Financing: A Key to Manufacturing Success

As business starts to improve and confidence is steadily growing, we still are facing issues of increasing costs, competition from abroad and the ability of manufacturers and contract shops to invest in new more efficient equipment. After the past few years, companies are weary of utilizing lines of credit and cash on hand to improve their company's capabilities, yet understands the need. A great opportunity to invest in new equipment lies with the equipment builders and their distributor network themselves. Remember, their goal is to sell machinery solutions and make the process as easy as possible.

Machine tool builders and their distributor networks have arrangements with sources of funding, know where to find them in a hurry, or, in some few cases, have their own leasing arms. In fact, most machine tool builder exhibitors at IMTS 2010 and Fab-Tech 2010 benefitted from having financing services available to them and their customers right in their own booths. This is where companies like National Machine Tool Finance Corp. (NMTFC), a multi-source provider of financing for leased equipment, plays a key role in the sales process.

It is getting tougher to find financing sources as the recent financial woes of the banks and leasing companies continue. What is needed in a lender, most observers agree, is the highly specialized knowledge of the machine tool and manufacturing industries where it is necessary to evaluate the impact on ROI (return on investment) of the acquisition of a particular piece of equipment or software.

Five to seven years ago a wide variety of credits could be financed. Today businesses that have a good track record and have been in business for more than five years, are scrutinized while attaining financing. The startups, newer businesses, and even established businesses that have not been too profitable in the past few years, are having the most difficult time getting financed.

The other difficult thing is getting financing for the right kind of equipment that manufacturers need to become competitive. Smaller shops, ten to 20 man shops, for example, that are qualified to buy a $50,000 to $150,000 or maybe even a $250,000 piece of equipment, may need to buy much more multi-functional equipment to remain competitive against competition.

Manufacturers need to buy more multi-functional equipment or systems with automated loading. This way they can run multiple shifts without an operator standing by all the time, making them more competitive with domestic and overseas manufacturers.

The real challenge is to get these smaller shops approved for bigger machine purchases – perhaps as much as $300,000, $500,000 or even a million dollars. The justification is that such multi-functional equipment will deliver better production-to-labor ratios, increase their revenue by winning more business, and increase their profit margins as manufacturers are able to reduce price-per-part cost.

The real key to this business is representing good machine tool builders because those are the types of transactions and types of machines that banks and leasing companies want to finance.

NMTFC is in the position to be able to evaluate and accept the leases it wants to buy for its own portfolio, or, through its network of lending sources, secure financing with other lenders whose portfolio goals more nearly match the requirements of the transaction. They also provide working calculators in excel format for ROI, tax savings, and cost per hour for one, two, or three shifts on the purchase.

For a variety of reasons, waiting to shop for needed equipment may be pushing it a little. First off, there is the end of the year deadline for installation of new equipment to qualify for the 100% First Year Depreciation tax breaks that are available. Secondly, the inventory of new equipment has shrunk. The big discounts available just a short time ago are also ending, in fact prices have increased.

Leasing, of course, is still the preferred method of obtaining the advanced technology that you need now to remain competitive.

What is the old saying? "Buy the things that appreciate and lease the things that depreciate." Buying a machine tool with cash is like hiring a new employee and paying him in full up front rather than weekly or monthly over the next five years.

National Machine Tool Financial Corp.
Elk Grove, IL
netlease.com