Keeping your business at the forefront of technology is expensive, but it could cost you more to fall behind in the technological race. Acquiring a loan to finance technical improvements can help printers stay at the top of their game. Michal Lodej reports.

Making large financial decisions are being put on hold by many businesses, with so much uncertainty surrounding what Britain’s exit from the European Union will look like. However, despite the slowdown, now is not a time to defer purchasing decisions in the printing market, argues asset finance specialist Anglo Scottish, part of the Maxxia Group. The company firmly believes that the acquisition of, and access to, the latest state-of-the art, flexible and high production flexographic presses may well be the answer to fulfilling customer contracts and generating much needed cash-flow. According to Carl Johnson, sales director at Anglo Scottish, many businesses, and especially small to medium sized enterprises (SMEs), would benefit from the high output, sophisticated printing that the new flexographic presses can deliver, ‘However, because of market pressures, many of them do not have the means to fund such assets themselves. At the same time, many of the funders which could provide the necessary funding to help such businesses do not want to take the risk, especially with the high capital outlay involved when compared to the net worth of the printers’ balance sheets,’ he said. To counter this, Anglo Scottish which has access to over 80 different funders throughout the UK, works with a panel of 15–16 funding specialists who are happy to provide finance for printing businesses of all sizes.

‘The successful printing business of today understands a tripartite relationship between the manufacturers or supplier, customer and finance provider is the best way to generate success,’ said Mr Johnson. Knowing when to invest For many businesses knowing when to invest in new equipment, and when to continue to run existing machinery, is a fine balancing act. ‘The trick is to be able to know when to invest and when not to run equipment into the ground. Underinvestment causes pressure on margins, as older machines become problematic and more expensive to maintain, while regular investment always seems to deliver the best results,’ Mr Johnson explained. For many businesses, knowing where to go for the appropriate funding for new machinery can also be problematic. ‘One solution is the use of asset finance to acquire the necessary hardware, but for many SMEs the question is ‘where do I to start? Often businesses will look to their bank for support, but increasingly the banks lack the expertise to look beyond a balance sheet ratio and provide finance that works. The answer then is an asset finance provider, particularly specialists who are used to working with the print industry, like ourselves.’

Some funders often needed a detailed explanation of the rationale behind financing such large ticket items as flexographic printers. ‘More now than ever, printers need to ensure they are working with a finance provider which has taken the time to understand their business and the rationale behind their investment. It is standard practice within the print industry for the manufacturer or supplier to require a deposit of 10– 20% at the time of placing the order, plus a further 70–75% of the cost on delivery. So the finance house may be required to provide up to 95% of the cost within a short space of time.’ For some funders that represents too high a price, but Anglo Scottish takes a partnership approach with its panel of funders, explaining why such a high initial outlay will be worth it in the long run.

Other requirements may include ancillary machinery such as pre-press equipment, or transport to move the finished goods, or even new or larger premises. It is highly unlikely a single lender will have the appetite to support multiple investments at any one time. ‘Anglo Scottish can provide a holistic finance support package for printing business that goes far beyond the provision of the press itself, which is quite different from many of the more established asset finance businesses in this market who may not wish, or be able, to go beyond funding the initial equipment,’ said Mr Johnson.

A business plan from the directors on what the investment will mean for the business is very helpful

Cash flow

Quite often a company will need to invest but may not have the down payment deposit required for both the ordering of the machine and the cash needed to grow the business. This is not uncommon and goes with winning new business and breaking into new markets – as the business activity ramps up more cash is used to fund the increase in sales. In this case, a business may find itself in a position where it must find more than 100% of the cost of a new asset.

Anton Nebbe, head of PR and communications, Close Brothers Asset Finance, said, ‘We are often asked to provide 100% funding because the down payment is required for working capital. Our specialist team understands the value in unencumbered print and finishing assets and quickly assesses which asset might support this type of structure. This may mean then that for the short or medium-term, other unencumbered assets can be utilised to help a business purchase a much-needed machine  rather than wait to build up the cash deposit.’

A business will need to replace its fixed assets over time and asset finance has increasingly been the way in which companies have been able to invest. Even in the most cash generative industries in the UK, businesses have turned to asset finance as a method of funding that allows the business to spread the cost over time and still benefit form capital allowances to make investment tax efficient. Mr Nebbe continued, ‘Other businesses may be very susceptible to changes in trading. The print industry has generally low GP margins, so it’s like spinning a heavy plate on a long stick. If the plate stops spinning it means the cash dries up, in which case having the ability to raise working capital through asset finance is enormously useful.

‘We’ve also been very successful in MBOs and MBIs using asset backed funding. In many cases the acquiring business doesn’t have all the money required to purchase the shares of a business. In these situations we’ll be able to use the assets of not just the target company but also the acquiring company to provide funding for the purchase price. The print and packaging industry has been going through lots of consolidation over the period of consolidation and we are happy to talk to people if they’re considering selling their or acquiring a business.’

Seal of approval

So to be successful in a loan application what do printers need to prove? Mr Nebbe explained, ‘To paraphrase J Paul Getty, if you owe the bank £100 that’s your problem, if you owe the bank £1 million, that’s the bank’s problem. There comes a point that when you start borrowing large amounts of money you must become increasingly aware of not only demonstrating the ability to service the debt but understand what the banks want as security in return. ‘Taking out any borrowing increases the debt the business has to service and debt is regarded as cheaper than equity and is tax efficient; however, debt is debt and has to be paid back each month, which requires a good partner in the relationship. ‘

Many lenders will be take a very close interest in the history of the business and will want to see consistent profitability and balance sheet strength. In many cases businesses are attempting to invest their way into new areas or recover market share; survive a bad debt or improve efficiencies that have fallen because of outdated equipment. In these cases, it can create challenges in applying for finance, but it doesn’t have to be the case. Clearly a business plan or narrative from the directors on what the investment will mean for the business is very helpful. Unsurprisingly, the bigger the deal, the more detailed the plan needs to be but ultimately it needs to strike the right balance. In terms of numbers, historical information is important and must include the balance sheet and P&L along with information about the main drivers of the business. Forecasting is also key because you need to demonstrate that the business can cover its current portion of long-term debt through the cash generated in the business.