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Packagers take a lease on new business

Packagers that lease equipment cite preservation of working capital and tax benefits as advantages over buying.

John Harris, Nature Labs? director of operations, found leasing indispensable in setting up a new packaging line for the rapi
John Harris, Nature Labs? director of operations, found leasing indispensable in setting up a new packaging line for the rapi

More than 95% of packaging equipment remains purchased outright, either with cash or bank financing, according to at least one packaging leasing company.

However, some companies, notably smaller, cash-strapped growth firms, do find advantages to leasing. Unlike automobile leasing, packaging equipment is usually leased-to-own, with packagers typically "purchasing" the machine at the end of the lease for a symbolic $1. Typical lease durations are three to five years.

In effect, such "leases" are essentially non-bank loans. The distinction: Many packagers find the acceptance criteria of leasing companies less stringent than their local banks. Of course, they pay for it, too. Because they involve more risk, lease-to-own contracts often carry slightly higher interest rates, admits Rich Cassiano of North American Resource Capital (Hauppauge, NY), a leasing firm.

In Dallas, Nature Labs, a manufacturer of petcare products such as pet shampoos, was turned down by a local bank when it sought financing for a new liquid filler to accommodate a growth spurt.

"Without the equipment, we just couldn't keep up with production," says John Harris, director of operations. "But our sales weren't good enough at the time to get a big enough loan to go out and buy [the filler]." Unable to obtain bank financing, Nature Labs turned to North American Resource Capital, which created a lease plan for the packager. A deal was struck and the equipment was installed. "Had it not been for the lease, we wouldn't have been able to get the equipment," he says.

Another packager that found leasing companies more flexible was Amtron, a manufacturer of high-performance engine oils and additives in Omaha, NE. Amtron recently leased some filling equipment, also through North American Resource Capital.

"The leasing company is better set up to accommodate leasing, whereas the bank is set up to lend money if you have money [in the form of deposits or collateral]," says Deo Reloj, president. "The bank lends us money because we have money. If we don't have money, they won't lend it. So a leasing company is more flexible."

At The Gourmet Glott Emporium, secretary/treasurer Andrea Hanft has found that loans involve "a lot more paperwork." She says, "There was no reason to spend six or eight weeks trying to get a bank to come down and do an inspection." The gourmet food store in Cedarhurst, NY, leased an automatic shrink wrapper, labeler and scale for in-store wrapping of meats. Its equipment was leased through Corporate Capital Services (Hauppauge, NY). For her part, Hanft feels, "we've gotten very competitive rates."

Most of the packagers interviewed for this story also took advantage of another benefit of leasing: the ability to finance 100% of the purchase price of the machine. By contrast, most banks require that the buyer put down a percentage of the machine's cost in cash.

"We found most banks wanted us to put down 20 to 30 percent," says Nature Labs' Harris. Extra charges like delivery, installation and training were included in the price of the machine, according to Harris, meaning those items were rolled into the lease, too. Harris says that has more to do with the fact that his machinery vendor, ELF Machinery (LaPorte, IN), provided a complete turnkey price.

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