Financing Today's Capital Equipment Needs Without Sacrificing Long Term Growth

Iron Horse Industries had a problem—growth. More correctly, it lacked the proper financing to support fast growth. As a four-year-old, 27-person job shop and mold design company, Iron Horse was faced with deciding whether to purchase a new machining center. After deciding on a machine to meet its current and future growth projections, the company had to determine whether it made financial sense to purchase the equipment.

Case Study From: 10/15/1999 Modern Machine Shop

Iron Horse Industries (Auburn, Washington) had a problem—growth. More correctly, it lacked the proper financing to support fast growth. As a four-year-old, 27-person job shop and mold design company, Iron Horse was faced with deciding whether to purchase a new machining center. After deciding on a machine to meet its current and future growth projections, the company had to determine whether it made financial sense to purchase the equipment.

Company President Dave Rittierodt set out to analyze the financial issue from three perspectives. First, if Iron Horse could sub-contract the work to a reliable source and generate a decent profit, there would be no need for acquiring a new machine. Following this scenario, Mr. Rittierodt found he might have to relinquish the company's high quality control standards and delivery schedules. Mr. Rittierodt also believed he could create higher margins if he brought the work in-house. With this assessment, Mr. Rittierodt was reasonably sure he would acquire the new machining center.

At this juncture, Mr. Rittierodt called Philip Meyer, director of sales at Copelco Capital (Tigard, Oregon). Mr. Rittierodt and Mr. Meyer worked together to analyze two other perspectives: whether to pay cash or finance. They determined Iron Horse would be better served conserving its capital and not paying cash, which could limit future growth. Maintaining a strong cash position would allow Iron Horse to pursue other opportunities. In addition, Mr. Rittierodt and Mr. Meyer believed that with the right financing terms and structure in place, Iron Horse could actually increase the assets of the company using cash for investment opportunities.

The final part of the analysis centered on creating the terms and structure for Iron Horse that would meet the profitability margins Mr. Rittierodt had set. Copelco Capital was able to put together a financing package that enabled Iron Horse to conserve its capital (100 percent financing) and meet internal profitability goals. The decision to acquire the machine was made.

"The entire Copelco Capital team assisted me with a thorough review of all financing options," says Mr. Rittierodt. "Once my decision was made and my application submitted, I received their approval and associated documents in one day."

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