Lender Financing : It’s a Balancing ActAugust 2010 By Erik Cagle
One common phrase that has been repeated by chief executives, particularly financial officers, during the Great Recession of 2008-2010 sounds a little something like, "We were about to pull the trigger on that press purchase until the economy went sour. Boy, am I glad I held off."
This, of course, has been bad news for manufacturers of such big-ticket items. But, what about the financial institutions that help make these acquisitions a reality? Are they glad that you, the printer, are not in over your head on a piece of machinery with too much capacity and not enough ROI? That goes without saying.
In truth, companies that fail to "pull the trigger" have weeded themselves out due to the realization that they cannot justify a major capex, independent of the state of the economy. And, as big as the industry may seem, it is also a tight-knit fraternity whose members swap ideas. Much anecdotal information would seem to point to banks and industry lenders making it much more difficult to obtain financing or a line of credit. Is it the case? Is it tougher to nail down financing now than it was prior to the recession?
"Not necessarily," cautions Anne Quirk, vice president of Buffalo, NY-based M&T Bank, and an individual who has dealt with a lot of printers over the years. "All lending depends on the financial condition of the borrower. If the borrower is struggling with its current debt, then there are major concerns about its ability to handle new debt. This is true at all points in time, and not just when the economy is weak."
Quirk feels that too many businesses—and she isn't singling out the printing industry—view equipment purchases as a cure-all for the bottom line. A careful analysis will yield the justifiable motivations behind obtaining new gear: reduced labor costs, and an improvement in productivity and efficiency, she says.
"Projections can be a key piece of information for a company to present to a lender," Quirk says. "The lender wants to know the economic benefits in making the loan and how it will be repaid."
Decline in Valuations
One of the most notable differences from the pre-recession to today's landscape is the decreasing equipment value, points out Thomas Davies, vice president of People's Capital in Bridgeport, CT. He notes that most finance companies are no longer doing eight-year terms without money down.