Strategies for Effective Cross-Border Capital Equipment Investment

Capital investment is often a key component of an international expansion. Even when that expansion involves related businesses operating both in the U.S. and Canada, companies need to understand how that investment best serves the business’ overall strategy.

Given how critical capital allocation is, particularly in the current environment, working with a single North American relationship manager that’s familiar with your financial needs and strategic goals can help you achieve greater efficiencies, consistency of structures, and certainty of execution in the cross-border equipment financing process.

Just as cross-border expansion is a strategic decision, so is how you acquire equipment to facilitate that expansion. We’ve had discussions with several CFOs who lament that these types of decisions are often made without consideration for an organization’s capital expenditure strategy. They’re often left managing a disparate collection of projects with varied financing structures.

Working with a partner that can offer flexibility in financing solutions can help bring these decisions into alignment. That flexibility is especially crucial now as the changing landscape calls for companies to respond to the following:

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  What is the appropriate mix of fixed and floating interest rate structures?

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  Should financing tenors align with equipment useful life?

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  Is equipment ownership or usage more important?

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  Can financing repayment schedules take seasonal or project-based cash inflows into consideration?

An equipment finance provider should have answers to all these questions based on their knowledge of your business, as well as offer options such as hybrid transactions, and the flexibility to extend an equipment lease line or interim funding agreements.

Knowledge of local markets in both the U.S. and Canada is also essential. While the U.S. and Canadian equipment finance landscapes share many similarities, there are differences on a more granular level. That also applies within the two countries: tax laws may differ from state to state and province to province, for example. A partner with the local expertise to help you navigate those issues can be invaluable in terms of saving time and costs.

Without a comprehensive, integrated North American solution to your equipment finance needs, many companies finance their projects in a way that's not optimal, or they opt against completing a cross-border capital investment altogether.

Companies that don’t have that type of lending relationship will likely have to bring in a separate lender for equipment financing. In many cases, because they’re working with a company unfamiliar with their operation, financials, and their unique requirements, the execution often ends up being uncertain, and the financing structure may be inconsistent with their financial needs. In these cases, we’ve seen companies decide to cut back on their capital investments or use cash already designated for other alternatives—not an ideal option in an environment where a premium is placed on optionality. Furthermore, having inconsistent financing structures can negatively impact your operations several years down the road, depending on your longer-term capex strategy.

Before embarking on capital equipment investments for a cross-border project, it’s helpful to consider the following questions:

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  Is the majority of your capital spend required in the U.S. or Canada? You’ll need to consider both where you’re best able to allocate capital and the financing structure differences in the two countries.

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  Are you partnering with a company that will be able to grow with your business?

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  Do you have an integrated capital structure strategy for both the U.S. and Canada?

Efficiency, certainty of execution and structural consistency: These elements are important for your business both now and in the future when it comes to capital investments. Most companies plan their capital investments on both an annual basis and a three-to-five-year outlook. That’s why when you have a single, “one source” equipment financing partner that’s committed to supporting your growth through all business and economic cycles, you’ll have more certainty in planning for the future, whether you’re looking to finance a specific project or support an expansion plan.

Employing different equipment finance providers in the U.S. and Canada leads to managing multiple relationships, inconsistent financing structures, uneven execution, and less certainty in completing your projects. The ability to plan, strategize and execute your equipment needs with a provider with cross-border expertise allows you to have a full North American solution for financing your capital investments.

Wendy Carroll, Head, Equipment Finance & Leasing, responsible for leading a highly experienced team of Equipment Finance professionals across Canada, and Thomas Sbordone, Managing Director, Equipment Finance at BMO, contributed to this article.