NFS Leasing President Ashley Whyman and Chief Credit Officer, Eric Renaud Speak with Phil Neuffer, Managing Editor of ABF Journal.
All borrowers have a story, but they need to find the right financing partners to ensure their journeys continue successfully. In this episode, Ashley Whyman, president of equipment finance company NFS Leasing, and Eric Renaud, the firm’s chief credit officer, discuss the keys to providing financing to non-investment grade borrowers, why equipment finance companies and asset-based lenders are a perfect fit as partners and much more.
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Podcast (Excerpt)
Featuring Ashley Whyman – President, And Eric Renaud – Chief Credit Officer, NFS Leasing
Phil Neuffer
Greetings, you’re listening to the ABF Journal Podcast. I’m Phil Neuffer, managing editor of ABF Journal. Today we’re going to talk a little bit about stories. All borrowers have them, but they need to find the right financing partners to ensure their journeys continue successfully. In today’s episode, I spoke with Ashley Whyman, president of equipment finance company, NFS Leasing, and Eric Renaud the firm’s chief credit officer about the keys to providing financing to non-investment grade borrowers, why equipment finance companies and asset based lenders are a perfect fit as partners and much more. But before we get to the call, here’s a word from our sponsor. NFS Leasing is a privately-held independent equipment finance company that provides equipment leases and secured loans to non-investment grade businesses, including C, D and storied credits. The NFS team looks beyond the balance sheet to understand the business opportunity. The company’s expertise in business, finance, credit underwriting and creative deal structuring expands well outside the box and across most every industry and asset class. Hey, Ashley. Hey, Eric. How are you both doing today?
Eric Renaud
Great. Excellent.
Phil Neuffer
Well, thank you both for joining us. To start off with. I’ll start off with a softball to some extent. Can you each tell me about yourself and about NFS Leasing the company?
Ashley Whyman
Sure, Phil. Thanks for having us. First of all, I am Ashley Whyman and I am serving as the president of NFS Leasing. NFS Leasing is an independent equipment finance company located in Beverly, Massachusetts. Although we do business all across the United States and Canada through our Canadian subsidiary, NFS Leasing Canada. To give you a little history on NFS, we have been an independent equipment leasing company for over 15 years. We finance equipment of all different types to C, D, and storied credit customers. That is our niche market. When I talk about all different types of equipment, what I mean is we span across IT, manufacturing, medical, scientific, transportation, recreation, aviation, and other verticals as well. And that’s who we are, sort of in a nutshell, here at NFS. One other thing to note that makes us unique is where some independent equipment finance companies focus on a specific equipment type or industry or a specific deal size NFS spans from small, mid and large ticket deals. We do deals as small as $25,000 and as much as $20 million. We have the capabilities within our organization to underwrite, document and close deals of all sizes today. And our deal size continues to grow as our portfolio grows. In terms of myself and my background, I came to NFS Leasing in 2016. After practicing bankruptcy and creditors rights law at a Boston law firm, I came on board as general counsel, and then transitioned into the role of president of the company in January of 2021. And now I’m working alongside Eric and the rest of our executive team and continue to grow and scale our organization so that we can continue to serve customers and serve more customers over time.
Eric Renaud
My name is Eric Renaud, I am the chief credit officer at NFS Leasing, and I’m responsible for the overall credit risk management of the company, managing the credit team and really working with customers and finance partners to find a way to say yes on transactions when others say no, as Ashley mentioned we have been niche in sort of the what we call non-investment grade credit startups, pre revenue companies, emerging growth, hyper growth companies, whether they’re VC or PE backed companies. We’re an independent finance company, so we’re able to really find solutions that fit the customer’s needs. What really makes us unique is we’re really interested in understanding the customer’s story. We want to learn about their business, their mission, we want to find creative ways to provide financing. We operate a lot on collaboration, trust, innovation, and in supporting businesses. That’s what we do, we provide capital to businesses that would not otherwise potentially be able to get capital. And that serves a big niche in the marketplace.
Phil Neuffer
We’re going to talk about that niche, I think a lot today. One thing that I really liked about NFS Leasing and kudos to your marketing team, I guess, but that you call yourself this story lender? Can you tell me what that means to both of you?
Ashley Whyman
That’s really how we’ve always differentiated ourselves in the marketplace. Unlike some more traditional finance sources, we really look at a customer’s story in making a credit decision. We like to understand what the customer’s goals are, what their challenges are, and how they’re going to execute on those goals and overcome those challenges. In addition, we look beyond the balance sheet. A lot of customers are coming to us that are pre revenue, startups established companies that have a more challenged balance sheet. But here at NFS, we’re able to underwrite the credit, while also giving certain customers a shot, where other lenders might not. And that requires a lot of diligence, still, of course, to be able to protect our downside. But we are relationship driven. And we understand businesses, because a lot of us have been involved in businesses for a very long time. And we look at it from the perspective of a business leader or business owner when we’re looking to sort of take a bet on a customer.
Eric Renaud
From my seat as the head of credit, I think we’re seeing transactions from customers that are in the story credits. And what that really means is that the generally having the financials are going to show up generally three things, whether it’s going to be cashflow, maybe the customer is generating cash flow, or maybe their pre revenue, but they have an issue with cash flow being sufficient to maintain, you know, operations and service debt, or there’s going to be potentially an issue with leverage. Maybe they’re over-levered, they have a little bit more debt than they plan for generating revenue because a lot of it is going towards paying down debt. They can’t really invest in growing their business. Well, the third thing is, you know, what’s the track record, as Ashley mentioned. Does the company have a track record of performance? Are they a new or emerging company, that really just hasn’t found their footing yet. But they have some great opportunities in front of them. Or they’re an established company that maybe ran into some challenges. Maybe they had some major events that caused some issues, maybe a fire, maybe lost a large customer. Maybe they just have had some choppy or lumpy performance. From a pure financial perspective, we expect to see one of these three things on financials. As a story lender, what it means to me is that we’re going to, we’re going to talk to the customer and get context behind the financials. We want to hear their story, we want to understand more about the customer’s business, where they have been and what their plans are for where they want to go. Customers that are coming to us need financing to help grow their business. So, it’s important to them, we want to understand, you know, how do we help them. And we do that by getting to know the business owners. We can access not only that character, which is a really big part of our assessment of a customer, but to hear about how the financing is going to help their business. This will really help us determine how we structure and get to a yes, for the customer. The story part of our business, we’ve really built on the success of being a story lender for the past 16 years with challenged credit customers.
Phil Neuffer
Yeah, that makes a lot of sense. So, Eric, you’ve already kind of gone into this a little bit, but can you both share with me some of the other keys to providing financing for some of the non-investment grade companies you work with and why this is the area of focus for or why it’s one of the areas of focus for NFS Leasing?
Ashley Whyman
From my vantage point, when we have customers that come to NFS Leasing, they’ve already generally heard no, a bunch of times and time is really of the essence to those customers. As customers, they’re really in need of this mission-critical equipment, again to execute on their plans. And they’re kind of fatigued from not being able to secure that necessary financing. From our vantage point, we are a culture that’s driven by being fast, flexible and efficient. And that’s, that’s really important here at NFS Leasing throughout all departments, that we can really a get to an answer very quickly, for a customer, whether that be a yes, no, or, you know, we need some more information, and then be able to really recognize the time constraints on the customer side, and be able to work as efficiently and quickly as possible to meet their timelines. And sometimes those timelines are that they have to put in a purchase order with a vendor or manufacturer, so that they can secure either the product or the most optimal pricing of the product. Sometimes it has to happen, they need the equipment by a certain timeline, and in order to serve a new customer. NFS understands those timelines, and works really diligently to make sure that we’re delivering on those timelines. So that’s really important to ourselves, to the company, why this is an area of focus for NFS Leasing, is where the company began, we began with IT, only focusing on equipment finance in the IT space. And again, dealing with non-investment grade credits, and we’ve grown a business in this niche market, it’s what we know, it’s what we’re good at. And we also really, really, really like the impact that we have with some of our customers. We can really make a difference in the lives of our customers. The professional business lives of our customers, by being able to offer a solution when one’s not otherwise available to them and watch those success stories. That’s why I do what I do every day. Not all of our customers end in a success story. We try to work with those customers that obviously don’t. But when we have customers, and there are many, the majority of our customers go on from NFS, to sort of graduate from NFS, and secure traditional financing, and grow and blossom. And for NFS, to be a small part of that is really meaningful, both on a professional and a personal level, to both me and the organization. I’m going to turn it over to Eric, though, on a more tactical level.
Eric Renaud
Well, I would just add that, that being fast and efficient and flexible. Flexibility is very important because really no two companies, our situations are exactly alike. Being flexible, what’s important to one company may not be as important to another as far as their needs, Ashley mentioned, being able to place a purchase order, especially in, you know, with supply chain issues and other things with inflation, it’s important for customers to secure and have capital to secure orders of new equipment that they might need as early as possible. So that flexibility is really key to our ability to execute for the customer. Because we’re not a bank, but an independent finance company, we have a lot of flexibility to do a lot of different structures for customers that better meet their needs. Whether there’s the term that they need, or the down payment, or other collateral debt that they need to finance. We really want to find a way to get to a yes. We really pride ourselves on finding solutions for customers that we think can help meet their needs.
Phil Neuffer
And in doing so, you’re talking about this kind of front and a high level of how you all approach the marketplace and these types of companies and borrowers. Can you give us a bit of, not to use the word or phrase high level again, but a high level example or two of some recent transactions you’ve done? Maybe in the ABL space, if you can.
Eric Renaud
I think in general, you know, we think of the ABL acronym as two financial products. So, the A is asset, B is based, but the L can be either a lease or a loan. And let me just explain a little bit so for a lease, I’m referring to us providing an ABL for specific assets or equipment that the customer already owns, and doing what we call sale leaseback for that equipment so a sale leaseback means that we purchase the equipment from the customer, we pay the customer for the value of the equipment at a loan to value ratio, and then the customer pays us back on the release structure over 24 to 84 months depending on the useful life of the asset. That’s one structure. The other one is a loan, typical ABL, where we might take specific equipment and all assets of the customer’s business are primarily part of that structure, not just a specific piece of equipment. In this case, we take a first lien position against all assets of the business, and we provide the customer with a loan based on the LTV ratio of the assets, and they pay us back under a 24 to 84 month loan. Depending on the circumstances as to which structure the underlying theme is that the customer is really sitting on valuable assets that they’re looking to monetize, they need to unlock the capital that they have in the assets in their business, which as you know, the ABL structure provides. With story credit customers, we’re really looking to understand as part of the story how the customer intends to use the capital provided by the ABL. And that’s important because we generally like to see that they’re using the capital for one of three areas. Are they going to be increasing revenue, with the capital? Are they going to be reducing expenses? Are they going to be improving efficiency and operations? With a storied credit customer, if they focus on one of those three areas, or all three, it really helps to provide narrative as to how they intend to improve their business to be able to perform. For example, we had one recent ABL transaction where the customer was an early stage company who had raised about $5 million of seed capital. They used a chunk of that money to purchase some equipment that they needed to prove out their business model. This company found some early success and had an opportunity to sign up as a very big retailer. And this retailer required them to ramp up production, ramp up hiring, purchase more inventory in order to fulfill the order. This, of course, required capital, but the company was early stage, and they really ran into difficulty obtaining additional capital from traditional sources in a timely manner. NFS, listened to the customer’s story, we verified that they had this large retail order that by fulfilling the order, they would be able to increase their revenue and increase operational efficiency. We were able to provide the customer, with an ABL secured by the equipment, that they already purchased, the cash. And the customer is not only able to fill the order but was able to sign up other retailers because they expanded their operations and their sales team. You know, this company, you know, today is growing and thriving, and we continue to be a strong finance partner for that customer as they grow. That’s one of many examples of how we use ABL structures to really help customers unlock the value in the assets they have, to drive either growth, saving expense, or improving operational efficiency.
Phil Neuffer
NFS’s finance experts work to create partnerships that speed selling cycles, remove obstacles and grow their partner’s business. All while carefully considering the end user customers’ strategic goals. NFS Leasing provides flexible custom tailored lease and secured loan solutions for transactions up to $20 million. Since its inception, NFS Leasing has eclipsed $1 billion in originations by supporting businesses and business owners with less than perfect credit and big ideas.
So many of our listeners are asset based lenders, which is why I brought up ABL to begin with. Can you tell me how such lenders can work with a company like NFS Leasing to provide more options to their clients?
Ashley Whyman
We work with ABL lenders all the time. And there’s a lot of ways we can work together. Generally, equipment financing is a complement to traditional ABL. ABL lenders, they may have an all asset lien on the company, and they may have the financing just against AR or inventory. In the case where an ABL lender is providing financing collateralized by AR or inventory, it’s a really natural fit for NFS because we can provide working capital to the customer, which of course, benefits the ABL lender and the customer by lending against the equipment. And that works out very well. We often enter into creditor agreements with the ABL lender, so that we can delineate the collateral of NFS and the ABL lender. And in the event that the ABL lender is secured by all assets, there are a lot of things we can do. In the case, when NFS is providing working capital collateralized by assets, we can have the ABL lender carve out certain assets, so that NFS can so that the customer can use those assets for NFS’ financing. And then, in large part NFS can also provide financing for new equipment. That the customer needs, and that is not already part of the ABL lenders, sort of collateral mix there. That’s a sort of easy solution. And like I said, we work with our ABL lenders or with the customer’s ABL lenders to make sure that we’re entering into appropriate agreements so that the rights of both parties are really clear, and more importantly, that the collateral of each party is properly delineated. And we have a lot of great relationships with ABL lenders across the country, and we’re looking forward to continuing to grow and expand those relationships. Eric, I’ll turn it over to you and see if you have anything to add there.
Eric Renaud
ABL transactions between half a million to 20 million, our sweet spot is a million to 10 million. We do all types of collateral across all industries. The only exception is cannabis in the U.S. but we will look at cannabis in Canada. There’s some other commonly excluded industries like gun manufacturers and so forth. But in general, if you look, if you’re looking at a transaction and thinking, is this a good fit for NFS. We like major pieces of equipment as collateral. Primarily, generally, if we’re financing manufacturing equipment, for instance, we would look to try to secure all the equipment in that line, not just a piece of it. And also, we do much better with larger pieces of equipment than a lot of small pieces of equipment, or specialized pieces. But we generally will look at transactions in that size range across all industries and equipment types. Whether or not it’s new or used equipment that they also might need outside of an ABL line if someone needs equipment for their business that they don’t already have. Please consider NFS because we do provide financing for new and used equipment to the customer.
Phil Neuffer
Yeah, and Ashley, you kind of spoke to this a little bit already. But why are equipment finance companies and ABL lenders kind of a natural fit to work together? It seems kind of obvious to some but you know, I’d love to hear your thoughts on it.
Ashley Whyman
Phil as I mentioned before, we’re a natural fit because, in a lot of cases, when a customer has an ABL lender, and then they’re using, you know, with a credit line, and they need equipment, it enables the buy by using equipment financing, it enables the customer to preserve their cash, and enter into a financing arrangement where instead of, you know, putting out $5 million of cash for equipment and potentially using their line to do so, which may or may not be a good thing for the company at the time. NFS essentially is able to put up the money for the equipment acquisition, and then lease it back to the customer in exchange for monthly payments. It helps the customer really preserve their cash and helps with their cash flow, which obviously helps with covenants with an ABL lender and making sure that the customer stays within those covenants. That’s one of the reasons we’re a natural fit. And like I said before, in the case where they’re looking for additional working capital for one reason or another, maybe they may be tapped out on their line with ABL under. NFS has an opportunity to work with an ABL lender who is potentially at a ceiling with a customer at least at that particular moment in time, to provide the working capital that they need through equipment financing. With NFS carving out or with the customer carving out or the ABL lender carving out, I should say, some equipment. NFS has the opportunity to provide that financing, give the customer that cash, and in exchange for it, it takes security in that particular piece of equipment, and gets paid back on a monthly basis.
Eric Renaud
I would just add, our products complement each other really well. ABL lenders and our leasing products, whether it’s an ABL product that we provide, or our equipment leasing product. And one of the things that’s really important is that we pride ourselves on building strong relationships with referral partners. We really, we never lose sight of what’s important, we want to have a trusted relationship, we want to work together to create opportunities to help the customers grow, and really provide them with the financing that they need at the right time. Seeing the impact of that in working with ABL lenders that provide a piece of the financial stack that a customer might need, and we can come in and provide the other pieces, is pretty exciting to us.
Phil Neuffer
And then since you may not straddle the line but have a unique perspective on both the current finance and ABL space. Could you both give me kind of your outlook on each of those industries for the rest of this year? I know, with the kind of crisis we’re facing in the banking industry and inflation kind of not going away, interest rates continue to go up. It’s a tough, tough prediction space. But what do you both think is kind of going to take place the rest of the year?
Ashley Whyman
Yeah, I mean, obviously, that is a very poignant question, given where we are today. There’s obviously a lot of uncertainty in the market right now. We at NFS remain optimistic that 2023 will be another year of growth in the equipment finance space. I can’t speak as closely to the ABL space. I think the ABL space has its own recent challenges, of course. We are and remain mindful of continued interest rate increases, this year, and inflation’s impact on the equipment finance and ABL industries as a whole. But at the end of the day, businesses will continue to require capital for equipment acquisitions, and tightening lending standards, create opportunities in the equipment finance space, and certainly for NFS Leasing given that, we deal with non-investment grade credits, and generally in times of economic uncertainty and downturn, there are a lot more opportunities for NFS Leasing, because we do see that other lenders are tightening up. NFS looks for opportunities, as we discussed earlier.
Eric Renaud
I share Ashley’s sentiment about the outlook. But I do know that NFS Leasing has been around and will continue to play a big part in the success of businesses during both growth and recessionary times. As what we call, traditional lenders tighten up, I think it’s actually going to provide more opportunity for us to provide much needed capital to businesses that really, they have a good story that have a strong management team and, you know, have plans and assets, plans for the business and assets that can be monetized. I think I am optimistic that even in, you know, inflationary times, and things that happened with the supply chain, which are loosening up, I think 2023, I’m optimistic that there will be a continued need in the marketplace. And we will continue to be here to support customers during that need.
Phil Neuffer
Great, well, it’s always nice to end on a note like that with optimism. Well, Ashley and Eric, thank you both so much for joining us today. I really appreciate it.
Ashley Whyman
Thanks so much, Phil.
Eric Renaud
Thank you, Phil.
