With regard to digital kit: we will be sympathetic and look at factors such as underlying credit, stability, cashflow and history of our customers. However, nobody is going to go out and lend aggressively on assets that depreciate so heavily. We’re used to assets in print that have a 15-year life and are still very productive after seven years. With a digital press, you may find the software has been superceded after just three.
The value is all tied up in the click charge, while the hard asset isn’t valuable enough. Even if you could find someone to buy it, there are all these issues around software, licencing and getting the manufacturer to support with toner and servicing. Nobody is to blame for all of this. The business model has suited these assets, but finance providers now have to be more focussed on their exit route if a lending decision goes wrong. With digital, that’s a lot more difficult.
I think the bulk of the funding for digital engines will be picked up by in-house finance companies or partners. If we’re talking about the manufacturers who don’t have those, customers wishing to buy equipment may have to look at other funding options, such as equity release. I would also advise buyers to stick to three-year funding for digital equipment finance. It will be more sympathetically viewed by a credit underwriter and they will be able to change it when the technology changes. Too many people have gone for five-year funding, which obviously has a lower monthly payment. But is too long for the changes in software and capability of the machines.
One interesting point about refinancing is that this was sometimes seen as the last ditch effort to save a company or a postponement of the inevitable. In the past, there was an element of truth in this, but since the credit crunch, it has become a very valuable solution to cash flow problems. It has been used to fill the gap when a company’s overdraft has been cut. It has also been used to finance things like restructuring and redundancy, move costs or soft assets that don’t provide good security. In addition, it has been used for M&A and as a deposit or VAT for new investments.
A point to remember is that kit already on finance can be refinanced. This often reduces monthly payments, because they were set at the beginning of the agreement. The balance can be rescheduled resulting in a lower monthly payment.
Companies often only look at lending when they need something or are under pressure. This means that they are perceived to be weaker than normal and have to ‘do the deal’ on the lenders’ terms. If they were to reduce bank dependence before the bank makes them or at a time when they are near their limits, they will stay off the radar. They will therefore be less likely to be the focus of a reduction in facilities.
To read the PrintWeek Briefing that this comment originally accompanied, click here
