They’ve been burned too many times. Banks have tightened up after being exposed to so many printers going under. They are less willing to lend. If they do, there are more strings attached, like taking equity in the equipment being acquired. For many printers, it would be easier to get blood from a stone than get money out of a bank.
There are certain print companies managing to negotiate finance to fund acquisitions, investments and expansion. But it seems they are increasingly the exception. A finance industry specialist told ProPrint that Westpac now refuses to extend money to any printer that isn’t a client already.
Printers need funds to grow. Some won’t survive otherwise. So the question must be asked: if certain printers can extract money from the banks, what’s their secret?
Daryl Johnson, executive general manager of NAB business, says printers need to produce a business plan before they can secure finance.
“When approaching a bank about finance, businesses need to present a feasible and practical proposal, a business plan, that illustrates their expected business outcomes while demonstrating their ability to manage their finances and cash flow in order to repay the loan and interest,” says Johnson.
“For a small business looking to access finance, the most important thing is to meet with their bank to discuss their individual needs. There are a range of finance options available to meet the specific needs of the business, and a NAB small business banker will take the time to understand those specific needs.”
Some printers have done exactly that. They got a loan by approaching the bank with their business plan, explaining how the loan will help build their business and how they plan to pay the money back. Others secured a loan by relying on a good relationship with their bank and the fact they have been long-term customers. There are also those who have tried alternative ways to raise funds, using for example, supplier credit.
Hall of shame
For some, it has been a struggle. The printing industry is not in the good books with banks following some spectacular failures and messy liquidations.
The hall of shame does not make happy reading. Looking at just a handful of the closures in the past 12 months, it is clear the banks have taken hit after hit.
In May 2012, Melbourne-based Sands Print Group was put into liquidation with around $4.5 million of assets and $6 million of debt, of which around $2 million was owed to NAB.
Melbourne’s Printmode collapsed in September owing $1.6 million, with just $49,000 of assets. It owed $317,000 to Westpac Equipment Finance, $164,000 to Alliance Equipment Finance, $87,000 BOQ Equipment Finance and $40,000 to Macquarie Leasing.
In the same month, Sydney-based Good Impressions went under owing $1.7 million to NAB for a leased Heidelberg Speedmaster CD 102.
Brisbane-based Kudos Colour was liquidated in November with $1.6 million of debt, including $700,000 to Westpac and $120,000 to St George subsidiary. The collapse came shortly after the business was sold to The Printing Office, leaving just the shell holding the debt.
For each of the businesses that have failed, there are 10 others just clinging on. Good operators are regularly sideswiped by their exposure to doomed companies. Worse yet, these company failures tarnish the industry’s reputation, making it harder for the remaining printers to trade on. It becomes a vicious cycle.
Zenith Finance managing director Richard Korda says delinquencies aren’t the only reason banks are taking a dim view of the industry. “I think it’s the way the banks see printing as a non-growth industry. If you look at newspapers and magazines, people are reading them online. The bank is always looking at the ability of the printer to pay. If they see it as an industry that’s shrinking, then they see it as a high-risk industry.
Part of the problem, he says, is the equipment printers invest in.
“Banks look at the equipment. They see it as tertiary equipment. Something like a truck or a car is what they call primary so the bank is happy to lend against that. But things like printing equipment they see as tertiary. They see it as a very high-risk lend situation. “
If the printer goes out of business, it’s hard to sell equipment and recover the debt, he says. “The bank always looks at the worst-case scenario and the worst-case scenario is you have to repossess the goods and sell it. It’s a difficult piece of equipment to sell because you have a limited market and then you have the whole logistics to get it, store it and sell it.”
He says printers applying for loans are forced to jump through many hoops.
“If a client owns property and they have a lot of equity in that property, the bank would be keener to lend to them than to somebody who has no property or has very little equity in property,” he says.
“Not that they would take that as security but they see in the worst-case scenario. If the client goes out of business, at least they have the equity in their house to fall back on.
“If you don’t own a property and you have no cash to put in towards it, unfortunately, you’re going to struggle to get the money. You would have to come up with 50% cash to put towards it. Obviously the bigger the loan size, the harder it is.
“Up to $50,000, a bank might be a lot keener to lend than if you’re talking a half million or million-dollar facility where there is much higher risk. The ceiling comes down to your net asset backing. If someone has $100,000 equity in their property and they want a $500,000 machine, they’re really going to struggle. But if they want a $20,000 machine and have $100,000 equity in property, the bank will be a lot keener to lend.
“Even if the client walked away, the worst case scenario would be $20,000 and they could theoretically sell his property to cover the debt.”
Finance broker Wade Oldham says printers would be in a better position to secure finance if they had written contracts. “But there aren’t a lot of companies in that position,” Oldham says.
Oldham says banks will often now take some equity in the asset being acquired.
“When you get to a half a million plus, banks are looking for some sort of equity from the borrower. Be that equity in the trade-in or cash deposit to take a little hurt out of the exposure. They take equity in the asset being acquired.
“That gives them a little more comfort. They also look at the term of the loan. They look at whether it’s a replacement commitment or not and if the business is trading profitably, if it is selling two machines and replacing them with one. “
He says printers are often forced to turn to non-banks, such Bibby Financial Services and Scottish Pacific Debtor Finance. Non-banks lend money but at an interest rate about two points higher.
Oldham says things will change, eventually. “It’s got to get better. The million-dollar question is when. It will happen when the economy improves.”
Best-laid plans
In the meantime, printers will have to work smarter to get money.
One medium-sized Melbourne printer, who asked not to be identified, says having a good relationship with the banker is important. But that’s just a foot in the door. Developing a business plan to justify the loan is critical to getting a deal. He recently presented a comprehensive business plan to secure a loan.
“It’s about being very transparent and spending a lot of time on a business plan and model to show them that the investment is sound and that it will bring benefits to the business long term.
“You’ve got to do your numbers right. You need to check that if you’re going to invest X number of dollars, you’re going to make enough to pay that back and that you’re going to make a return on it.
“It’s a matter of making sure you really dig deep into your figures to make sure all the numbers are correct.”
For example, he says the existing machine might use 500 makeready sheets to do a job. A new press might require just 50. The business plan would multiply the reduced costs of paper over, say, 4,000 jobs a year. There is also reduced electricity and labour costs. “You might be saving $60,000, which would go toward your lease payments on the equipment.”
Steve Scott, general manager of Lithgow-based Industrial Printing Company (IPC), says his company also did a business plan before seeking to invest $500,000 in a Kodak Prosper S5 imprinting system and Ricoh Pro C901 digital press last April.
He says the company has a good relationship with its bank. IPC is its biggest client in town and has a good track record of repayments. But it still did a business plan, he says, because it figured a business plan would provide the bank with a bit more comfort.
“The bank probably would have given us the money but we did it anyway,” Scott says. “We put forward a business proposal, which showed the savings. They saw we had done our homework and it was a sound investment.
“We did our sums and showed on paper what we were doing and what we will be doing, what savings we were going to make and the potential to pay the machine off over X number of years. It would have eased their minds. We had thought about it, done our sums and it wasn’t just a pie in the sky sort of thing,” adds Scott.
Dominion Print Group had a different strategy when it recently invested in a new five-colour Komori Lithrone. Managing director Kelvin Gage says his company used supplier credit. In effect, the firm providing the machine was the financier.
“The machine went in August,” Gage says. “With our payment plan, they haven’t even asked us for half the money yet. Because the machine will have been in for six months before we have to pay for it, we’ve actually earned enough money and put it aside.”
Gage says Dominion has a good relationship with its banker. “The bank would be there to help us or alternatively, you work hard over the years and conservatively to make sure you have money saved up in the bank for when it falls due.”
He says Dominion will still go to its bankers if needs to invest again. “While everything is tightening up, they still want to figure out a way to give you money because that’s how they make money.”
Crack open the savings
Instead of going to the bank, Gold Coast-based company Alphabet Publishing had a completely different approach when it invested $2.5 million installing a high-volume inkjet Truepress Jet 520 to build its direct mail business. The money came from reinvested profits.
Alphabet’s operations director Marc Selby says: “We tend to not operate on too many loans or overdrafts. We try to make sure we have the money before we spend it. We would rather have as little involvement from the banks as possible.”
It’s better that way, he says. “Do you know anyone working at a bank who knows anything about business? You only have to look back at the GFC to understand the banks really don’t understand what the hell they’re doing.”
Melbourne-based Marvel Bookbinding replaced a 15-year-old Heidelberg Stahl T78 with a T800 Perfection, a high-speed folding machine for offset printed stock. The bank was there to help, says managing director Wayne Eastaugh.
“We have got a pretty good balance sheet, plus we have been going for 26 years and we are a long-term client, so it wasn’t that difficult,” Eastaugh says.
“They look at debt to equity and those types of things. We’re always fairly aggressive with repaying back our loans. We haven’t got a history of missing a payment so it wasn’t that difficult.”
Another printing company, which did not want to be identified, took the advice of a broker and approached Westpac, the parent company of its bank, St George, during the Christmas period of 2011.
“They had all our books and assessed the business,” the company’s general manager tells ProPrint. “But it was just a nightmare. We lost a lot of time with them and it was over the holiday period, which made it even more difficult. That was a six-week process until we finally got the no.”
Again on the broker’s advice, the company approached Bendigo & Adelaide Bank, but the institution wasn’t big enough to extend that sort of loan. In the end, the printer went back to St George and, finally, got the money.
The bottom line was it took them three cracks.
The general manager tells ProPrint this experience demonstrates how tough it is to get money from banks these days.
He acknowledges that the reason why banks often avoid lending to printers is because of the industry’s track record. But this means they can fail to look at each case on its merits. His company, he claims, had a niche market. It was a growing and profitable business. It was unlikely to close down and default on a loan. The bank was told all about that, and it still refused to lend money.
“We make money in this business, we are a growing business, we’re hands on and we’re a family-orientated company,” he said. “It ticks all the boxes.”
Then again, Westpac didn’t seem to care. This particular printer was not one of its clients.
Companies across the industry have similar stories about all the banks, particularly the Big Four. The printers that secure loans will have to put together rigorous business plans, and even then it might be a struggle.
All this will have to change. But that will only happen when the economy picks up again and bankers see the opportunity to make money again.
Compare the market: Finnovate
Printers that want to check out the best rate on loans for equipment can go to Finnovate, a comparison website backed by Brisbane-based A Class Business Finance.
The website provides immediate information on what sort of loan they would be looking at, setting out their monthly repayments.
After selecting the financier, the user can check out the inquiry menu. Then they type in how much they are looking to borrow, the term they want to finance it over and what type of equipment they want to purchase. The system will produce the pricing for those parameters.
They can then take the option of making an online inquiry to the financier or have the financier contact them.
Finnovate consultant David Pratt says the comparison website just puts the business in contact with the banker. It is then up the parties to sort it out themselves.
“We’re not broking it,” Pratt said. “We’re not involved in the process of selecting the finance for them, that’s up to the customer.”
For loan applications over $1 million, Finnovate would vet the transaction.
He said Finnovate already covered ANZ, Westpac, Suncorp, BOQ Equipment Finance, St George, and Macquarie Bank. The firm hopes that National Australia Bank and Commonwealth Bank will join soon.
www.finnovate.com.au
Comment below to have your say on this story.
If you have a news story or tip-off, get in touch at editorial@sprinter.com.au.
Sign up to the Sprinter newsletter
