Industrial finance—going beyond traditional sources
Does your financial company know your industry?
It’s a familiar scene in manufacturing. An owner of a small industrial plant calls his bank account manager to see about getting an expanded line of credit for a new machine tool.
The equipment will allow the company to boost capacity and cut lead times. The only problem is the line of credit was maxed out on another capital purchase a few months ago… and suddenly, the conversation is over.
For that reason, it’s wise to diversify, says Ken Hurwitz, account manager with Enable Capital Corp. in Toronto. He advises manufacturers to have a strong relationship not only with their bank, but a reputable leasing company as well.
“Everyone should have more than one customer, and you should have more than one lender,” Hurwitz says. Teaming up with a good asset-based lender creates a well-rounded financial strategy, especially since these companies have a strong grasp of industrial equipment.
Hurwitz is a great example. He grew up immersed in the industry thanks to his grandfather’s machine tool distribution company—Gross Machinery Group. He worked in the family business for years, before moving to Enable Capital.
Enable Capital is a natural fit for Hurwitz, given the company president, Daniel Wittlin, started his career as a distributor of industrial sewing machines before founding Enable. In an effort to serve the small business having trouble finding capital, the company developed a leasing division.
“Having a background in industrial machinery certainly has made Enable Capital more comfortable lending against it,” Hurwitz says. “Any good machine tool will hold its value extremely well. As a lender, we look at the asset and we have a strong understanding of its value, so we can lend more against it.”
In fact, Enable Capital has built a reputation as a company willing to build lease agreements for industrial businesses when traditional lenders have refused. Its rates are competitive and the company deals in a range of industries, from metalworking to plastics to construction.
Hurwitz is an accredited appraiser, and his background as a machine tool dealer gives him an innate understanding of manufacturers’ pain points, order cycles and financial bottlenecks.
While visiting his clients’ industrial plants he’s often identified machines—owned free and clear—that could be used as leverage for the manufacturer to lease additional equipment.
His relationships with dealers provide connections for clients looking to upgrade or change out their existing equipment. “We’re providing a personalized service,” he explains, adding he often answers questions about what software to use, where to sell or buy a machine, or who to talk to about accessories.
For Hurwitz, it’s not about the bank versus leasing companies. Enable Capital’s philosophy is manufacturers benefit from using a basket of financing options including traditional lenders and asset-based companies.
He cautions manufacturers to use their cash and credit wisely. If the bank offers a $100,000 line of credit, and the shop owner uses it all on a single piece of equipment, the company could find itself cash-strapped.
“Why use your cash or credit to pay for something that can be financed?” he says. “There are tons of things manufacturers have to spend money on that they can’t finance—material, perishable tooling, wages. Keep your working capital in place and use somebody else’s money to finance the equipment. You’re essentially doubling your borrowing and growing capacity.”
Having weathered the downturn of 2008, manufacturing continues to rebound. In the past year, Hurwitz has noticed automotive gaining momentum. Equipment purchases put on hold in the recession have been moving forward since the fall of 2010, putting strain on distributors’ order backlog, he says.
“Machine tools are complicated pieces of equipment,” he says. “You can’t just ramp them up right away.” Orders typically increase after IMTS (International Manufacturing Technology Show), one of the largest industrial trade shows in the world, held every two years in Chicago. It just concluded in September, so the industry will likely be busy this fall, he says.
That’s good news for manufacturing and equipment suppliers. The task now is lining up access to capital and planning purchases far enough ahead as the industry continues its upward trend.
Contact Ken Hurwitz, account manager with Enable Capital Corp. with your machinery, leasing and financing questions. He can be reached at email@example.com or (416) 614-9237 (ext. 239)
Visit Enable Capital Corp. at http://www.enablecapitalcorp.com