Snack pies and roasted coffee aren't just tasty treats for Lee Rucker, the new CFO of Horizon Food Group Inc. They're the core of his business--and the impetus for his recent foray into the world of Web-based equipment financing.

The year-old San Francisco company, formed through mergers and acquisitions involving six established food manufacturers, is hungry for capital equipment. Its newly consolidated snack pie division is planning computer system upgrades worth almost $300,000. Its Houston plant needs an extruder and sheeter, a $200,000 machine that kneads and shapes pie dough. And, thanks to a 30 percent jump in business, its coffee division finds itself in the market for a $250,000 coffee roaster.

Life is good at Horizon, but the acquisitions and expansions have left the company with "a fair amount of leverage" in senior and subordinated debt, says Rucker. The debt is tiered and scheduled to come down rapidly, but Rucker wants to preserve his bank loans for working capital needs--including more acquisitions. "I decided it made sense to try to finance some of our needs through operating leases, which are off-balance-sheet and do not affect our leverage," he notes.

But that decision poses other problems. "Knowing Horizon's short history and our capital structure, I was aware that financing might be difficult to put together," explains Rucker. And even in the eclectic world of equipment financing, heavy equipment such as extruders and coffee roasters doesn't mix well with short-lived computers, which make lousy collateral. That meant he had to find a lender that was both understanding and flexible.

On a whim, Rucker filled out an online request for financing at Capital.com Inc., a Web-based broker of business financing headquartered in Bethesda, Maryland. As a new CFO, he says, he had no existing ties to creditors, so the Web option seemed worth exploring.

"I was curious," he says, "but I really didn't anticipate that it would lead to a solution."

Rucker was pleasantly surprised. Todd Harrington, a principal with Capital.com's finance team and a former banker with Chase Manhattan's middle-market group, responded quickly and set to work finding lenders that could meet Horizon's needs. "They have been fairly creative about finding ways to get the deal done," says Rucker. As this article went to press, Rucker was comparing a proposal brokered by Capital.com with others obtained in more traditional fashion through creditor account representatives.

Anyone looking to follow Rucker's lead has plenty of options. There are more than 800 members of the Arlington, Virginia-based Equipment Leasing Association, ranging from new Internet "pure plays" to well-established companies, many of which are moving quickly toward a bricks-and-clicks model. The $233-billion-a-year equipment-leasing business is rewiring itself to be faster, more flexible, and more competitive than ever before. But what it isn't doing, practitioners insist, is changing the dynamic of the relationship. Says Capital.com's Harrington, "The interaction between the banker and the client is not 'New Economy,' but the way we attract the client is."

Simple Efficiency
The advent of online leasing has ushered in new ways of doing business, however. Sites such as eLease.com, Lendx.com, LeasePoint .com, and PureMarkets.com act as neutral brokers, using the Web to automate much of the origination process; they are not lenders themselves. Customers post a single request for financing to these sites, but multiple creditors can respond--a huge time-saver for finance departments.

That's what led Fred Socco to San Francisco­ based Lendx a year ago. Socco is the treasury manager of Houston-based Smith International Inc., a $3 billion supplier to the oil and gas industry and a company that, as Socco says, "leases everything from barges to copy machines to five-story-high air compressors." These products are often bundled into single lease packages worth at least $500,000, adding up to a current portfolio of $115 million in noncancelable operating leases. Soliciting two or three bids for so much leased equipment poses a managerial headache, so the company decided to put all leases over $500,000 on Lendx's auction platform. "Online leasing saves us quite a lot of time drawing up RFPs and faxing them to several companies," says Socco.

Smith International didn't just move its business to the Web, it dragged its bankers there as well. Socco told the company's preferred banks that was where they'd find all of the company's future leasing business, and they signed up. "They agreed that was an efficient way of doing it," says Socco.

Perhaps too efficient, at least from the point of view of some lessors. Auctions aren't limited to the banks that Smith International brought with it; other lessors can play as well. Smith's most recent lease--$2 million for three Caterpillar tractors at the company's Battle Mountain mining location in Nevada--was won by Citizen's Leasing, an Atlanta-based branch of Citizen's Bank. "That was the first I heard from them," says Socco.

In theory, the open competition of online marketplaces should drive down financing and leasing costs. Competitive pricing is often touted as a major benefit in such fast-moving financial instrument markets as foreign exchange, where the convenience factor alone isn't enough to outweigh CFO trepidation about doing big-money deals online (see "Portal Envy," July).

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