Balancing modernization with affordability is key when it comes to financing manufacturing equipment.
With the right approach, you can upgrade your operations without straining your budget
In this episode, finance experts Robert Jackson and Al Smith Jr. offer their insights on how to achieve this balance effectively.
They’ll discuss the latest trends in manufacturing equipment, explore various financing options, and provide practical tips to help you modernize your operations without breaking the bank.
Whether you're upgrading existing equipment or investing in new technology, tune in to learn how to make smart financial decisions that support both growth and cost-efficiency.
Transcript
Welcome to, another episode from Smarter Equipment Finance. We're gonna be discussing manufacturing, equipment financing, and balancing modernization and affordability.
My name is Robert Jackson. I'm with my host cohost, I should say, Al Smith Jr.
And, so It's better than that. One of the things that we're going to, discuss today is we're gonna talk about how the manufacturing sector has started shifting back towards the United States from overseas that we saw a lot of the supply chain issues that occurred, when COVID had struck a little over four years ago.
But, nevertheless, we're gonna we've seen with what occurred during that that, event just how fragile the supply chain can be from people having to wait months to get refrigerators or dishwashers to car parts being back ordered, truck parts being back ordered, a lot of things like that to our manufacturer wanted to become back over to the United States soil to make it more attractive through tax incentives or what have you.
But, what we wanna discuss with Al is the need for modernization in newer equipment.
So, why do you think that new equipment is critical for staying in a competitive edge?
Well, one thing that I will say is we learned a lot of lessons in during COVID. And one of those lessons was that we depend on other countries for some of the things that we can make ourselves.
I grew up, Chicago.
And at the time that I grew up, I can name probably ten families that worked, in automobile, manufacturing.
Worked for Ford Motor Company or worked for GM, and these were good jobs.
These were jobs usually on the assembly line, and they made our cars.
Now, with modernization, robots are doing a lot of the work that, people did. And it is important to be, updated and modern. And in the case of making cars, you can't make cars without robots now. People just can't do what robots do. People need breaks.
People work eight hour shifts. People, take off and get sick.
So with the modernization of of of manufacturing, which is coming back in our country now, since we realized we need to make more of our own products, Financing is gonna be an option that most companies are gonna need because things are expensive. Everything is more expensive than it was pre COVID, including manufacturing equipment, which brings in the need for good financing options, so that you can be profitable.
Now with that said, why don't we kind of break down those financing options that we're talking about?
So if a customer were to come to you and he wanted to finance manufacture equipment, how would you propose it? Let's say he wanted to know the difference between a loan or a lease. Do you have that?
Well, first, I wanna know what's what's your plan? I mean, do you plan to keep this equipment for five years and then it's gonna be outdated and you're gonna need new equipment? Or is this equipment gonna work for you for fifteen years until it breaks down and it's doesn't work anymore?
So depending on your plan, it's gonna depend on the option that you wanna take.
Most companies wanna actually own it, at some point. Pay for it, it's paid for itself, and now it makes money without any expense.
That's the ideal situation.
If a person just says, you know what? I just wanna I wanna lease it and give it back.
First of all, I would wanna know why. And if it made sense, okay. If it didn't make sense, I'd talk them out of it and show them that there's a better option for them.
But long term is usually what, companies want. They wanna stretch it out and let let the machinery make money for them as they go.
I've heard you say this before, and I actually say this to customers. I mean, if you're gonna hire me and pay me a hundred thousand dollars of work for you, are you gonna give me the hundred thousand dollars upfront, or are you gonna give me eight thousand dollars a month as I work?
I would suggest you do it that way.
So you're kinda saying pay for it as it pays you.
That's the way I would do it. Right. That makes more sense. Got you.
I mean, if if if you think the cash option is the best option for your company and your company is cash rich, then that may be your best option because you avoid any finance charges associated with getting loans.
But, again, most companies need the revenue. Most companies don't wanna give up all of their cash. And in most cases, they can't because the equipment is too expensive.
I I think it comes down to more or less when you're talking to a, a client that you've gotta listen to what they mean and not what they say.
There's You gotta you gotta read between the lines.
There's a little bit of a difference.
So And we educate along with along with helping you to get the loan.
I'm gonna educate you.
The reason that we do that is because sometimes we're not always the best fit.
Yes.
That's true.
We do have a lot of portfolios that can service anybody from a to d. Mhmm.
We can go up to three million dollars on some on some of our portfolios just with one underwriter.
So we have a lot of options that we can present to people of all types and all scopes.
Now here's something that I'd like to ask you, Robert, because I'm curious about it. Because with some companies, the managers make the decisions. Mhmm. So when they're applying for these loans, are the managers able to sign for the company?
Well, there's two types of programs that we can implement.
We have a corp only program where we don't require a PG.
Typically, that would be a company that's been established, has credibility and longevity, has a history and some credit depth, particularly from, Paynet, Dun and Bradstreet, and other factors.
But when we run a corp only deal, we have to have at least the main guy, someone like a CEO or a CFO or somebody who has the authority to act on behalf of the company and somebody who can, has the authority to do. I've done several of those deals, but it's very, very it's very uncommon. It's more common for us to do a corporal a corp only deal with a PG because we only do business to business financing. We don't extend personal loans of any kind. So if you're a business owner, that's what we service.
Okay.
So when a business owner comes to us, what we can do is we can present different options. Maybe a lease would work better for them, maybe a loan will work work better for them. But as you were saying earlier, most people prefer the loans because they like the satisfaction and peace of mind of owning the equipment and knowing that once they do own it, that they can just reap the rewards.
The benefits to leasing is when you you can have test certain tax write offs. You'd have to talk to your CPA about that that that do supersede, the loan, but you never really own it. So that's that's the trade off. There's a price to pay in everything that you do, and that's the price you pay for that.
Well, if I didn't own it, it would have to be a big difference in the amount that I'm paying out.
Because if I'm paying out the same, it makes no sense not to own it. And in most cases, you will be paying about the same, which is why in most cases, I talk people out of leasing it because it makes more sense to own it. We're talking about, modernization of of your manufacturing equipment. Why do you think it's necessary to upgrade? I mean, why if your equipment is working, why do you need to upgrade?
Well, I'd imagine that the first reason you'd have to upgrade would be due to the maintenance and repair costs if a major, component or a major machinery were to go down.
Perhaps the parts won't be available.
Maybe the cost or the the lost opportunity cost of servicing your customers by having that downtime would be would be too much.
So in order to stay competitive in twenty twenty four, you've gotta stay current. That's just what you gotta do. You've got to stay current.
You can't live like it's nineteen eighty three because it's not. It's twenty four.
Able to buy used equipment, or are we talking modernization means new equipment?
Modernization just means newer equipment. It can still be used equipment if it's serviceable.
So if somebody's running a, piece of machinery that was manufactured when Carter was in office, we're gonna have a bit of a problem because, Well, most people don't remember when Carter was in office. Even born when Carter was in office.
I'm surprised that you brought that up.
But yeah.
So well, you have I mean, when when people are buying manufacturing equipment, it's the longevity is what they're looking for, quite honestly. I mean, they're they're looking for it to service them for probably a decade or more.
And Now most manufacturing equipment, I'm gonna assume, is gonna have a ten, fifteen year lifespan? Probably.
Maybe longer.
In that case, what's the longest that a company could expect to get a loan for? Could they stretch it out for ten years?
Not quite ten years, but the we can go actually as long as eighty four months in some instances. Al, I'm gonna share a brief, interaction I had with, with a customer. I won't, I won't tell you, any of the details for obvious reasons.
But it was a a client of mine that had contacted me out of Florida, And, he was looking for a, a mold control system. And a mold control system is is it's a robotic system that fills bottles.
So it it's it's able to fill, sunscreen, lotions, shampoos, things like that. So he he was manufacturing.
He was filling it for for others. He was licensed, and he was doing he needed it to get some new machinery.
He'd found a piece of machinery. It was overseas, and it was about thirty percent less than what the same machine would have cost here in the States.
So I was able to get him approved on the condition that the machine must be on the, must be on US soil, before he can pick it up, before we can fund it because we can't ship we can't pay any outside financing sources. We can't pay somebody in China or Sweden or Paris. We can pay them in the fifty states. Okay. Hawaii and Alaska is fine. So, he was able to, through, means and and other things of doing my research and not afraid to roll up your, sleeves and get to work, I was able to find a physical location. It was just basically a storage facility, but it was licensed and validated for this manufacturer.
So we were able to successfully pull the deal through just by putting a little bit of work in and finding a supplier that we could ship the equipment to that he could go pick it up. And it was in Saint Louis or something like that, which he wasn't opposed to because he was saving fifty thousand dollars on the total cost. So he didn't care about traveling up to Saint Louis to pick it up or having it shipped or whatever he decided to do.
Well, now we're talking about expanding and and and growing and and modernization, but there are some mistakes that you can make.
You'd you wanna stay current, but you don't wanna jump in too far, if that makes sense.
Profitability is the is the key. The the whole purpose of being in business is to be profitable. If you're profitable with the equipment you have and getting new equipment is not gonna make you more profitable, it makes no sense to do it.
If the newer equipment is gonna help you to manufacture more, in less time, if it's gonna help you to manufacture a better product.
If it's something that is going to do that's gonna make it better, then it makes sense to do it. If it's not, then just doing it to do it does not make good business sense.
And I have seen businesses just get new equipment just because they think it's time to get new equipment, and they can.
And, again, it depends on who's making those decisions.
If you've got the owner of the business making the decision, they're usually gonna make the decision based on profit.
If you've got managers making the decision, sometime they're gonna make the decision based on the budget.
And managers think differently. They think about, producing.
And owners think differently because they're thinking about bottom lines.
So you gotta counterbalance the two. The bottom line is always is always the bottom line because nobody's employed without the bottom line.
So there's there's a thin line. There's a line you gotta dance. But when it is time to get it and you know that it's time to get it, then getting good financing is also as crucial as getting the equipment.
When a when a client or a customer were to come to us and they present the problem and we offer the solution, we wanna make sure that the solution matches what they're looking for and it makes sense. And what I mean by that is this, is just because you get an approval or just because you get terms doesn't necessarily mean you have to accept those terms. And sometimes those terms can be unfavorable, and I'm not opposed to telling the the business owner that this is not a good deal. And the reason it's not a good deal is for this, this, and this. But if you still wanna move forward, that's on you.
But they're gonna take your advice because you developed a relationship with them. They trust you. They look at you as an adviser and an advocate on their behalf, or at least that's how you should position yourself.
In that case, when it's not a good deal, is is do you look for a better deal?
Or Of course.
Or is that when it's not a good deal, that's the only deal that I well, I've never had a co customer come to me and ever say, no.
No. That's too low. I wanna pay a little bit more. It's never happened.
So until that day happens, I'm gonna continue to approach it the way I always have Okay.
Which is give me a better deal. So when we can when we when we interact with our customer, we're obviously gonna go for the best deal for them, not for us. Okay.
And the reason we do has one choice.
That's when you're saying, okay. It's not really a good deal. I tried to get you a good deal.
This is the best deal I was able to get you approved on.
Correct. So we're not really held hostage to the appetites of one particular program.
So if an individual wants a program that has a deferral, you know, he doesn't wanna make his payments for six months, for whatever reason, we can help.
If he wants to do a deferral for three months, we can also do that. So there's a lot of really cool flexible things that we can do. We've got, programs that do a hundred percent financing. That's in fact, that's most of them. So you don't even have to outlay any cash.
The other the other cool thing about the products that we offer is unlike bank loans, where they're gonna take a long time to approve you, if they do, they're gonna require a lot of financial documentation like tax returns, financial statements, interims, balance sheets, peanuts, business plans, all that sort of thing. And then if they do approve you, they may have some sort of restrictive covenants within there that that state that you might have to have certain account ratios. They might put a blanket lien on your business, on all your inventory and accounts receivable to secure the loan even though our transactions are self collateralizing, so we don't have to worry about any of that.
When you say self collateralizing, what do you mean?
It means the asset itself is, like a car loan. When you go to a car lot and you buy a car off a car lot, it's, there's you don't have to pledge any collateral because the car is collateral. So the same thing with these machinery.
Now when businesses are are making a decision on purchasing equipment, you gotta be thinking long term. Okay? So if the business is a newer business, you've been in business for three or four years, well, you plan to be in business for another twenty years, so you gotta be thinking long term. So when you get this equipment, are you looking for equipment that's gonna only last three years?
Yeah. No. You want equipment that's long term. You wanna think long term.
RJ, Robert Jackson?
Yes, sir.
Thank you. Thank you for doing this podcast with me.
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And, I wanted to say thank you for being, on this podcast, Al. I hope that, you and anybody else listening can take this to heart and find some information that we've spoken about valuable to, help them in some degree.
Alright. We hope their business gets more profitable. That's what it's about.
That's right.