Hire purpose: Geoff Sawyer uncovers the myriad of financial options for hiring machinery

摘要

So what about financing a deal over machinery? According to Keith Jaynes, whose Key Associates consultancy offers such financial advice, there is an over-dependency on short-term sources to finance plant and machinery. "This has a medium-term payback to the business," says Jaynes. "It poses obvious risks to any business - not least the overdraft. "Overdrafts are legally repayable on demand and are designed for short-term requirements such as working capital. Commit your overdraft to fixed capital investment, such as a new machine tool, and it reduces liquidity and cashflow." He warns that, though this might not be a problem when business is buoyant, it could be destabilising if the bank calls for a cut in the overdraft in more difficult times. "Many potentially sound businesses fail in recession, not because they are unprofitable, but because they simply run out of cash," says Jaynes. "Another good reason for confining the overdraft to day-to-day needs is the cost and potential volatility. Unlikea term loan, where the cost can be fixed in advance, the banks reserve the right to change the margin at which the overdraft is priced." So why would managers of smaller businesses find short-term sources of finance for investment with longer payback soattractive?