KMEX Leasing, LLC

KMEX Leasing focuses on financing Mexican-based equipment of US manufacturers. We offer operating and finance leases for your productive assets.

Has your company struggled to finance your manufacturing equipment in Mexico? It is possible to get it financed, and KMEX Leasing can help.We have teamed up with multiple sources of equipment financing in Mexico that can finance your equipment in pesos or US dollars, with attractive structures that mean you can finance new equipment or release value in the equipment you currently have in Mexico.

While you may have a financing partner in the US that will provide financing for your Mexican based equipment, if your source is a bank it will be limited to how much foreign collateral they will lend against. If they are an independent leasing company, they will likely have similar restrictions. In both cases, should you be seeking an operating lease solution, your current financing partner is unlikely to be able to make it happen due to their lack of access to the collateral.

Using Mexican financing sources we can overcome these obstacles, and well as offer structures unavailable in the US, including a hybrid finance lease whose payments are fully deductible for tax purposes in Mexico, meaning the structure’s after-tax cost is very low. You can read more about it here.

Obtaining lease financing in Mexico is not quite as easy as securing an equipment lease in the US, but we have the experience and the ability to make it a smooth process. Our knowledge of the Mexican financing market will facilitate finding the best solution. We also understand all the tax and accounting issues on both sides of the border, allowing us to help craft the most efficient solution to financing your equipment.

Manufacturing equipment

We finance new and used equipment; and we can finance sale leasebacks. We focus on long-lived production equipment.

material handling

We financing material handling equipment and installations.

Bottling & Packaging

Our financing extends to packaging and bottling lines. Just about any type of long-lived equipment can be leased.

Operating and Capital Lease Financing for your Mexican Equipment Needs

 

We offer financing for your equipment needs in transactions ranging from US$250,000 to US$20 million and higher. Whether newly acquired or sale-leaseback, we can help you grow. 

  • Equipment: Manufacturing equipment, machine tools, material handling, bottling lines, plastics machinery, and other long-lived equipment.
  • Lessees:
    • Mexican subsidiaries of mid-size to large U.S. companies. We require a guarantee by the U.S. entity.
    • Mexican companies with revenues over MXN50 million.
  • Types of Financing: True Operating Leases and Finance leases with 3 to 7 year terms.
  • Currency: US Dollar financing and Mexican Peso financing
  • Minimum: Our current minimum size is US$250,000.

We understand your financing needs on both sides of the border.

 

 

 
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Financing in Mexico - What to Expect

If you are financing over US$30 million in equipment, you can the attention of a number of lenders, both US and international, that will take the steps necessary to secure their ownership interests in foreign-based collateral. Otherwise, the following discussion will generally hold true for Mexican equipment financings.

Financing your Mexican-based manufacturing equipment is generally going to be different than securing financing in the US.

While there are a few US lessors that will finance equipment based outside the US, this is not common and is generally done if your company already has significant business with the lessor/lender. But don’t expect to get an operating lease done with them, as their access to the collateral is very limited. Mexican law will generally not recognize ownership of the foreign lender/lessor for a transaction documented outside its territory.

In most cases, obtaining financing for Mexican based equipment means working with a Mexican finance company. What are the differences?

Paperwork

Applying for an equipment financing in Mexico requires a similar amount of paperwork to one in the US, but once an initial offer is made, the information requirements are much more intensive, and a final underwriting decision will generally not be made subject to due diligence, but only after full due diligence.

This is likely due to cultural differences. In Mexico it is verify, then trust. In the US, it is generally trust, then verify. Prior to a final credit decision you will be producing a number of items including a copy of a bill verifying your company’s Mexican address (generally an electric bill), copies of the signers’ identification cards, copies of their “poderes” which show they are authorized signers, trial balances as well as the standard three year financial statements, verification that taxes are paid and up to date (something that can be done on line through the government tax website), copies of the company’s statutes, copies of the company’s organization chart, and other documents.

That’s just for your Mexican operations. In most cases you will have to offer a guarantee of the transaction by your US entity, which has its own document requirements.


Cost

Dollars cost more in Mexico. This is true for the financing companies, and it will show in your rates. Why do they cost more? Country risk is the primary reason. Mexican sovereign US dollar-denominated bonds are rated BBB+ and carry rates that are about about 120 bps over US Treasury bonds, which is a reasonable way to assess country risk for a financing instrument. In addition, there are fewer US dollars available in Mexico. Most lessors have limited access, or access only to high cost USD. I know of several instances of lessors borrowing USD at 9% to 12% from US sources (these aren’t the lessors that you are likely to deal with). Typically they are converting them to pesos and funding equipment deals in pesos at 24% or more, and, hopefully, hedging their positions so devaluations won’t hurt as badly.

But there are lessors and banks with access to lower cost dollars, though their rates are rarely below 9% for non-investment grade borrowers.

And, as we explain below in the section “VAT”, value-added taxes also mean rates are slightly higher as that cost is generally funded initially by the lessor.


Loan to Value

Typical advance rates are 80% of the value of the financed equipment, requiring that the lessee put down 20% of the equipment value. While 100% financing is achievable, it is difficult to get installation, transport, or other costs financed as well.

On the other hand, value added tax can be financed on the portion that the lessor finances. This brings us to an issue that vexes many a CFO of a maquiladora not used to paying value added taxes on equipment that is imported into Mexico.


VAT

Under the Mexican IMMEX program, which governs maquiladoras, foreign manufacturers can import manufacturing equipment on a “temporary” basis, avoiding paying the 16% value added tax. But under most leasing structures in Mexico, the lessor will own the equipment, obligating them to pay the value added tax. This tax, though, is financed by the lessor.

The tax does affect the rate to a degree, but the lessor, who is paying a lot more IVA than they collect, can get a refund of the value added tax, meaning they only fund the amount for six to twelve months (though the refund should be paid out in three months under Mexican law, getting the refund paid in less than six months is rare).

Your Mexican subsidiary will be paying value added tax on the lease payments, whether it’s on the whole payment in an operating lease, or on the interest in a finance lease. And the rate on finance leases and equipment loans is unpredictable due to the exchange rate effects that are factored into calculated the “real” interest rate under Mexican VAT rules.


Timing

On top of the time it takes you to put together all the paperwork required to get your loan to committee, most Mexican lessors and, especially, banks, do not move quickly. Banks especially need a little prodding to keep the process moving along, though larger transactions tend to keep everyone’s attention. Expect the process to take longer than it would in the US.


Operating Leases

Leases that meet operating lease accounting standards, whether IFRS or US GAAP are harder to find as well as most lessors in Mexico are not prepared to take residual risk. There are a few lessors, primarily international ones, which will take some residual risk, though we have found this works best on transactions with shorter tenors.

An issue to consider as well is how to qualify the lease as an operating lease. Rates are higher and getting a lease that meets operating lease standards will be very difficult if you are using your U.S. incremental borrowing rate. We have been successful in presenting auditors with arguments for using a higher incremental borrowing rate that is suitable for the country in which the funding is occurring, but sometimes it is a battle.

A type of lease available in Mexico that can be very attractive is what we like to call the "Mexican Operating Lease". It can be very tax efficient. Read about it here.