by William Sampson
Nine tips for financing your next machine
How you finance a purchase can make a big difference in how good the deal is.
It’s show season, and many com- pany owners are thinking about purchasing new machinery. Most likely are focused on specifications and performance of the machines,
but it’s important not to overlook the
financing arrangements. That can make
all the difference between a successful
purchase and a not-so-good deal.
Here are a few tips to consider:
1Be prepared. Finance manager Stan Ragley oversees financ- ing of Biesse and Intermac machines for America and
Canada. He preaches the “Five C’s” to
make sure customers are prepared:
• Capacity: Do you have sufficient
cash flow to service the loan?
• Character: What is your credit history, both personal and business?
• Collateral: What collateral do you
have? This could be inventory, A/R, free
and clear equipment or property that
you may need to secure the loan.
• Capital: What is the net worth of
your business and personal net worth?
• Conditions: What is the purpose
of the loan and what factors should be
2Lease or buy. In recent years, the decision to lease or buy equip- ment has become less clear. Many deals today are structured
as lease to purchase. Still, you should
approach the decision with the same
questions in mind, such as how long you
expect to keep the equipment, how much
revenue you expect the equipment to gen-
erate, and how much opportunity for new
business or production improvements you
expect the machinery to produce.
3Pre-approval. It doesn’t cost anything to get pre-approved. There are no fees to submit an application or do the credit
check required during the pre-approval
process. Additionally, there is no
obligation to use the approval once it’s
secured. While an approval generally expires after 90 days, experts say it is often
easy to get it quickly re-approved after
that time period has elapsed.
4Where to obtain financing. Most machinery distributors have financing connections through either in-house staff or close
partnerships with finance institutions.
You might also already have an ongoing
bank relationship that will work with
you. However, sometimes equipment
companies have access to a wider variety
of financial options and different lenders
that offer competitive terms compared to
typical commercial lending products.
Several finance experts we’ve spoken
with over the years suggest it is crucial to
have a financial partner that understands
your business and the woodworking industry. According to the Equipment Leasing and Finance Association, equipment
financing in the industrial/manufactur-ing sector accounts for only 3. 7 percent of
all business equipment financing, so it’s
not surprising that not all lenders have a
clear understanding of the market.
Most lenders won’t provide funds on
a projection of growth even though that
might be one of the key reasons you want
to invest in new equipment.
5Don’t forget details. Little over- sights could cause big problems when the time comes to move on a machine. Ragley says he
encounters many customers who, due
to the size of their company, don’t have
CFOs or accountants monitoring dead-
lines for simple things like paying an
annual LLC fee to ensure the company
remains active. He advises those custom-
ers to do their due diligence for credit
related issues once each calendar year.
“For small business financing, which
is basically $5,000-500,000, it’s the same
for everybody,” he said. “We have to look
at certain things regarding their credit
and if they’re not in order, we have to
ask questions. The biggest thing any
small business can do is have both their
business and personal credit in order.
Particularly for a show, you don’t want to
be waiting until the last minute because
it can be a very stressful situation.”
6Understand all the costs. Re- member that with today’s tech- nology, often an equipment purchase is more complex. Do
you need plant changes to accommodate
the new equipment? Do you need ancillary equipment, such as software, dust
collection, vacuum pumps, or material
handling equipment? All of those things
and their costs should be considered as
part of the purchase.