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5 Tips For Equipment Financing in 2014

Today, banks are healthy and offering lower rates, which means manufacturers in the packaging space can pursue growth by employing strategic financing models. As a result, many would suggest that it is a perfect time to access capital.

In the midst of a less than stellar first half of 2014 for U.S. manufacturers, it’s no surprise that some companies are apprehensive about pursuing the growth strategies they’d initially developed for the remainder of the year. Despite the challenging conditions manufacturers faced this past winter, there is hope. Savvy companies will see the current rate environment and realize that there is opportunity in the unprecedented liquidity available in the market.

Today, banks are healthy and offering lower rates, which means manufacturers in the packaging space can pursue growth by employing strategic financing models. Of course, while rates remain low today, timing will remain a key element. Market analysts are uncertain how much longer these low rates will continue. As a result, many would suggest, that it is a perfect time to access capital.

Regardless of the rate environment, however, there are certain steps your company can take to improve your cash flow, increase access to innovative technologies and ensure you maximize the return on your investment in both new and legacy equipment.

The following are some tips when it comes to financing equipment for your facility.

  1. Leverage Industry Expertise. Expertise in the area of packaging is a major asset when you’re considering financing partners. For example, with raw materials comprising 60% of the cost of goods sold in a given year, working with a specialty financier that understands how fluctuations in raw material costs ultimately impact your operations and cash flows can make developing a strategic financing arrangement that much easier. Vertical financing experts are dialed in to the issues that impact a business, and it often benefits you in the long run.
  2. Think holistically and look beyond just interest rates when considering financing arrangements. Rate is definitely a factor to consider in evaluating your financing options, but it shouldn’t be the sole factor in determining whether or not a financing arrangement is right for you. Many companies overlook the myriad options for financing, missing out on the sheer volume of financing instruments that could be tailored to their organization’s long-term strategy and short-term cash flow needs.
    Factors to consider in addition to rate include, advance payments, covenants, fees, fixed or floating structures, prepayment ability and diversification. These various elements can and should be tailored to your company’s cash flow needs and can individually provide unique benefits to any financing arrangement beyond just the interest rate available.
  3. Diversify Financing. Given what many faced in the financial crisis, access to capital from multiple equipment financing sources enables you to ensure you’re getting the best possible terms for all your equipment and facility needs.  In addition it ensures that you don’t have all your “eggs in one basket.”  Solid working relationships with your lenders can help provide important guidance on growth options and provides you with real flexibility when it’s time to choose next financing steps whenever the need arises.
  4. Consider non-traditional financing solutions to better address your financing needs. Recapitalization of your current financing obligations through refinancing or a sale-leaseback can serve as a valuable means to access your company’s hidden equity, and improve cash flow at the same time. Recapitalization / Refinancing can enable you to remove blanket liens that creditors may have on your company’s assets and improve the health of your balance sheet and overall liquidity position.
    Another option in the non-traditional category includes SBA 504 financing.  SBA 504 enables your lender to partner with a government agency as a guarantor. This can be more helpful than a traditional financing product when it comes to shoring up risk and providing a longer amortization term or funding excessive soft costs.
  5. Improve Progress Payment Financing.  Most equipment vendors today require progress payments prior to equipment being built and/or shipped to its final destination. In many cases upwards of 90 percent of the equipment cost is required before delivery. You want to seek out a financing partner that can help you preserve liquidity and fund these interim payments on your behalf, while also gaining additional protection for your assets.    

So while it’s easy to let market jitters get the best of your growth strategy, now is not the time to take cover. In fact, looking at today’s market conditions as an opportunity, rather than a hurdle, can set your business up for success in the long run. Re-examining the financing agreements currently in place at your company can serve as a strategic exercise to improve your cash flow, find valuable cost savings and make your company more competitive in the marketplace.

Kurt Kolesha is the Sales Manager for EverBank Commercial Finance’s Packaging & Plastics Group.  The Packaging & Plastics Group is a team of specialists, financing equipment in these industries for the past two decades.  The team specializes in transactions in the $1MM – $20MM range. EverBank Commercial Finance, Inc. is a subsidiary of EverBank and is not itself a bank or a member of the FDIC.


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