

(b) The license application shall include the name, birthdate, and government-issued iden-tification type and number for all individuals who have a financial interest in a commercial cannabis business but are not owners as defined in Business and Professions Code section 26001(al). These individuals shall not be required to submit the information required of own-ers under section 5002(c)(20).

(c) Notwithstanding subsection (b), the following persons are not required to be listed on an application f(1) A bank or financial institution whose interest constitutes a loan;

(2) Persons whose only financial interest in the commercial cannabis business is through an interest in a diversified mutual fund, blind trust, or similar instrument;

(3) Persons whose only financial interest is a security interest, lien, or encumbrance on prop-erty that will be or licensure under section 5002(c)(19):

used by the commercial cannabis business; and

(4) Persons who hold a share of stock that is less than 5 percent of the total shares in a publicly traded company.18 Cal. Code Regs. tit. 16, § 5600(g)(17)(B)

The applicant shall supply the following financial information[...]

A list of loans made to the applicant for its use in cannabis event organizing activities. For each loan, the applicant shall provide the amount of the loan, the date of the loan, term(s) of the loan, security provided for the loan, and the name, address, and phone number of the lender.19 Colo. Code Regs. § 212-1.204.5; 1 Colo. Code Regs. § 212-2.204.5.20 Bricken, Marijuana Equipment Leases: What You Need to Know.21 Id.22 Id.23 In re Medpoint Management, LLC, 528 B.R. 178 (Bankr. D. Az. 2015)(vacated in part on other ground, 2016 WL 3251581 (B.A.P. 9th Cir. June 3, 2016) (dismissing involun-tary bankruptcy petition filed against the medical marijuana dispensary brought by creditors because debtor’s operation of a business is illegal under federal law); In re Arenas, 535 B.R. 845, 847 (10th Cir. B.A.P. 2015)(“Possessing, growing, and dispensing marijuana and assist-ing others to do that are federal offenses. But like several other states, Colorado has legalized these acts and heavily regulates them, triggering a flourishing marijuana industry there. Can a debtor in the marijuana business obtain relief in the federal bankruptcy court? No.”).24 Bricken, Marijuana Equipment Leases: What You Need to Know.25 Id.



LENDERS AND BROKERS —Building Commitments for Success and Managing RiskThree steps are key to building successful relationships between lending sources and their brokers: setting expectations, establishing a process and following through with practices that ensure expectations are met and the process is followed. By Scott Lipka and Shannah Berger

A mutualistic relationship is defined as two organisms of different species working together, each benefiting from the relationship. There are many examples in society that prove the success of these relationships. One example that grabs the attention of viewers year after year is those symbiotic relation-ships evident during Shark Week. The mutualistic relation-ship displayed between sharks and the pilot fish proves how working towards a common goal results in success for those involved. This example of oceanic relationships also can be seen in the relationships between lending sources and their brokers.

But how is this mutualistic relationship developed? There are three steps each side should take to ensure the common goal remains the focus: Setting expectations, establishing a process and following through with practices that ensure expectations, are met and the process is followed on a regular basis. A com-mitment to these steps will support all parties as they strive for success; but it also mitigates the risk during times of economic uncertainty.

Setting Expectations As a lending source…It is imperative that a lender clearly defines the parameters of their relationship with their brokers: the volume expectations, as well as credit parameters, that will be applied to applica-tions.

For the protection of both parties, each relationship should begin with a written agreement between the lending source

and the broker. The agreement should clearly state the reps and warranties the broker is expected to meet. These guide-lines protect the lender by outlining the need for full disclosure and transparency during the submission process. Other topics that the agreement could contain would be early payment defaults and documentation.

Volume expectations can vary from broker to broker based on industry, col-lateral and the number of vendor rela-tionships a broker may have to share with the lending source. As the lending source, the broker should be interviewed in regard to their business structure (i.e. How many reps? How long has the bro-ker been in business? How is business generated?); and reference checks should be performed with other lending sources that work with the broker.

Lending sources can work with the brokers to reach the projected volume expectation by setting credit parameters and being consis-tent in their application. An ongoing conversation about the underwriting process is important as the finance industry is an ever-changing environment. Underwriters will need to adapt in times of profitability, but, in turn, make adjustments to the credit policy when the economy is not as favorable to busi-

Scott LipkaFirstLease, Inc.

Shannah BergerFirstLease, Inc.


nesses. A lending source needs to make time to be clear on these changes with their brokers to keep the lines of commu-nication fluid.

As a broker…An agreement with lending sources is just as important for the broker. Be sure to understand the terms and conditions of the agreement. What are the expectations regarding the business relationships? Are you looking to have a referral relationship or an ongoing partnership that will grow with time? Does the agreement protect your vendor relationships? As a broker, you will want to ensure that the relationships shared with the lending source will be protected and not be shared with other brokers or sales reps.

As a broker, take the time to understand the credit parameters and lending sources’ response times. Does the underwriting process and turnaround time support the expectations you set for your customers? Do you have the type of transactions that meet the credit parameters provided by the lending source? There will be growing pains as the relationship with the lend-ing source begins; however, in time, a conversation may be needed to discuss if the relationship is truly mutualistic.

Establishing A Process

As a lending source…As the decision maker, the lending source should have a frame-work in place that outlines the process from application sub-mission through the funding of the transaction. The frame-work lays the foundation meant to protect the lender and provide consistency as the relationship grows. Ideally, brokers should adapt to the process the lending source puts in place, however, the lending source may need to be flexible based on opportunities.

As a broker…Because brokers can also be in the position of the lending source, a broker should seek relationships that intertwine seamlessly with their own submission, documentation and funding processes. For example, private label documentation and discounting relationships are very specific facets of the lender/broker relationship and each party needs to be clear if these requests can be supported.

Monitoring Expectations and Processes

As a lending source…Now that the expectations and processes are in place, the relationship finds a groove and begins to grow. As a lending source, there should be reporting in place to share with bro-kers that provides details regarding the growth of the volume and portfolio performance. Weekly, monthly, quarterly and yearly reports allow for the lending source to monitor trends, approval and closing ratios, and volume totals. In addition, a monthly delinquency report is essential to the broker as it brings awareness to portfolio performance.

As a broker…Monthly reporting is a tool brokers should use to their advan-tage and request details regarding a number of facets pertaining to their portfolio. Some examples would be approval percent-ages, closing ratios, vendor performance and customer delin-quency. The details in these reports can help brokers ensure the expectations and processes are being met. For example, if approval percentages are low, the broker could open a dialogue with the lending source to discuss if any credit parameters have changed or if any trends have developed impacting the decisions being made. Another example would be monitoring any delinquencies in your portfolio to be proactive and offer assistance with any collection efforts. As a broker, managing your portfolio performance is one of the top priorities in a mutualistic relationship.

Remember, a mutualistic relationship works both ways. Ide-ally, both parties find a consistent, positive, growth trend; but it is important to remember to maintain an open dialogue for the times when business efforts may start trending down for one of the parties involved. To continue to foster growth, lend-ing sources and brokers must be willing to discuss their suc-cesses as well as the challenges they are experiencing and adapt accordingly. If both parties are willing to put in the work, your partnership should continue to be mutually advantageous.

ABOUT THE AUTHORS: Scott Lipka is Broker Relations Manager and Shannah Berger is Inside Sales Manager at FirstLease, Inc.




Mike Coon and Marc Keepman understand the importance of association, and the opportunities ahead for members of the National Equipment Finance Association, the organization to which they have chosen to dedicate considerable time and passion. And they have big expectations for the future. Coon—who is Immediate Past President of NEFA—recently handed the presidency of the organization over to Keepman.

Coon is Chief Commercial Officer at North Star Leasing, and has a long history with NEFA—lit-erally since its beginning. He was active with both of its predecessor organizations and supported the combination of the UAEL and EAEL into the National Equipment Finance Association.

“Soon after [the merger], I was invited to be a Director and eventually served as both Secretary and Vice President on the Executive Committee and eventually President,” said Coon. “I am dedi-cated to this industry and feel that my involvement at the board level of a leading association has a pos-itive impact on the best interests of industry partic-ipants and the success of their companies.”

Keepman, Chairman and CEO of KLC Financial, joined NEFA shortly after the merger of UAEL and EAEL. Longtime Executive Director Gerry Egan, who retired this year, called on him and the com-pany asking if they would be interested in joining the association.

“We went to the next meeting, found many amaz-ing contacts and educational opportunities. That

was it, we were hooked and joined,” said Keepman. “Gerry called me a few years later and asked me if I would like to get more involved and to consider joining the board. I said sure and was elected to the board.”

“Working with the other board members, all suc-cessful leaders and managers of their companies, gave me wonderful opportunities to learn from the best,” he explained. “We all became fast friends and openly shared the secrets of our successes. This is a hallmark of NEFA. I have been a member of many professional organizations, but this is the only one where its members feel comfortable enough with each other to openly share trade secrets in an effort to help people and grow the industry.”

A Year of AccomplishmentsNewsline asked Coon to reflect on his past year as President of NEFA and to share his thoughts on the top accomplishments achieved during his term.

“Without question, the most important accom-plishment of 2018 was the search and selection process of the incoming Executive Director. The board and I are very confident of our decision to appoint Mike Toglia to this position and believe the transition is positioned to be smooth and seam-less, while taking the association to new levels,” he said. “Additionally, we have continued to focus on the financial strength of the association and are well-poised to make investments in the future that enhance membership experience and value. Lastly, conference attendance in 2018 was at record levels, which proves the association is providing a value

ASSOCIATION

PASSING THE BATON — A Look Back and a Focus on What’s AheadAs we wrap up a record-breaking year and one of transition for NEFA, Newsline spent time with NEFA’s 2017-2018 President Mike Coon and his newly elected successor Marc Keepman to review the past 12 months and the opportunities ahead for the association.

Mike CoonNorth Star LeasingCompany

Marc KeepmanKLC FInancial, Inc.




proposition that is attractive to the industry.” But Coon added the impacts of having served as NEFA’s President in 2018 extend beyond the organizational achievements. “The relation-ships that were introduced, strengthened or deepened during my term as President have huge personal value for me. I feel I was able to heighten my visibility in the industry while serving the association’s best interests,” Coon said. “I was also able to sharpen my management and strategic planning skills, which has prepared me for my current senior position with North Star Leasing. Serving as the President of NEFA has signifi-cantly benefited both me professionally and personally.”

Looking to the FutureAs he takes the reins from Coon, Newsline asked Keepman what excites him the most about leading the association for the year.

“Working with great people is always rewarding in itself. We have a motivated board that wants to take NEFA to new (heights) and highs in value to its members. There is no ques-tion that we all want to successfully and prudently grow our businesses,” he said. “NEFA, through the efforts of its board, and all of its members, can be and is quickly becoming the finance association for lessors, funders and professionals to join for the best combination of learning, networking and profitable business opportunities.”

“We are benefiting from the warm and open 'friendshipping' that exists in our organization,” Keepman added. “I want to see us continue this tradition of trust-based relationships and fueling the desire of our members to truly help each other. This is the new opportunity. This is NEFA.”

Keepman also took a moment to outline the most important association issues he will be addressing in 2019.

“We want to grow, definitely, but we want the growth to be meaningful and sustainable. I believe we can draw the right people and companies for the right reasons. They will see the real benefits of membership and want to stay. From this group we will invite those who want to help keep us on this growth path. We really want to reach out to the younger members out there that need a home for their energy, new ideas and creativity. Education has been a hallmark of NEFA. We plan to

continue this tradition and to bolster the effort with hired pro-fessional help in building our offerings and delivery methods.”

Passing the BatonNewsline offered Coon an opportunity to share his advice to Keepman, who already has assumed the role as NEFA Presi-dent. “It’s a new day for the association as we welcome a new Execu-tive Director, which means we need to evaluate and challenge the current strategic plan and further establish a clear value proposition, while maintaining the culture that makes this association so special,” Coon said. “I encourage Marc to work side-by-side with Mike Toglia to ensure a smooth transition and, at the same time, implement the fresh ideas that Mike is eager to bring to NEFA.”

Coon continued, “Having worked closely with Marc during my term, I know first-hand he is the perfect President for this time in the association. Marc is thoughtful, highly experienced and very dedicated to the success of NEFA. I look forward to supporting Marc during his tenure as President.”

Keepman is ready to work towards building NEFA and comes into this role with a deep appreciation for the organization and its members.

“We have a terrific group of board members. This level of pro-fessional and cohesive relationships goes beyond the board and includes the entire membership,” he said. “We look at the NEFA members as more than friends; we are family. We depend on each other. We come to each other for help and assistance. In short, we trust each other. I want to build on this ideal, no, I want to build on this NEFA reality and make our organization known as the stand-out organization that it truly is. We are family, we are successful, and we care.”


How Providing a Working Capital Solution Can Reduce the Overall Risk for a Lender/LessorUnderstanding why and how a company will utilize working capital is critical. RapidAdvance’s Jeff Schubert explains how to determine if a company is seeking working capital for the right or the wrong reasons.By Jeff Schubert

Three years ago I wrote an article for this publi-cation titled, “Ask the Question.” The question to be asked by lenders/lessors of their customers was: “Do you have any working capital needs?” Since then, many funders have continued to successfully add working capital as an additional product to meet the non-equipment financing needs of their customers by providing a working capital solution to help their customers grow their businesses.

This article addresses a different, but equally important, question and it can and should be asked by both salespeople and underwriters when consid-ering providing working capital to a new or existing customer. The question is: “What do you need the funds for?” The answer to this question is critical to determining if providing a short-term working capital loan, or equipment financing, to a customer with an existing working capital loan, is going to help them grow their business. From a risk perspective, an underwriter needs to know if the customer is borrowing or has borrowed

the funds for the “right” reasons. If the funds are being used as growth capital and the customer knows their profit margins for the specific use of the funds, then a working capital solution may be a great solution for them, especially if they are not yet bankable. On the other hand, if a customer is seeking working capital to resolve existing cash flow problems, then adding additional higher cost debt could do them harm and increase the risk for the lender/lessor.

The following are some GOOD reasons to borrow working capital:

• Purchase inventory;• Expand or refurbish an existing facility;• Finance soft costs associated with acquiring new

equipment (transportation costs, training, electri-cal/plumbing costs, etc.);

• Finance a marketing/advertising campaign or website;

SPECIALTY LENDING

Jeff SchubertRapidAdvance

If the funds are being used as growth capital and the customer knows their profit margins for the specific use of the funds, then a working capital solution may be a great solution for them, especially if they are not yet bankable.


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• Fund a bridge loan to provide them with faster access to cap-ital while waiting to close a collateralized term loan, such as an SBA loan;

• To provide escrow funds needed to purchase commercial property;

• Hire staff or pay bonuses; and• Any other reason that will help them take advantage of an

opportunity to grow their business.

A real life example of a working capital/equipment financing success story is from Access Commercial Capital (ACC). ACC is a funder that specializes in financing transportation equip-ment. It had an existing limousine customer who needed funds to buy used limos to refurbish them to expand their fleet, or to sell to third parties. However, the customer’s bank was not interested and, because the term of the loan was so short, ACC was not able to finance this deal either. So, ACC contacted its working capital partner and was successful in providing the company with an initial $200,000 loan on a 12-month term. The company eventually renewed and increased the size of the loan to $300,000 four more times. It did so because the company made money on the short-term working capital funds needed to grow the business. The company also ended up financing more vehicles with ACC, which was not unusual, as over a third of its customers that borrowed working cap-ital financed more equipment with ACC. Lastly, 50 percent of customers that borrowed working capital renewed at least once, providing ACC with additional fee income with no effort on its part.

Based on input from a number of other large equipment lessors that offer working capital in addition to equipment financing, their delinquency and default rates have not increased with the addition of working capital exposure. In fact, in one case,

a lessor has stopped putting hard caps on aggregate lease/loan balances to a single entity based upon providing working cap-ital to existing equipment leasing customers. Their experience has shown them that as long as the customer is borrowing for the right reason and can handle the payments from historical cash flow, they don’t let open balances on equipment impact a working capital loan amount, or vice versa.

Here are some “red flags” or BAD reasons for companies to borrow working capital:

• To pay down past due obligations;• To make payroll at the end of week;• To compensate for slow accounts receivables when a factor-

ing solution would be a better fit;• To add another working capital loan to an existing loan (i.e.

“stacking”); and• To finance a hard asset, such as equipment, that usually

should be financed on a longer term by a lessor/lender.

So, as a lender/lessor, if you are considering offering a work-ing capital loan to a current equipment leasing customer or an equipment financing solution to a customer or prospect that has an existing working capital loan, make sure you fully understand why they are borrowing or have borrowed the funds. By doing so you can create a true win/win scenario without increasing your risk as a funder by helping your cus-tomers grow their businesses.

ABOUT THE AUTHOR: Jeff Schubert is the Director of Strategic Partnerships for RapidAdvance.



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