Client

Settlers Bank | Coextruded Plastics

Founded

2007 | 2001

Headquarters

Windsor, WI | Janesville, WI

Background

Settlers prides itself on meeting the needs of growing commercial clients. Their mission is to relieve the frustration experienced by clients underserved by large regional and national banks and their one-size-fits-all approach.

Coextruded Plastics (CPT) was founded on entrepreneurial spirit and a passion for pioneering green thermoforming capabilities. Today, CPT’s Go Green trays have a reduced carbon footprint compared to conventional thermoforming without compromising on functionality, creativity and performance.

In early 2013, CPT approached Settlers, requesting a 2MM credit facility to finance their new extrusion capabilities. These capabilities included an extrusion line and related assets such as a resin material handling/blending system and an extrusion line scanning system. Moreover, CPT sought additional thermoforming capacity.

Settlers proposed solution was to lead a SBA loan to finance CPT’s expansion. However, CPT had financial roadblocks to overcome.

Ed Kinney, CPT’s banker, recognized that Settlers was at its legal lending limit with CPT, and subsequently, it was unable to fund the bank portion of the 2MM SBA loan. Unfortunately, the Certified Development Company shelved the transaction as a result.

Realizing that its plan for CPT was at a standstill because the SBA would not approve the loan, Settlers brought in American Financial Network (AFN) to help create a path forward for both Settlers and CPT with a leasing and financing solution

How a Community Bank and Customer Produce More with Less Investment and Risk

Leverage can come in many forms. This is a story of leveraging the knowledge base, financial equity and sales/business development resources of a third-party organization with a solid beginning and no end in sight!

Overview

Coextruded Plastics (CPT) sought to finance 2MM in new extrusion capabilities and additional thermoforming capacity. CPT and Settlers bank (Settlers) intended to partner on a SBA loan to finance the expansion.

Challenge

The Certified Development Company shelved the transaction due to a lack of a bank partner for CPT, as Settlers bank could not fund the bank portion of the 2MM Small Business Administration (SBA) loan. Settlers bank had already hit their credit limit with CPT, suspending the transaction.

Leasing and Financing Solution

AFN’s Bankers Equipment Leasing division helped recast financial statements away from tax reporting to GAAP accounting for their fixed assets. GAAP reporting produced an incremental 4MM of balance sheet equity.

Outcome

CPT and Settlers were able to write a SBA 7A loan for 1.2MM through Settlers, while undergoing equipment leases through AFN for the balance of the 2MM CAPEX budget, leading to future growth and opportunity for CPT.

AFN’s Leasing and Financing Solution

AFN is an independent equipment leasing and financing company, and its autonomy makes it easier to provide creative leasing solutions that may not be available within a regulated bank. AFN worked with both Settlers and CPT to create a financing plan for CPT to get their 2MM request “unstuck”.

AFN’s Bankers Equipment Leasing division managed this relationship and leasing solution.

Both Settlers and AFN brought valuable assets and skills to the table to build a successful plan forward.

Combining their unique knowledge and abilities, Settlers and AFN’s Bankers Equipment Leasing division developed a joint approach that included the following strategies:

  • Tax Reporting Adjustment
    • Bankers Equipment Leasing met with CPT to help them recast their financial statements away from tax reporting to GAAP accounting for their fixed assets.
    • Tax reporting showed negative equity, and was creating underwriting issues for the SBA and potential bank participants.
    • GAAP reporting produced an incremental 4MM of balance sheet equity that properly valued the fixed assets of their business once their Reviewed Financial Statements were published.
  • SBA 7A Loan Achieved
    • Settlers wrote an SBA 7A loan for 1.2MM. This amount was doable for Settlers within their credit line for CPT. However, 2MM was not.
  • Equipment Leasing Solution via AFN
    • Equipment leases from AFN made up the balance of the 2MM CAPEX budget, providing a method to fund the rest of CPT’s needs.

“When our commercial lenders have lending relationships that do not fit neatly in our credit box, Dick [Homan, owner and VP of AFN] and his group have proven to quickly grasp the pertinent issues, address them and successfully fund transactions for our customers. This service is an integral tool in helping us grow our commercial loan portfolio.”

Ed Kinney, Senior Vice President at Settlers Bank

How AFN Helped Settlers Bank

Settlers liked AFN’s hands-on, consultative approach with their valued customer, CPT. The way AFN managed the relationship between Settlers and CPT developed a level of trust between Settlers and AFN for ongoing partnerships that included the following:

  • Booked 1.2MM Loan
    • The SBA loan had previously been stalling out. AFN found a method to accommodate all goals for both Settlers and CPT.
    • As a result, this 1.2MM loan minimized Settlers additional exposure to the company. They could do 1.2MM, but not the whole 2MM
  • Preserved and Grew the Client Relationship
    • At one point CPT was looking for a larger bank to accommodate their request. Today, CPT is one of Settlers largest clients.
  • Increased Working Capital Lines
    • As CPT’s business expanded, Settlers supported this advancement.
    • Settlers has also financed building upgrades, improvements and other capital expenditures that do not fit well with a Bankers Equipment Leasing solution.
  • AFN and Settlers have grown their relationship since their initial transaction with CPT. Many bankers initially fear the loss of loan volume and AFN as a potential competitor. The opposite is true. Settlers have increased their outstanding loan balances beyond what they would have been without a relationship with AFN. This is pictured in Exhibit A below.

“AFN has provided us with the capital we needed to expand our operation while maximizing our cash flow. We all know that growth eats cash. Dick [Homan, owner and VP of AFN] has taken an active role in helping us understand how critical cash flow forecasting is for CPT. He has invested significant time in helping us develop tools that we use for this purpose today. This ‘value add’ makes him and his firm a valued finance partner for our business.”

Linda Bracha, President of CPT

How AFN Helped Coextruded Plastics

The assets financed by AFN have proven to be essential to CPT’s growth; they are not specialized to a particular application and are well suited for a lease application:

  • Completed the Required Transaction
    • After the SBA loan had been stalled out, AFN spearheaded a solution to provide CPT with the capabilities they needed.
  • Preserved Working Capital
    • The initial 800K lease preserved approximately 100K of working capital that was provided by Bankers Equipment Leasing as owner of the assets. This working capital was critical to CPT as this expansion would require start-up time and costs, new inventory, incremental receivable from sales increase, and much more.
  • Paved the Way for Future Prosperity
    • The company has expanded from 5MM of manufacturing revenue prior to this initial 2MM CAPEX deployment to a projected 45MM at the end of 2022. Approximately 7MM of lease investment helped accomplish this increase.
    • AFN has conserved more than 1MM-2MM of cash investment for CPT that would have been required through traditional financing.
    • CPT has leveraged the knowledge base of AFN’s Bankers Equipment Leasing team to help facilitate growth.
    • In 2017, Bankers Equipment Leasing assisted CPT in developing a long-term cash planning tool that enables the company to play “what-if” scenarios easily and model their forecasted balance sheet, income statement and cash flow. It has also assisted them in refining their internal cost accounting to accurately account for their per units costs and to assist in the customer pricing models.

“The Settlers Bank / CPT relationship is the model for our company. The customer wins by growing their company profitably and enhancing their value. The bank retains a long-time customer and solidifies their long-term relationship. The bank also grows their loan portfolio which is the lifeblood of a community bank. AFN wins by gaining a long-term debt funding source and repeat customer and bank referral relationship. Relationships like this make business fun!”

Richard Horan, AFN Owner & Vice President

AFN's Leasing and Financing Solution Results

AFN provided leasing and financing results that exceeded the requirements of both Settlers and CPT, bolstering success for their companies, respectively.

Two major strategies implemented by AFN led to this progress:

  1. Accounting Change
    • Other lenders had just replied with a “NO” answer to date. AFN spent the time to understand the issues that were preventing the financing approval. AFN also educated CPT on the importance of our recommendations and paved the way for our bank relationships to provide us attractive debt financing terms.
  2. Equity Capital
    • AFN provided the equity capital for each lease transaction that the client needed to improve their working capital and equity positions, as well as improve their cash flow.
    • AFN also equipped CPT with flexible end of term options to purchase the equipment at the end of the lease term as many of these assets have useful lives well beyond their lease terms.

This original project has also led to an ongoing relationship between the three businesses.

Settlers has referred approximately $11MM of lease originations since the start of their relationship with AFN. This represents forty-four (44) lease transactions for nine (9) customers. Additionally, Settlers Bank has financed & provided loan commitments to AFN in the amount of 10MM to finance thirty-seven (37) AFN lease transactions. Thirty (30) of these transactions were AFN originations that were presented to Settlers for funding (see Exhibit A).

Finally, CPT and AFN have entered into 30 lease agreements on $7MM of mission critical assets since the relationship started in 2013. Today, Settlers Bank and AFN work as a collective finance partner to CPT, supporting their continued profitable growth.