This is particularly true when it comes to digital equipment because there is no real secondhand market so it’s very difficult to establish how much an asset will depreciate.

From a lender’s point of view, not knowing the exact value of your asset from the moment it is installed is a problem as it makes it very hard to assess the level of risk involved in a particular deal. This is peculiar to mid-market digital presses.

With a litho press, you know the exact value of the asset from the day it is installed to the day it comes out.

Pre-credit crunch many of the digital press manufacturers were able to obtain block discounting lines from banks to support their captive finance offering or had major banks willing to fund the manufacturer’s own leasing portfolio. This allowed the majority of digital press purchases to be funded in-house by the manufacturer. In addition, high-street bank branches were keen to support their local businesses up to a level, and would potentially pick up any business that fell off the manufacturers’ table.

After the credit crunch, the banks had little appetite to fund digital in any of these ways. The low return on equity for these ‘sales-aid’ deals meant that when capital became scarce this market became less attractive.

It is hard to put a definite figure on the scale to which digital investment is being curtailed by this tightening of credit, but there is a strong view that, after taking away cash purchases, it’s a large number of printers that are unable to meet the increased credit, security and deposit requirements. It’s this gap in the market that drives our desire to partner a digital manufacturer and, as a very well funded bank with a strong SME proposition, this would make a pretty compelling package.

Exit strategies
However, one of the challenges we face in order to develop a funding solution for this market is the requirement for both the lender and the manufacturer to have an exit strategy on the kit. The bad news is that there is no quick fix; digital is almost unique in terms of print asset finance in that the technology curve is very steep so obsoletion rates are high. There has also been a trend within the captive finance companies to write operating leases, which help the manufacturers retain control over the asset life and supress the potential for a secondhand market.

As I said, there are no easy remedies and this forms part of our search for a partner in the digital field. We’re taking an open approach to the possible solutions and are happy to talk to any of the digital manufacturers as we search for a partner. Clearly, finding a solution to this problem is in the interests of the manufacturers, as well as the printers. Digital is already a big market and it is only going to become more important, so there is an opportunity for all parties involved in presenting a new means of funding these investments.

David Bunker is director of Close Print Finance