Economic constraints among banks, bankruptcies, and a down automotive industry have made it tough for molders and moldmakers to finance their equipment requirements. Still, there’s cash to be found, if you know where to look.
Getting financing can be tough, but not impossible. For those in the plastics processing and moldmaking industries, sometimes it requires a lender that understands your business. The bottom line is that there is money to lend; you just have to get to the right lender. Help can often be found in financing brokers such as IFS Equipment Financing Co.
Henry Grace, VP of IFS (Columbus, OH), says that for plastics molders, there’s a slew of problems out there, mostly related to the problems of the auto industry. “A lot of these molders are in automotive, and funding sources will walk away if they hear the word ‘automotive,’” says Grace. “Someone at the top will say ‘We don’t want to deal with automotive-related companies’ and you don’t get your injection molding machine. If you’re a plastics guy and doing medical, however, you can get anything you want.”
IFS Equipment Financing is an equipment financing broker. “We look at your package, the equipment you want, your credit history, and do a complete story, including all the market segments you serve,” Grace explains. “When the entire story is done, we will know which category fits you and which banks like companies in this category. Banks have shrunk their category boxes so small that many companies can’t fit in anywhere.”
IFS works with a number of major injection molding machinery suppliers such as KraussMaffei, Engel, and Arburg, and also helps to secure financing for machine tools.
Paul Caprio, president of KraussMaffei USA (Florence, KY), says that 95% of his customers handle their own financing through their own resources. “I don’t know if it’s a reflection of our customer base that they have more resources or tend to be larger companies, but there are times they ask us about financing. IFS seems to be a company with some of the best financial resources and works well with our customers,” he says. “We do have programs financed out of Germany through a bank that finances German equipment, but it’s very rare that an American company takes advantage of that.”
Another impact on equipment financing was, when the auto industry tanked, injection molding did likewise. Says Grace, “There’s a lot of used equipment on the market and no buyers—30%-40% of the funding institutions got out of equipment financing.”
A consequence of many molding companies going out of business is that companies still in the molding business are getting so much work they’re running out of cash to fund it. “They need equipment to take on new projects and they don’t have the cash,” says Grace. “We’re able to get you the equipment and the cash. We even finance molds, which is a big one for us. The financing rates aren’t pretty for molds—you won’t get 8%—but we can help you. There are still banks loaning money on injection molding machines, and we know who they are.”
Molding machine manufacturers see upturn
Toshiba Machine Acceptance Corp. (TMAC) is the in-house financing arm of Toshiba Machine Co. America (Elk Grove Village, IL), one of a few machinery makers that provides an in-house financing service. Gregg Newhuis, president of TMAC, states that he believes many in the industry—both in machine tools and molding equipment—have awakened to the fact that there aren’t as many lending sources for equipment financing, and that the hurdles to getting financed have gotten quite high.
“For us here at TMAC, it’s business as usual,” Newhuis says. “We have plenty of liquidity and funds to help our customers acquire machines at a time many of our competitors in the lending business are not lending. The larger funding sources aren’t interested in equipment financing, and while there are those that still provide equipment financing, the hurdles are very high.”
So what does a molder need to qualify for financing in today’s tighter lending economy? Newhuis says the fact that a company has survived this long is a good sign. However, what constitutes a good risk for equipment financing is an institution’s individual interpretation of what looks good to them.
Newhuis has some advice. “If they go to their traditional sources of funds, and they’re not lending or the hurdles are too high—such as, they require too much down payment—they need to keep looking around,” says Newhuis. “There are still sources of funds, so don’t get discouraged. Keep looking.”
While TMAC hasn’t really changed the way it does business, Newhuis says, “We look much closer at the information a company provides. But we’re looking to find ways to make loans.”
Newhuis believes that molders have learned their lessons from the heydays of the 1990s, and are performing a higher level of due diligence on their end to truly qualify new work before purchasing new equipment. It was that insatiable buying spree of the mid-1990s that resulted in so much used equipment on the market during this first decade of the 21st century.
With respect to the used equipment market and how that is impacting new equipment purchases, Newhuis says that for about 12-18 months, the market was flooded with auctions that drove used-equipment prices down. “As the market picks up, the better or newer used equipment goes first. We’re seeing that good used equipment has dried up, so that’s basically good for new equipment sales.”
Looking for financing? Some tips to help
1. Look for a variety of sources, including your current bank. They know you and might be more willing to lend than a company that has never dealt with you. After that, try commercial lenders, credit unions, asset-based lenders, the Small Business Administration, and even machinery manufacturers.
2. When you talk to lenders, go prepared with your company’s strategic business plan, your marketing plan, and an explanation of who your customers are. Show diversity in your markets or if you serve one market, in the customer base.
3. Be prepared to show your financial statements and other documents that prove that your business is nearing capacity and the equipment is needed to move the company forward—and that you’re making money.
4. Commercial lenders are the preferred source for many small businesses. They typically understand business—and sometimes even your business.
5. If you have the time, educate your lender(s) about your business. Don’t wait until you need money to inform your banker or other lenders what you do. When you have an open house to show off new equipment or an expansion, invite the local banking/lending community.
6. Take care in selecting the type and age of your equipment. Typically, lenders like equipment that has good resale value. Select equipment that will serve your business well and provide good collateral for the loan.
7. Choose equipment that offers advantages such as big energy savings. Savings in energy costs means more money available for paying for equipment.