Thinking ahead, thinking clearly are keys to equipment financing.

Position:Brief Article

Financing has been described as being in a "frenzy." The meteoric rise of the dot corn's in the business has only added to the frenetic pace.

So how does one get the right equipment on the production floor without falling victim to the shop-til-ya-drop syndrome?

Surprisingly enough, the answer is neither novel nor new: Think out each step of the equipment-financing plan before acting.

And certainly tied to thinking ahead is making the right alliance. Only two years ago, Bill Purcell predicted that "doing business with someone you trust and can count on will become increasingly important when the financial condition of our country changes, as we all know it will."

"With technology continuing to move at warp speed, the way we all conduct our business is changing dramatically," adds the president of Machine Tool Finance Group, US Bancorp Leasing & Financial, Tualatin, OR. "Those that are resistant to change have probably been run over by now and if they haven't they most likely will be soon. Machine tool financing is no exception. Companies need to continue to be selective with whom they do business. The idea that 'everybody is the same and price is the most important thing' may cost you tomorrow when you need a supplier the most. This is a fact when dealing with any supplier, whether it is a machine tool distributor, material supplier or supplier of money."

Understanding options

The experts in the field agree that sound asset management should precede the acquisition of capital equipment. In fact, companies have increasingly turned to asset management partners that help those companies explore overall goals, determine manufacturing tactics, and exercise financing in a flexible way.

While management of this sort is obvious, the understanding of financing options is less so, according to seasoned financing outfits such as GE Capital. For instance, the cash-and-carry approach of a financially strong company may appear straightforward, but outright funding in effect drains vital resources from other investments. At the same time, traditional loans typically fund only a percentage of new equipment costs, can snarl the company credit line, and accordingly affect the look of the balance sheet.

A different option lies in the lease agreement. Here, he risk of ownership is transferred to the lessor, which owns the equipment and leases it to the manufacturer for a fixed period of time and at a lower cost than traditional financing.

Just how flexible...

To continue reading