—Sponsored article by Blue Chip Leasing
To begin 2019 I thought it would be a good idea to talk about how equipment lenders look at startup businesses and how these new ventures can find financing.
This is a question I get on a regular basis because there are not many options for young, growing businesses. When the market is busy, many opportunities exist for experienced and skilled individuals to grow within the manufacturing industry, but for some, the only way to truly grow is to start a business of their own.
If you look at truly successful Canadian manufacturers, you will notice many share a common thread: They all started out on the bottom. In many cases, these individuals emigrated from another country and started in the industry by working as a low-level operator or apprentice. However, they often have a very strong engineering background or develop it while working on the shop floor and hone it to a point where they eventually start running a plant.
At some point they all came to the same realization that they can either continue running someone else’s business, which for many is a secure and successful career, or open their own shop.
Start with a plan
Startups need a solid business plan detailing where the new company will operate, startup costs and required capital to get the business running, and anticipated sales for the first few years.
In terms of funding capital equipment, the normal inclination for a startup business is to minimize cost wherever possible. But when it comes to securing a lender for equipment, this may not be the best strategy.
The first thing any lender will look at is the equipment being financed. When it comes to machine tools, anyone with industry knowledge knows a good, brand-named machine tool has an excellent resale value, which in this case, is of the utmost importance. Because a lender’s first concern is exit strategy in the event the deal goes badly, it wants the comfort level that comes with knowing the asset can be resold with relative ease and in a short period of time.
Finance companies that concentrate in particular industries have in-house specialists who provide valuations. In the manufacturing industry these specialists look at the transaction, and if the equipment is a brand-named, quality machine tool, they will know they can recoup some money from the sale. Because transactions for new businesses typically require a deposit from the customer, the risk is mitigated even further.
It’s the knowledge of the equipment that is the main differentiator between doing business with an alternative lender with industry experience and a traditional lender, such as a chartered bank.
When it comes to getting financing from a bank, the quality of the asset, and in turn it’s perceived resale value, factors very little. It quite often means that it’s a struggle to get this type of transaction approved.
The rest of this column can be found on Canadian Metalworking, a market news site for the metal fabrication industry.
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 via email. Learn more at www.bluechipleasing.com