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Financing your plant assets in hard economic times

Keeping pace with technology through the current banking crisis is an issue weighting on our industry. With governments worldwide being forced to prop up their teetering financial institutions, the question for Australian manufacturers is: how will these changes affect the credit markets here?

The short answer is: don’t fret. The Australian government has made a vote of confidence in our system by guaranteeing bank deposits. Also, the fact that our trading banks are structured differently from the investment-type banks which exist in certain other countries is a positive point for business owners downunder.

Yet, we will still see some significant changes to the availability of credit here in Australia — especially down the track in 2009. What we’re finding is that the reduced amount of funds on the wholesale markets has led to a tightening of lending policies. Funds are being rationed, and the banks are being more stringent with their lending criteria. Which means for many businesses, even those with sound balance sheets, sourcing capital for update high technology manufacturing systems and machinery may not be as straightforward as before.

Strong industry

We shouldn’t lose site of the fact that the Australian economy is very strong. Coupled with this strength, the recent doubling and tripling (for new homes) of the first home buyers’ grant will in turn create opportunities for many industries, not just those in building and joinery. So while it may appear to be a more challenging business environment, the manufacturers who keep up-to-date with more efficient manufacturing techniques will have a distinct competitive advantage.

While it may appear daunting upgrading to newer technologies when the manufacturing sector is facing such challenges, those who do so will capture a bigger slice of the available opportunities. A good finance broker will be able to find mechanisms including software rental and other equipment finance tools which allow businesses to seamlessly upgrade to newer technologies, without the burden of offloading redundant equipment and system in the future.

This applies especially in quality-conscious industries such as process and control where greater precision ensures a higher-quality product, while increased efficiency can help reduce production costs. Industry managers should not only look at the affordability of purchasing new equipment but also what that investment can provide in terms of insulating your business from economic uncertainty and protecting your existing supply contracts.

Repayments and rates

While imported machinery may be slightly more expensive, look on the bright side — as interest rates have fallen, so have your repayments. Don’t forget that there is a direct relationship between interest rates and the Australian dollar. As interest rates and repayments have come down, so too has the value of our dollar.

Even if you’re not contemplating purchasing equipment right now, with the recent changes in interest rates it might be a good idea to meet with a finance broker who is right in touch with specialised manufacturing industries. Just like your GP, the more professional finance broking businesses makes house calls, so you don’t even need to leave your workplace or office. A skilled broker can take a good look at your current loan commitments and analyse issues, such as available cashflow, to make sure you’re fit enough to face the future. Then, if you need a transfusion of funds, the broker can advise of what loan alternatives are available to you that can save you money.

Credit is becoming harder to come by, so the services of a skilled finance broker that has a solid track record with the financial institutions is imperative. You need to ensure you’ve got the right loan structures in place, not only regarding rates, but also in the areas of loan terms, flexibility, special conditions and the securities that you have to provide.

A well-established, reputable broker should have its finger on the pulse of prevailing lending conditions and be able to access financial solutions from a broad range of lenders. By spreading your loans like this, you can avoid ‘financial constipation’ with any one lender. Now more than ever it pays not to put all your loans with the one bank of financier. ‘Putting all your eggs in one basket’ can restrict your options now and in the future. Banks can also demand too much security in the case of high technology machinery purchases, and securing that machinery against assets like real estate can adversely affect your ability to access additional funds down the track.

These difficult economic times also mean you need to ensure you have sufficient working capital and have options in place to supplement your banking facilities. It is essential to cover all bases to enable your business to keep operating efficiently and profitably as, or when, any credit squeeze is experienced in the business.

Financial health check

Now might be the perfect time to consider a financial health check. The broker may uncover solutions that can save you money by capitalising on the lower rates. For a more effective solution you should enlist the services of a knowledgeable broker with proven expertise in your specific industry — someone with a long track record in servicing high technology manufacturing industries.

*Finlease (Aust) Pty Ltd

Michael Ryan, equipment finance specialist

02 9959 3122

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