According to the U.S. Department of Commerce, American businesses, nonprofits and government agencies invest more than $1 trillion in capital goods and software each year. More than 55% of this investment is financed through loans, leases and other financial instruments, according to a study undertaken for the Equipment Leasing and Finance Association (ELFA).
In today’s challenging economic climate, packaging companies and manufacturers are facing tight capital equipment budgets and cash constraints, but still need to acquire the latest technologies to stay competitive. As a result, these companies are seeking financing options like leasing programs to secure new printing technologies for marking and coding variable data on products and packaging.
Financing maximizes available budget
Competitive rates and flexible payment options can enable companies to utilize operating budgets for incremental monthly payments on new equipment when capital equipment funding is not available. Equipment manufacturers may offer financing programs that allow companies to obtain 100% financing for the purchase amount of new equipment, helping them keep bank credit lines open for other business expenses and even realize potential tax advantages.
Leasing programs enable packagers to preserve cash or capital, especially for unforeseen expenses. Through a leasing program, companies can set a fixed monthly cost for acquiring new marking and coding equipment. In addition, while paying monthly installments for the equipment, companies can be using that equipment to make a profit. The ability to space out payments for new equipment can help packaging companies better align costs with profits, which can fluctuate dramatically in a tough economy.
Solutions from the equipment manufacturer
Financing marking and coding equipment through the manufacturer or a manufacturer’s preferred equipment leasing partner can offer benefits such as a quick, simple approval process, compared with bank loans that may be restricted in an economic downturn. Banks are not lending very aggressively in today’s volatile economy, so manufacturers may offer alternative sources of capital if bank loans are not available for new equipment purchases.
Equipment leasing companies that partner with manufacturers also may offer competitive rates and wider credit windows, which are critical in a challenging economic environment. These companies may have capital available to fund even start-up businesses, which may have a more difficult time securing funding than companies with established credit. Plus, equipment leasing firms specialize in financing capital equipment purchases, so they may have experts available who can offer insight into the appropriate solution to meet company objectives of obtaining new equipment while maximizing financial benefits, or they may be strategically aligned with the equipment manufacturer. Packaging companies can seek out leasing providers that will work with them to address specific challenges related to financing equipment and have a variety of flexible solutions available to help packagers secure the new equipment they need for successfully operating their business.
When leasing companies and equipment manufacturers work together, the packager can benefit because the process of researching and evaluating new equipment is streamlined with the financing process. This can help ensure the process is handled expeditiously, and that financing applications are quickly evaluated and approved so the equipment can be procured in a timely manner. Streamlining the process helps packagers get their new equipment up and running quickly to begin generating a return on their investment.
At the end of a lease term, businesses typically have three options with regard to the leased equipment:
• Return the equipment to the manufacturer or leasing partner with no further obligation
• Purchase the equipment for its fair market value or a predetermined price fixed at the beginning of the lease term
• Continue leasing for additional months
These options generally are set up at the beginning of the lease to reflect the packaging company’s future plans for the equipment. The options enable companies to decide whether to continue using the equipment or to upgrade to new equipment when the lease ends, helping companies remain flexible with the marking and coding equipment they have available to meet customers’ demands. Over time, there are improvements to equipment technology, engineering and features. Leasing can enable packaging companies to continuously upgrade equipment as lease terms end, enabling them to offer their customers the latest capabilities possible or increase production while preserving cash flow. Regularly upgrading technology also can be an advantage in an increasingly competitive marketplace.
The American Recovery and Reinvestment Act of 2009 is a tax incentive that may lower the cost of acquiring equipment this year. Qualifying purchases could result in thousands of dollars in potential 2009 tax savings for businesses. These benefits can make it more beneficial for packaging companies to purchase capital equipment in 2009 because they could significantly reduce overall cost of ownership.
Leasing providers typically monitor updates in government incentives or tax benefits that can help packaging companies maximize equipment purchases. As they see new incentives that can positively impact packagers, they may send out announcements or information, helping packagers keep up to date on the latest benefits available to consider with their accounting department.
Financing marking and coding equipment can be both a solution to weather economic challenges and a strategic decision to make the best use of available budget to continuously procure the most up-to-date or productive equipment. Considering financing options and available incentives ensures the decision to invest in new equipment will offer the greatest benefit to the company’s overall operating initiatives.
Applying for financing
The process of applying for financing can seem intimidating, but when broken down, it is a relatively simple process—especially if the financing provider and equipment manufacturer are working together.
• The packaging company or manufacturer expresses interest in financing options and fills out a credit application.
• The financing company performs a credit check.
• Once the credit check is approved, the financing company provides the financing package and payment schedule to the packaging company.
• The packager agrees to the financing package.
• The financing company issues a purchase order to the marking and coding equipment manufacturer.
• The equipment manufacturer contacts the packaging company to schedule installation.
About the Authors
Adrián Fernández is the vice president of marketing for Videojet Technologies Inc., Wood Dale, IL. He is responsible for managing marketing initiatives for all of Videojet’s marking and coding solutions, including continuous ink jet printers, thermal transfer overprinters and laser marking solutions. He received an undergraduate degree in accounting from Universidad Católica de Buenos Aires and an MBA from the University of Cincinnati.
Paul Ringuette is vice president of sales for Direct Capital Corp., Portsmouth, NH. He is responsible for vision and management of national strategic customer initiatives for a wide variety of finance programs. He has a degree in business management from Salem State College in Salem, MA.