Equipped to succeed Featured

12:32pm EDT June 28, 2006
In today’s economy, equipment plays a crucial role in fueling the success of middle-market companies. Whether machine tools, printing equipment, corporate aircraft or fleet vehicles, the equipment you rely upon to create and transport your products and services are as important as the intellectual capital and management strength of your company. Whether you are seeking to expand your operations, increase your productivity or simply replace your aging equipment, leveraging the value of your equipment is a strategy that more and more companies are considering.

Smart Business spoke with John Sands, a vice president and middle-market manager with PNC Equipment finance, one of the nation’s top bank-owned equipment finance companies.

How do you choose the right financing option for your business?
Many companies choose to purchase equipment using their existing bank line of credit, a traditional term loan or, in some cases, purchase using cash. But an experienced equipment finance professional can connect you to other possibilities, including customized equipment loans secured by the equipment and flexible-lease solutions.

A creative equipment finance solution is a way to control infrastructure costs, leverage working capital, preserve cash flow and effectively manage equipment obsolescence.

While loans and leases can be structured for most equipment types, the major categories include manufacturing equipment, heavy machinery, construction equipment, corporate aircraft, over-the-road vehicles, printing equipment, rail cars, telecommunications equipment, mining equipment, and medical and specialty equipment such as plastic molding, food services or semiconductor manufacturing.

Why consider a lease?
A well-structured lease allows a company to obtain equipment at a fixed rate, for a fixed period of time, without having to purchase the equipment outright. By leasing, a company can avoid many of the uncertainties associated with ownership, allowing you to focus on using the equipment to effectively run your business. Remember, it is the use of the equipment that makes you money, not the ownership of it.

Let your equipment finance provider put his money into depreciating assets, while you use your cash for projects that will appreciate in value or generate a strong return on investment.

There are many advantages to an appropriately structured lease, including the ability to provide 100 percent financing. This allows you to reinvest your conserved cash elsewhere in your company — like R&D, marketing or technology.

In addition, leases can often offer lower borrowing costs (when compared to traditional or alternate financing options), offer longer term and deliver improved return on assets.

One of the strongest benefits of leasing is the tax benefit. By using a tax-oriented lease, you can trade off the tax benefits to your equipment finance provider and generate a lower implicit rate on the lease — usually below your conventional term loan rate. Another advantage is the fact that you can fully expense the entire rental payment, thus benefiting from a lower rate while still preserving some tax shelter. For companies in an Alternative Minimum Tax position, this is a very common avenue. Tax leases are also very popular with companies that have capital expenditure limitations due to covenants or bond issue restrictions. By using an off-balance-sheet transaction, the company can still grow by gaining use of the necessary equipment without violating the restrictions placed upon them.

How do you decide whom to work with?
When deciding what equipment finance solution is best for your company, it is important to work with an experienced equipment finance provider who understands the value of your equipment and understands your company’s short- and long-term goals. By matching your business strategy with the right finance solution, whether a loan or a lease, you can be positioned to address today’s challenges and pursue tomorrow’s opportunities.

JOHN SANDS is a vice president and middle-market manager with PNC Equipment Finance. Reach him at (800) 762-6260.

This was prepared for general information purposes only and is not intended as specific advice or recommendations. Any reliance on this information is solely and exclusively at your own risk.