Securing financing for your business

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Your Business is a regular column from Shop Metalworking Technology.

by Tim Wilson

One of the biggest challenges facing job shops in Canada is securing the right financing.

Too often, attention is paid to the difficulties companies face, and not to the innovative service options that are emerging in the Canadian market. Equipment leasing is one area where there are alternatives that many job shops are unaware of.

“Major innovative lending practices in equipment leasing are centered on managed service type offerings, where customers get one-stop shopping for a single payment,” says David Powell, president and CEO of the Canadian Finance & Leasing Association (CFLA). “This includes financing the equipment, its maintenance, software, services and consumables.”

In this world, having more granular data can result in competitive finance options. For example, those businesses seeking to lease vehicles can leverage cost-effective telematics that rely on GPS vehicle tracking technology to collect and analyze usage data. This then improves productivity and can reduce costs.

“There is substantial capital available for financing,” says Powell. “Once a manufacturer has identified a piece of equipment it wishes to acquire, the easiest way to obtain financing is through the equipment vendors at the point of sale.”

Typically, vendor financing is offered by equipment manufacturer finance companies, independent finance companies, or banks. Having so many options can get confusing, which is why it can often make sense to go with a third party.

“We try to meet with the client to go over the financing opportunity in great detail,” says Jeff Rolph, vice president of sales and marketing at Canadian Equipment Finance & Leasing Inc. “Our goal is to have a solid understanding of the client’s requirements, his expectations and options.”

Rolph’s approach is to review a client’s financial statements and the proposed equipment details. It is then essential to make certain that there is a good understanding of what will suit a client’s needs and preferences.

“Once we’ve done all that, we will generate a proposal outlining our discussions,” Rolph says. “If the client is in agreement, they award us the business and we get to work putting the credit in place. We’ve found that our success rate for achieving approval is extremely high.”

Banks excel at offering operating lines of credit, and are often not as focused on the equipment financing side of the business. This is further complicated by the fact that most metal shops have equipment that lasts longer than their banks will give them credit for.

“We tend to be able to match the term of our financing contracts more closely to the actual life cycle of the equipment,” says Rolph. “In turn, this generally eases the cash flow for our clients. With better cash flow and with more credit available to them, our clients can normally grow at a quicker pace.”

Often, banks don’t have the flexibility to address the cyclical nature of some businesses, such as those who cater to the construction industry. And, in almost every instance businesses are attempting to conserve as much cash as possible.

“Clients like to try to mirror their payments to the same cycle as their receivables,” says Rolph. “It takes the pressure off them to have smaller payments during the months when cash flow has been reduced due to cyclical patterns.”

Most manufacturers are understandably focused on operations. Strong points include researching the best equipment on the market, the most efficient method of making their products, and work flow. The downside to this is that, in some cases, the financing of equipment to do the actual job is left until late in the game.

Fortunately, there’s a great deal of experience within the equipment financing industry that can help manufacturers as they plan expansion, or even the replacement, of equipment. This is why it might be beneficial to make a call to an equipment finance company in the early planning stages, particularly given that the industry is resurgent.

“The asset-based finance industry has returned and surpassed 2007 levels,” says Powell from the CFLA. “It remains a very active provider of financing for SMEs. There is plenty of capital financing available.”

As well, not every funder has the same appetite or the same risk tolerance. A third party might have its own list of funds that it lends from, as well as its own guidelines.

“By having several lenders to work with we can find the lender that best matches the needs of the client and the credit risk involved,” says Rolph from Canadian Equipment Finance & Leasing Inc. “We do this work behind the scenes; that way, our client can carry on with managing his business knowing that we will be sourcing the best solution on his behalf.”

Navigating your way to government funding

Many job shops get dizzy when faced with the revolving door of government programs, many of which have arcane bureaucratic requirements. This is where a third party service company can come in handy.

“Businesses are often unaware of the breadth of funding programs available to them and how to confirm their eligibility and carry out the application process,” says Chris Casemore, director of client management and development at Cambridge, ON-headquartered Mentor Works Ltd. “Mentor Works’ goal is to increase businesses’ awareness level of government funding through free online resources.”

Specifically, Mentor Works has free webinars/workshops, social media platforms, a daily funding blog, a weekly funding e-newsletter, and free downloads such as white papers. For specific clients, Mentor works will sit down and help determine two strategic priorities within a 12 to 24 month time frame.

“Based on these priorities, Mentor Works matches the optimal funding programs to minimize a client’s financial commitment, and to optimize cash flow planning strategies,” says Casemore. “We build out customized funding strategies for each client, catered to their growth goals.”

Casemore says that the Mentor Works team has written hundreds of applications, helping businesses obtain millions in funding. By having someone help businesses through the application process, completing the paperwork when it is suitable, job shops can minimize their time commitment and be sure they aren’t wasting valuable resources, while also maximizing the likelihood that an application will be approved.

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