Securing finance for a new machine

In today’s world of manufacturing the competition is fierce. Not only is it found from the shop around the corner but also from the shop around the globe, so the best way to maintain an edge is to install the latest and most technologically advanced equipment.

The typical shop owner is usually in the midst of a tough balancing act between trying to keep existing customers and relationships strong, finding new sources of business and revenue as well as ensuring the plant is running smoothly and good parts are being delivered. However, the most successful shops are the ones who are continually upgrading old and antiquated equipment to the latest technology.

Almost every owner I come into contact with who has invested in new technology can’t believe they didn’t do it sooner. They notice a significant positive impact on efficiency and the bottom line. But it’s also the unanticipated ancillary benefits of changes to their business. Instead of competing for the same work and getting into the game of who can win the purchase order, they now go after more complicated work with higher profit margins and much less competition.

The new technology not only increased efficiency and profitably, but opened doors to more work with existing customers or new work from new customers. Invariably, the next move is to secure financing for another new machine.

Approval strategies

Now when it comes to getting approved for new equipment, without using internal working capital, there are many places to look beyond traditional sources of funding. In cases where a manufacturer can’t get its bank manager to approve a new transaction, I always tell my clients to leverage their own equipment.

A privately-owned finance institution, particularly one with expertise in machinery and equipment, can structure and secure transactions by simply using the valuable equipment on a shop floor. These types of institutions know that a good brand-name machine tool has a value and when leveraged, can help secure transaction approvals outside of the credit box of a chartered bank.

It could be as simple as using one piece of equipment as a substitute for a deposit when the financing is approved for less than 100 per cent.

There are other cases where the transaction size is far larger than the equity box of the company, and a few pieces of equipment are used to secure the transaction to lower the potential exposure. For example, we could secure a $500,000 machine for a company that could only support a transaction of half that size but has three or four pieces on the shop floor worth $250,000.

Other sources of funding that a typical machine shop owner may not be aware of are federal and provincial programs that exist specifically to assist Canadian manufacturers.

The Federal Economic Development Agency for Southern Ontario (FedDev Ontario) is partnering with Canadian Manufacturers & Exporters (CME) on a $20 million program called SMART Advanced Technologies for Global Growth. CME, Canada’s leading trade and industry association, promotes Canadian manufacturers and enables the successful export of Canadian goods and services.

The program supports Southern Ontario manufacturers that are looking to invest in product and process improvements that will increase export opportunities and competitiveness. With respect to eligibility, it’s wide open. Applicants must be a small to mid-size manufacturer in Southern Ontario with between 15 to 1,000 employees and looking to invest in advanced technology assessments and projects.

Another program is the Achieving Innovation and Manufacturing Excellence (AIME) Global initiative. FedDev Ontario is providing the Yves Landry Foundation (YLF) with up to $9 million to continue delivering this program. YLF was established by leaders in Canada’s manufacturing and business sectors in 1998. This program supports Southern Ontario manufacturers who undertake training activities such as: the development of new engineering skills; training in the use of new software, hardware or other tools necessary to support innovation; and training to adopt and adapt new technologies, new manufacturing methods or any other business area that will make the company more competitive in the global marketplace.

The takeaway from all of this is there are many different options and programs to finance upgrades to machinery in order to grow your business. The toughest part is taking that first step and committing to improving your business.

Ken Hurwitz is senior account manager with Blue Chip Leasing Corporation, an equipment finance company in Toronto. Ken has years of experience in the machine tool industry and now works to help all types of manufacturers either source or tap into their own capital to optimize their operations. Contact Ken at (416) 614-5878 or at via email. Learn more at www.bluechipleasing.com

This article is part of the Financial Management Success Centre, showcasing strategies to access working capital, reduce costs, and leverage the value of shop floor equipment.