Equipment Financing Equipment Financing Can Be Puzzling
Author: Casey Marie Long
Date posted: 05.25.22

During the early days of the pandemic, supply chains were thrown into disarray. Items that were normally readily accessible could no longer be found (remember the TP shortage of early 2020?) while other items became less used (such as vehicles). Because people were stuck at home, any activities that took one’s mind off the doldrum found themselves suddenly popular. One company, a puzzle manufacturer located in Florida, found that it could not produce enough puzzles to meet demand.

Puzzles have been around for centuries but, prior to the pandemic, were usually reserved for vacations or family gatherings. Sitting at a table without devices for hours on end didn’t appeal to a lot of people until there was little else to do. When the pandemic sent demand skyrocketing, the puzzle manufacturer needed additional equipment to increase their production capacity. With their current machines running 24 hours a day, they were still unable to keep up. Wholesale orders increased rapidly as retailers scrambled to meet consumer demand.

 

The company, though well-positioned to increase its market share, had counted on steady demand for over a decade. Because of this, they did not hold significant cash in the company accounts. Due to the specialized nature of the equipment, the cost was $600,000 for the additional manufacturing equipment and custom packaging equipment. When it came time to make a new purchase, they turned to an equipment lease to finance additional puzzle manufacturing equipment and packing machinery.

 

After installing the new equipment, they were able to increase their production capacity by over 35%. Along with the increase in prices during the period of high demand, the company had its most profitable year ever.

 

The company expected the demand to drop off fairly quickly once the market reached saturation, but they have found that people remembered the enjoyment that family activities brings and demand has not dropped off as quickly as expected. Because of this, the company is entertaining the idea of purchasing the equipment at the end of the lease. The terms of the lease give them the option to purchase the equipment at the fair market value at the end.

Once they had successfully applied for the loan, they were able to purchase the equipment within three days. It took a few weeks to deliver, but they were up and running within a month of their initial application. The 5 year term of the loan kept the loan payments reasonable compared to their operating income.

 

With the new equipment, the manufacturing processing time was cut by 50%, and they were able to spend less time overseeing the actual manufacturing. With the additional time available, they focused their attention on marketing and building their business.

About The Author | Casey Marie Long

Casey has 12 years of technical writing experience. She is also a CPA and bookkeeper. Casey graduated from the University of St. Thomas (Minnesota) with a B.A. in mathematics and currently resides in San Diego, CA.

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