You've secured a big contract that will ensure your company's survival and the future looks rosy. However, there's a fly in the ointment: to fulfil the contract you need to buy a new piece of kit. Historically this hasn't been a problem, but in the current economic climate your usual lender has tightened its borrowing criteria and is not prepared to stump up. It's a Catch-22 situation that many firms could easily find themselves in, but the good news is that help is at hand.

Manufacturers and suppliers hit by dwindling sales have decided to take matters into their own hands and dreamed up a number of different initiatives that allow printers to finance investment in new equipment. So what are these different options, how do they work and are they worth considering?

While the leasing of print hardware has been an option for a number of years, it's a relatively new phenomenon in the software industry. But this is exactly the proposition that lenticular software developer HumanEyes Technologies brought to the market in January when the company launched a rental scheme for its Producer3D products, which it hopes will allow customers to move into the lenticular printing market.

The software is distributed in the UK and Ireland by Positive Focus whose managing director, Ivor Dixon, says that the option has a number of different advantages.

"3D lenticular print for either litho or digital is a relatively expensive thing to get started with and often the first few orders are small, more like proofs of concept than commercial jobs," explains Dixon. "With this scheme the user decides on a rental period - three, six or 12 months - and pays for that up front. It gives them a time-limited licence with the capability of printing an unlimited number of jobs."

At the end of the rental period if the customer has established a user base they pay the residual amount and receive a permanent licence. Dixon admits that taking this approach carries a premium over an outright purchase, but if for any reason after the initial rental period has expired they do not want to continue the agreement they can drop out of the scheme owing nothing. It's a win-win situation, adds Dixon.

"The software will expire so the manufacturer is protected, while the customer knows what their commitment is and has a commercially viable product to work with to convince their customers to use the service," he adds.

Another software company offering a flexible approach to product investment is Crimsonwing. It offers products - such as its MIS - employing the ‘software as a service' (SaaS) approach - rather than buying the software outright the customer effectively leases it from a service provider.

"In this model, the service provider implements a generic solution that will suit many companies' needs and spread the cost of implementation and support," explains Crimsonwing business development manager Leigh Banks. "In exchange for accepting that their solution will no longer be unique, the clients benefit from a reduced cost resulting from efficiencies of scale by the service provider. And since the service provider is spreading his costs across many clients he does not need to recover set-up costs and so can be more flexible regarding the minimum contract period."

Hardware options
Somewhat unsurprisingly hardware providers are also getting in on the flexible financing act. Earlier this year, HP launched a new financing scheme for its wide-format product range. Christened ‘HP Power 5', the scheme includes a 5% down payment, a five-month payment holiday, a 5% interest rate and an optional 5% final payment to buy the product at the end of a 48-month period. On launching the scheme, HP graphic arts marketing manager Francois Martin said: "This is to help print service providers make the transition to digital. It's important to offer finance as well as technology."

The company is convinced that financing equipment purchases with a manufacturer is a sound business decision due to a number of factors. "First the manufacturer knows the industry and has a pretty good understanding of your business,"

explains an HP spokesman. "They understand your pressures and financing with them there is a genuine interest in seeing your business succeed. A close partnership is formed between the sales team who will sell you the kit that best suits your needs, while the financial team will construct a package based on its greater understanding of the risk."

The spokesman also points out that should the worst happen a supplier-lender may be in a better position to recover the maximum asset value from equipment which can reduce the final debt level.

Creative finance
Another kit manufacturer responding to market demands is Heidelberg. For some time the company has offered customers the opportunity to buy capital equipment and to repay the monthly finance costs with the purchase of consumables. This means that repayments are  inline with the volume of consumables bought each month, ironing out the peaks and troughs of business that often deter companies from taking an investment risk. Last year Heidelberg extended the scheme enabling printers to take out service contracts on consumables deals as well.

"Heidelberg continues to encourage companies to finance presses on realistic terms," says Heidelberg UK finance director Gerard Heanue. He advises printer's aim to create "positive equity" in their kit inline with further requirements and technology advances. And he cautions against signing up for financing deals that appear to be too good to be true.

"Suppliers who are too creative with, for example, ‘one year no-payment financing' are not doing customers or the industry any favours," says Heanue. "The printer will owe the financier significantly more than the value of the press until the end of the deal. In such cases, the customer is left hostage to the finance house and the supplier. Printers should be wary."

A further note of caution comes from David Bunker, director at Close Asset Finance. While he believes that manufacturer-supported finance can work well for both parties, "if the customer is being sold a pipedream on unrealistic prospects then that will lead to over-supply in the market and an increase of repossessions for the banks or backers".

Another important distinction that needs to be drawn when considering taking finance from a manufacturer is who exactly is providing the cash - is it the supplier or a third party? If it's the latter then it's possible you might be able to get a better deal by going directly to a financier yourself.

Whether you opt for finance offered by a manufacturer or from a finance house, the biggest decision is making sure that the investment is absolutely necessary and is the right one for your business, says Paul Holohan, chief executive of Richmond Capital Partners.

"Ask if the machinery being purchased really is the best available for your own specific needs rather than merely a means of shedding existing equipment, which is not providing the expected return or has become outdated," says Holohan. "Be certain the new machinery really is necessary to take the business forward and is not simply for cashflow motives. Ensure that proper allowance is made for depreciation when evaluating the cost of the new machinery and be aware that the lifespan of new printing equipment continues to get shorter as product development continues apace."

If you heed these words of advice, an investment financed by the manufacturer could turn out to be one of the best business decisions that you will ever make.

TOP TIPS: SUCCESSFUL BORROWING

• Spread your borrowing If a business has borrowed from several sources it will have built up a credit record that it can leverage and it will also have more than one source to go to
• Keep your accounts up to date Lenders won’t be impressed by figures based on potential income from a single client that you haven’t yet secured. Successful plans are built on realistic evaluations of income, expense and risk and projected turnover based on a portfolio of clients
• Make an asset list Compile an accurate and up-to-date list of leased and owned assets to share with your potential lender. Adding an illustration of the impact of the equipment you are hoping to buy – showing estimated payments – would further help to show you have done your homework
• Be prepared to make a deposit Just as in the housing market, lenders for capital equipment are looking for a serious deposit before lending. Typically this deposit is 10%
• Prepare for directors’ guarantees Company directors may be asked to guarantee the loan with their own resources. While this sounds onerous if the above steps have been followed, it may be a risk worth considering
• Seek other sources While not as readily available as they once were, there is still money available through regional development agencies with grants and loans for environmental initiatives offered by the likes of the Carbon Trust
• Watch for special offers Maintaining your networks, keeping up with the trade press and visiting exhibitions can reveal some excellent opportunities

Source: HP Financial Services