ISRI2021: Following the money

Presenters at an ISRI2021 session titled “Financing to maximize growth” examined some of the pros and cons of accessing credit for capex needs and delved into the various types of financing firms operating in the capex lending arena.

For waste and recycling companies, there is no “one size fits all” approach to borrowing money, the presenters at the Institute of Scrap Recycling Industries-hosted session seemed to agree. Rather, a variety of factors can influence when it is best to approach a commercial bank, seek a specialty leasing or financing arrangement, or dip into cash reserves.

Brandon Roznovsky, chief financial officer of Brenham, Texas-based Brannon Industrial Group, said he is familiar with the scrap sector’s preference to both save cash and to spend it on equipment purchases to avoid debt obligations. However, Roznovsky said a low-interest-rate environment combined with tax incentives available in 2021 “make it a pretty good time to borrow.”

Kevin Canepa, director of sales at Pittsburgh-based Vision Financial Group Inc., said there also is an opportunity cost aspect to conserving cash rather than paying upfront for plant and equipment. “Finance experts generally recommend that you have a cash reserve of three to six months,” said Canepa, the wisdom of which can be seen in light of the circumstances of restaurant owners and others affected by COVID-19-related restrictions.

Having that cash on hand “demonstrates financial stability, allows you to meet bank covenants for liquidity ratios and financial statements, and it allows you to look at opportunity costs,” said Canepa.

As an example, he continued, “If I were to pay $300,000 for [a] car crusher today, what’s the opportunity cost for not having that cash, versus leasing it and paying $10,000 a month [and] getting an immediate cash return on your investment?”

Such cash may be needed if an acquisition opportunity arises, or the chance to buy a parcel of land that has come onto the market adjacent to one’s transfer station or scrap yard.

Both Roznovsky and Mike Taranovich of Bradenton, Florida-based Proterra Recycling Systems Inc. said boutique lenders and lease providers such as Vision Financial can expedite the financing process because of their familiarity with the waste and recycling sector.

“I’ve dealt with [banks] who didn’t have a clue what a cardboard screen was or an optical sorter, and it just really slows down the entire process,” said Taranovich. “By dealing with people who know the market, I don’t have to re-educate [a lender] every time, and that speeds up the process.”

In terms of tax incentives, Section 179 of the United States Internal Revenue Service (IRS) Tax Code offers several potential benefits to corporations that purchase equipment in 2021.

The deduction and 100 percent bonus depreciation can be used for new equipment, used equipment and qualifying software, with a deduction limit of $1.05 million and a spending cap of $2.62 million.

According to Vision Financial, “If you buy or lease a piece of qualifying equipment, you can deduct the full purchase price from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves.”

The website of Denver-based technology firm Enavate says Section 179 applies not only to equipment but also “qualifying software.” According to Enavate, that means not only “off-the-shelf” software but also “software as a service (SaaS), enterprise resource planning (ERP) and customer relationship management (CRM)” products, plus some other specialty products.