Financial Services & Working Capital
Poised for Growth 2020
The new year comes with promising opportunities and potential obstacles.
Plan your path to success now.
According to the Industry Week research report, “The Future of Manufacturing: 2020 and Beyond,” the upcoming year calls for careful navigation. For manufacturing companies, some key challenges to growth are market volatility, rising material costs, price reduction and rising labor costs.1 In fact, the January 2020 U.S. jobs report stated that unemployment remains at historic lows, just 3.5%, creating greater competition and compensation for skilled laborers.2 Rounding out this overview, U.S. GDP growth is expected to slow slightly, from 2.2% in 2019 to 2.0% in 20203
SMBs: Capital in short supply
For small and medium-size businesses seeking capital, there are additional barriers. Perhaps most notable is the 79% decline in banks with <$100 MM in assets4 over a 10-year period. Further compounding the shortage of capital, regulatory requirements have caused many of the remaining banks to retreat from small business lending. This shrinking capital pool has led many SMB owners to consider alternative sources to finance critical-use equipment, instead of traditional bank loans.
Wheeler Financial from Pitney Bowes was created for this very reason. Its purpose is to meet the specific needs of small and middle market businesses seeking to invest in the equipment and technology that are vital for growth.
“Small businesses are the very lifeblood of our economy. They are critical to growth and job creation in the United States. Now, more than ever, today’s manufacturers are focused on improving productivity and efficiency that allow their business to become essential to customers and a formidable competitor in the expanding domestic markets,” said Christopher Johnson, President of Pitney Bowes Financial Services.
Equipment Financing: a viable, flexible option
Depending on the situation, specialized equipment financing can provide significant advantages for many SMBs. There are a variety of ways to structure an equipment financing agreement, which is why it can provide greater flexibility. For example, here’s a financing scenario that makes use of leasing: Instead of buying the equipment outright or applying for a business loan from a bank, you partner with a third-party lender, such as Wheeler Financial, who purchases the equipment, then leases it back to you. With the lease agreement in place, you gain timely access to the equipment, so you can put it to work right away. Also, if the business owner chooses to own the equipment in the long run, there are lease and loan options that can provide that outcome.
Less out of pocket required, the equipment serves as collateral
In the leasing example above, Wheeler Financial takes ownership of the equipment and the item’s value serves as collateral for the agreement. Consequently, you’re not required to outlay a sizeable down payment of the equipment’s total worth, as in the case of many bank loans. This frees up your working capital, enabling you to more easily meet payroll, overhead expenses and other financial obligations. The overall result is more flexibility for your business planning and operations.
Expand capabilities more rapidly
In equipment-essential industries such as construction or manufacturing and distribution, winning new business often depends on being able to fulfill contract requirements in a cost-effective manner. In some cases, the contract deliverables may require you to upgrade or expand your equipment inventory. In this situation, you might choose to lease when you finance equipment because the agreement can often be structured with lower monthly payments, as opposed to loans of the same duration. This could enable you to either purchase additional equipment or have greater cash flow flexibility.
However, before making any decision, it’s important to understand and carefully consider all your options to determine which type of financing works best for your business goals.
Avoid owning obsolete equipment or technology
Depending on your business, it may not make sense to own certain types of equipment. For example, items such as computers and software have a relatively short life cycle before needing replacement. By using equipment financing, you can obtain periodic upgrades of your computers without having to liquidate obsolete assets.
Only spend for what you need
Even big-ticket items, such as heavy-duty construction vehicles, don’t last forever. After several years of service, they become prone to breakdowns, which can result in in costly work stoppages and expensive repairs. To avoid this issue, some construction companies finance equipment with a lease term that matches the length of their project. They utilize the asset only for as long as it’s needed. After that, their obligation ends.
Diversifying capital sources opens more options
While many SMB owners have established long-term relationships with banks, there are considerable benefits to diversifying your capital sources. For example, tapping an unsecured line of credit from the bank isn’t always the most affordable form of credit. What’s more, over-extending your credit line with a bank could lead to difficulty accessing credit in the future.
As community banks continue to consolidate through mergers and acquisitions, now is the time to take steps to protect the stability and credit lines of your business.
“Our top priority at Wheeler Financial is to fill a gap that big banks have created due to consolidation and a greater focus on the bigger players. Our #1 motivation is to help small businesses capitalize on opportunities that drive growth,” said Johnson.
Get in touch with Wheeler Financial. In addition to connecting you to capital, they can connect you to expert advice and insights to help you succeed in 2020 and well beyond. To find out more, visit: wheelerfinancial.com