In a recent article originally published by Meating Place magazine, Toni Larson, senior vice president of industrial equipment for Key Equipment Finance, explains the benefits of financing meat and poultry processing equipment. Here is the piece:
Many meat and poultry processors want to replace outdated machinery or invest in state-of-the art equipment to meet market-driven demands for high quality products, but they are reluctant to use their cash to pay for new equipment.
Equipment financing is a viable option that enables them to acquire processing and packaging equipment needed to remain competitive and meet the changing demands of the industry. New equipment allows them to satisfy food quality and safety requirements, code and track products, increase efficiencies and reduce waste.
The benefit of equipment is in its use, not its ownership, and some of those benefits are listed below:
- Cash conservation - Leasing equipment allows meat and poultry processors to preserve working capital and lines of credit for other business investments. Any progress payments required by the vendor may be made by the lender on behalf of the customer.
- Flexibility - Payments can be structured to match budget requirements, with terms aligned with the equipment’s useful life.
- Obsolescence protection - Financing provides the ability to add or upgrade equipment during the term.
- 100-percent financing - By bundling acquired equipment with soft costs, such as installation, sales tax, freight and maintenance into one agreement, processors can acquire what they need with no money down and one fixed monthly payment. Compare this to a 75 percent loan-to-value term loan financing, and the advantage is clear.
- Customized financial solution – Equipment financing may provide tax advantages. A carefully structured financing plan can maximize equipment depreciation and tax credits while minimizing income tax liabilities.
- Increased efficiency in cash flow management – Fixed payments throughout the term.
Equipment financing acts as a sales tool for manufacturers. The benefits listed above will help expedite sales and avoid “sticker shock.” Equipment financing provides fast access to capital and gives manufacturers a competitive advantage with their customers.
10 questions to ask
In the acquisition of processing and packaging equipment, it’s important to consider all available options. Here are 10 questions to consider when deciding whether to finance industrial equipment.
- How am I planning to use this equipment, and what is the impact on my business?
- How long will this equipment need to be in production before I see the resulting savings or revenues?
- Does the finance representative understand my business; and how this transaction needs to be customized to meet my business requirements?
- What types of “soft costs” will I encounter – and can they be financed?
- What are the lease terms, including, term, monthly lease payment and end-of-term options?
- How am I responsible financially if the equipment is damaged or destroyed?
- What are my other financial obligations for the equipment (such as insurance, taxes and maintenance) during the financing period?
- How flexible are the terms and can I pay off the lease early, upgrade the technology or add equipment under this agreement?
- How can I return the equipment or renew the lease?
- Are there any extra costs at the end of the financing period?
With answers to these questions, meat and poultry processors can utilize equipment financing to deepen their well of cash, because just like any other business, a strong cash position ensures flexibility.
Selecting a finance partner
In the acquisition of food processing equipment, it’s important that meat and poultry processors consider all available tools. The right financing partner should provide all of the information needed to make a wise decision to acquire the equipment needed to stay competitive in a rapidly changing industry.
Choosing a finance partner doesn’t need to be intimidating or complicated. In fact, customers and vendors should look for equipment financing companies who can accommodate them with customized payments to match budgetary requirements.
Make sure the finance company understands your company’s needs and takes the time to ask questions and listen. Look for a stable, well-established finance partner that has survived economic ups and downs – and will design a customized financial solution to meet your needs.