Equipment Financing RBC Royal Bank Anthony Bergamo – Senior Commercial Manager Bob Link – Equipment Financing Specialist

2 Agenda  Forestry Outlook & Current Market Conditions  Equipment Purchasing Process  Financing Options  Keys to Credit Availability  Questions

3 Forestry Outlook YearTotal Starts (000) YOY Change Single Family YOY Change 20011,6012%1,2723% 20021,7107%1,3637% 20031,8548%1,50510% 20041,9505%1,6047% 20052,0736%1,7197% 20061,812-13%1,474-14% 20071,342-26%1,036-30% %616-40% %442-28% %4717% %434-8% %53724% %62116% 20141,0018%6464% 2015 YTD989-1%6450% US Housing Starts

4 Forestry Outlook ›US housing starts averaged ~1.0 million in 2014; this level is 31% below the 50-year average of 1.45 million starts and the seventh-worst year in over half a century. ›With supply declining and demand accelerating, homebuilding activity will continue to gain momentum and should being to return to historical norms in 2017/18. ›The RBC forestry team expects US starts to rise 10% year over year in 2015, followed by an 11% increase in ›Consensus market expectations are for a year over year increases in 2015 of 16% and 2016 of 20%.

5 Forestry Outlook W.SPF Forecast per mbf…W.SPF prices ended April 10 at $269

6 Forestry Outlook 142% Increase in softwood lumber prices from Nov 2008 to April 2012

7 Equipment Purchasing Process ›Separate your decision with respect to purchasing equipment and financing the equipment ›These are two completely different processes and should be independent of one another ›Investigate all of the available financing options

8 Equipment Financing in Today’s Marketplace  Banks  Captive finance divisions of original equipment manufacturers (OEMs)  Non-traditional financial services/independents

9 Equipment Financing in Today’s Marketplace  Investing in productivity is required in order to maintain competitiveness and long term profitability  Currently in a Low Interest Rate Environment  There are reasonably priced sources of financing available in order to preserve cash  Fixed-rate and floating-rate transactions are available

10 Commonly Financed Forestry Assets › Forestry assets commonly financed –Skidder –Forwarders –Harvesters –Chippers –Excavators –Dozers –Loaders –Trucks –Trailers

11 Equipment Financing Solutions  Equipment term loans  Conditional sales contracts  Equipment leases  Short-term rental contracts

12 The Equipment Term Loan  Ownership remains with the client; lender has a security interest/collateral charge  HST due on purchase  Lenders often require that the client have some form of down payment

13 The Conditional Sales Contract  Tri-party point-of-sale purchase agreement between a client, a bona fide equipment supplier/dealer and a lender  Vendor assigns the payment stream to the lender  Client is deemed to obtain title to the asset on the basis that they will make a required number of payments

14 The Equipment Lease ›Up to 100% financing available ›Capital lease vs. operating lease ›HST paid on the monthly rental payments ›Lessor has title to the asset; lessee has control (or quiet possession) and use of the asset

15 The Case for Lease Financing  The #1 reason to use equipment lease financing: Management of working capital and cash flow…Cash Is King  The continuing uncertainty in global economies has clients maintaining a comfortable cash cushion

16 The Case for Lease Financing  Interim financing — multiple suppliers, multiple delivery dates, consolidate various pieces of equipment into one lease  Sale and Leaseback

17 Short-Term Rental  Contracts between clients and equipment vendors are normally under 12 months  Vendors may reduce purchase price of equipment by the amount of rent client has paid

18 Keys to Credit Availability ›New Company –Equity into transaction –Reasonable level of debt expectations –Personal Guarantee –Strength of personal credit history –Industry Experience –Realistic Projections –Contracts / Customers –Canada Small Business Loans ›Established Company –Strength of financial statements –Balancing tax minimization and credit availability –Potential higher levels of financing available –Revolving Equipment purchase facilities –Contracts / Customers –Concentration Risks ›New Company vs Established Company

19 Keys to Credit Availability ›Most businesses can qualify for equipment financing. How much you qualify for – and the interest rate you’ll pay – depends on the value of the equipment, your business history, and your credit rating. ›Understand your business credit needs and organize your financial information before contacting a financial provider ›Be prepared to explain in advance any negative business results and / or past personal credit problems ›Describe how the proposed equipment purchase will benefit your business

20 Keys to Credit Availability ›Develop pro-active relationships with your suppliers and financial partners ›Identify short term, mid range, and long term goals ›Where are you going and how are you going to get there…is it achievable ›Capital Lease vs. Operating Lease ›Opportunities to partner with industry and First Nation

21 Keys to Credit Availability ›Consistency of performance in strong and challenged economic times ›Financial capabilities of the company –Ability to produce timely and accurate financial reports –You need to know your financial position in order to make timely and accurate decisions ›Amortization of equipment vs. useful life ›Don’t fall in love with excess Equipment

22 Questions