The global recession has impacted businesses of all sizes, forcing executives to make quick adjustments to their organizations, including minimizing or freezing spending and investments.
However, the pressure to stay competitive in the global marketplace makes it unrealistic to hold off on technology and operations improvements for the long term, says George Fantom, a vice president with PNC Equipment Finance.
“With emerging trends indicating an improved economic environment for 2010, more businesses are re-evaluating their plans and budgets to determine what initial investments make the most strategic sense,” Fantom says.
And as conditions improve and credit starts to flow again, it’s likely that many companies will consider investing in capital expenditures.
Currently, more than 90 percent of U.S. businesses take advantage of financing solutions offered by equipment finance companies, which can include options from 100 percent financing to customized balance sheet treatment to other creative solutions.
Smart Business spoke with Fantom about solutions to keep in mind as you approach your 2010 capital budget planning process.
When financing capital expenditures, what are the options for a traditional loan structure?
In an environment where interest rates are still near historic lows, some equipment acquisitions are best supported by traditional loan structures. But what many executives may not realize is that a loan can be structured as more than just interest, term and principal.
Other options can include:
- Structuring a balloon payment at the end of the term loan can add cash flow benefits and provide a hedge against gains and losses on a sale in a volatile used equipment market.
- An interest-only component at term inception can allow the new piece of equipment to ramp up in performance and allow you to ramp up your cash outlays.
- Qualifying for 100 percent financing of your equipment acquisition can allow you to gain financing without concern for a loan-to-value calculation and a cash down payment.
A creative loan can help control infrastructure costs, better leverage working capital, preserve cash flow and effectively manage equipment obsolescence.