No one would ask a plastics manufacturer to make a product without the right mold. Likewise, no one should expect a manufacturer to develop and market that product without the right financial tools. Plastics manufacturers have to manage a range of business factors to stay competitive. They must be sophisticated in marketing as well as the latest manufacturing techniques - all the while being ``value-added'' suppliers at the lowest cost.
This is a tall order considering the challenges facing the industry.The plastics manufacturer is not without the financial resources to solve these problems, however. Leasing is critical to help companies increase productivity and profitability.
This financing option also helps resolve some vexing issues facing the industry, namely:
*How to avoid investing in old equipment that becomes obsolete very quickly and won't meet the new ISO 9000 standards.
*How to make large capital outlays for new machines that won't turn a profit right away.
Here is why leasing has such appeal for the plastics industry:
*Better cash flow. Since cash is not tied up in equity, leasing helps keep debt lines free and credit lines open for other business needs.
*Leasing offers 100 percent financing.
*Leasing offers fixed-payment financing, which is good for budgeting. Leases can be structured so these fixed payments are spread over a longer period, keeping payments low.
*Leased equipment usually can be listed as an operating expense, not a debt, on financial statements. Off-balance-sheet financing may keep debt-to-equity ratio and liabilities low, and can enhance your borrowing ability.
*Leasing may also help companies avoid depreciation schedules, and can help a plastics manufacturer bypass conditions of the Alternative Minimum Tax Law. If a manufacturer purchases or places into service 40 percent or more of its equipment during the fiscal year's fourth quarter, then all assets purchased during the year are depreciated from the midpoint of that quarter, rather than from midyear. Leasing may bypass the issue entirely.
*Under flexible structuring options, payments can be deducted over a shorter time period. Purchased equipment is deducted according to a standard depreciation table.
*Leasing also provides a form of financing that is less-restrictive than the traditional loan. Your return on investment and return on assets, which measure company performance, may improve with an operating lease.
As the plastics industry continues to tackle a wide range of challenges, leasing serves as a solid solution to meet these challenges head on.
Weber is district manager for CIT Group/Industrial Financing of Livingston, N.J.