Full Faith And Credit

Helping job shops invest in new machines is a good investment.

“Many shops are working hard to transform their businesses into leaner, more capable operations.”

Columns From: 2/18/2010 Modern Machine Shop

Editor's Commentary

Mark: My Word (A monthly column of comments and opinions)

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Mark Albert, MMS Editor in Chief

Mark has been writing his Mark: My Word column every month since January, 1981.

 

One of the problems facing smaller manufacturing companies and job shops in early 2010 is the crunch in new equipment financing. Many banks are reluctant to offer loans to buy new machine tools and other capital equipment. Other banks and lending institutions, however, are taking a different view. They are eager to expand as lenders to an important niche market.

The difference seems to hinge on how well the bank understands the needs of these particular customers. This became clear when I discussed this issue with an executive at a bank that is currently expanding its specialty lending division dedicated to financing machine tools, molding machines and other production equipment. The executive, John VanDaele, is head of this division at the Banterra Bank, based in Marion, Illinois. John says that, although not one of the giants, this well-capitalized and profitable bank is looking to develop markets underserved by more traditional lenders.

John’s father was a foreman at a fabrication shop, so he grew up understanding the importance of manufacturing in this country and the kind of worthy livelihood it offers. Serving borrowers in this industry over the years reinforced his conviction that supporting them was vital to the U.S. economy—and sound business for lenders.

John explained that his division recognizes that job shops are often in a difficult, chicken-or-the-egg situation. Many are working hard to transform their businesses into leaner, more capable operations that can attract new customers in aerospace, medical or energy. This means investing in the latest technology such as multi-axis CNC machines and production cells. The problem is that until this equipment is in place, the shops don’t have the contracts or firm orders on their books to convince lenders to back their investment plans.

The mentality is different in John’s division. "We recognize the income-producing potential of the technology in today’s machine tools, plus the drive for innovation and competitiveness that motivates job shop machine tool buyers," he told me.

The lender has to be innovative, too. In today’s environment, he says, shops are reluctant to use up the credit availability they have with their local bank. Yet they prefer to avoid the prepayment restrictions and non-cancellable clauses that go along with a typical equipment lease package. "Most shop owners want simple, competitive bank financing when they add new equipment, but they like the streamlined process often offered with an equipment lease," he said. So his group is offering shop owners simple interest loans with business-friendly terms. The application process, however, involves the kind of application forms filled out for standard equipment leases.

Of course, this bank in Marion isn’t the only one to refocus on machine tool and equipment buyers. The number is growing. Funding sources are also opening up elsewhere. OEMs are boosting their financing options. Some shops are working with government-sponsored business development agencies to secure grants or R&D funding.

Faith in America’s small manufacturers and job shops is well-placed. They need to keep this faith in themselves, too.

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