Hire purchase for new equipment allows increased production and efficiency
By Simon Johnson, Lloyds TSB Commercial Finance area director for hire purchase and leasing in the Midlands
As the economy stabilises, it is essential for firms to put in place long-term expansion strategies to ensure they are well-positioned to capitalise on growth opportunities.
Investing in new machinery and technology plays an important part in a business’ future, as updating equipment can ensure companies’ are running as efficiently as possible, both in terms of energy and time.
Increasingly, companies are turning to asset finance, which encompasses hire purchase and leasing facilities, to enable them to invest upfront in plant and machinery.
This form of funding allow firms to purchase new machinery, vehicles, tools or technology, therefore potentially improving their services and product offering, without putting pressure on liquidity. Equipment is paid for over a fixed time period, making it easier to forecast outgoings and easing cashflow restraints.
According to figures from The Finance and Leasing Association, over 1,000 small businesses obtain new asset finance facilities every day and one in three SMEs with any external borrowing utilise asset finance.
At Lloyds TSB Commercial Finance, the value of our total asset finance lending so far in 2011 is up 18 per cent on the same period last year, indicating a potential increase in the willingness of firms to invest in the future.
The West Midlands in particular has a rich manufacturing heritage, and this is reliant on good quality, modern equipment to remain ahead of the sector.
Case in point
Widney Manufacturing, a long-standing Birmingham business, has recently secured a £200,000 hire purchase facility to complement an existing £1.6 million working capital facility from Lloyds TSB Commercial Finance to support its ongoing expansion, in the UK and internationally.
Widney, which has been based on Plume Street since 1970, employs 130 people and designs and manufactures a range of vehicle windows, sun blinds and telescopic slides. Its products are used in a variety of apparatus, including off road construction vehicles, ATMs and aeroplane seating. Its base of high-profile customers includes JCB and Volvo.
The company currently has a £10 million turnover, 65 per cent of which is made up from export sales. Widney ships its market-leading products to 30 countries globally, including much of Europe, China and the USA.
Six months ago, the business was subject to a management buy out, backed by the current management team. It required an increase in working capital to bridge the gap between settling its own bills and receiving payment from its customers.
Therefore, the firm approached Lloyds TSB Commercial Finance for a funding package, which included a hire purchase facility.
Hire purchase enables it to buy equipment and vehicles upfront, without affecting day-to-day cashflow.
Matt Devers, financial director at Widney Manufacturing, said: “We have worked hard to remain true to Widney’s rich heritage and this funding from Lloyds TSB Commercial Finance will ensure we can continue to lead the market both at home and abroad, with freed-up working capital to invest in new products and expand into new countries.
“While the market in the UK remains volatile we are keen to expand our export offering, with our products increasingly being shipped to India and Asia.”
The Future
As the economy continues to improve, we expect to see more and more businesses in the region beginning to utilise asset finance facilities to allow them to realise their growth potential, and increase production and efficiency with new equipment.