Equipment that meets modern production standards is a must-have for food manufacturers to manage their business. However, another standard that’s quickly becoming a must-have is equipment that meets current and future sustainability benchmarks—in an effort to maintain brand reputation and customer patronage, as well as reduce greenhouse gas emissions.
From farm to factory to table, consumers are choosing to purchase from companies that preserve our natural resources. According to a recent AFLAC study, 77% of consumers are motivated to “purchase from companies committed to making the world better,” including protecting the environment and addressing climate change.
The Coca-Cola Company changed manufacturing processes to increase the likelihood of bottles being recycled into new beverage bottles. The company switched Sprite bottles from green to clear polyethylene terephthalate (PET) plastic. This effort, combined with manufacturing DASANI water in 100% recycled plastic bottles, is expected to save more than 20 million pounds of plastic compared to 2019, and cut more than 25,000 metric tons of greenhouse gas emissions.
Keeping up with the sustainable advances in food manufacturing equipment can be a costly challenge for businesses, and purchasing with cash may not be the most practical option. Many food and beverage companies choose to finance eco-friendly equipment—including solar panels, warehouse lighting upgrades, material handling equipment, fuel-efficient fleets and forklifts, to name a few—which allows them to reap the benefits of energy-efficient equipment without a large cash outlay.
Sustainable Solutions are Healthy for Business Operations and our Earth
Simply put, new equipment is more efficient than what we saw 20, 10 and even 3 years ago. Companies are ushering in a new era of environmental responsibility and seeing improved operational costs, including less downtime for maintenance as well as meeting consumer demands for sustainability practices in packaging, production, distribution and water/waste management, as a result.
Nestle Purina recently upgraded its LED lighting technology to create a more sustainable work environment and reduce greenhouse gas emissions by 1,100 tons, roughly equivalent to the annual energy consumption of 114 U.S. homes.
Consider these statistics:
- By 2027, the U.S. Department of Energy estimates that LED lighting could conserve up to 348 terawatts of energy, which equates to $30 billion of savings at current pricing levels.
- Electric forklifts are quiet, emission-free and certainly more energy efficient than gas-powered lifts. Plus, electric forklifts reduce maintenance costs by 40% over the gas version, according to the Electric Power Research Institute.
- Ultrasonic welding technologies, such as those used for package sealing, can reduce carbon footprints by up to 75% in food packaging environments, as noted by the global tech company, Emerson.
Pair Equipment Financing Structures to Business Goals
Financing offers the opportunity for food and beverage processors, packagers and distributors to acquire sustainable and environmentally friendly equipment and systems for their business. Securing a proper financing structure for your equipment and systems offers many advantages over purchasing using your operating capital. Types of financing structures include:
- Equipment Lease—Offers a financing option based on the organization’s objectives and goals (i.e. longer terms, etc.). This option allows businesses to retain working capital and credit lines to invest in other business initiatives. Leasing equipment also offers potential obsolescence and depreciation protection, with the ability to add or upgrade equipment during the lease term. Any payments required by the vendor may be made by the lender on behalf of the customer. Manufacturers also gain flexibility, as payments can be designed to match budget requirements, and terms aligned with the equipment’s useful life.
- Total Acquisition Finance—100% financing includes bundling the equipment with all related costs, such as sales tax, delivery and installation. With this option, processors acquire what they need to manage their business, typically with no advanced payment and one fixed monthly payment. Compare this to a 75% loan-to-value term loan financing, and the advantage is clear.
- Customized Financial Solution—Equipment financing may provide tax advantages. A carefully structured financing plan can maximize equipment depreciation and tax credits while minimizing income tax liabilities.
Not all food manufacturers can utilize the full tax depreciation of their equipment assets. Leasing with a strong financing partner can unlock additional depreciable value in the form of lower payments.
Evaluate Financing Options
When financing the acquisition of processing, packaging and transportation equipment and systems, there are several aspects for food manufacturers to consider, including return on investment (ROI), weighing the structure and choosing your lending team.
- Assess the ROI—ROI will vary depending on whether the equipment is an upgrade or is being added to increase lines of business. Also, consider how the equipment will impact business operations, and how long newly acquired assets will need to be in production before the business realizes savings or revenue. Lenders should provide guidance related to the equipment’s residual value and useful life, which are key in determining a sound financing solution.
- Evaluate Details of Each Financing Option—The business owner should have a clear understanding of the lease conditions, including term, monthly payment and end-of-term options, as well as flexibility for paying the lease off early, upgrading technology and adding equipment under the particular agreement. Also, examine the soft costs and whether or not they can be financed. Determine if the lease can be renewed and know how liable the business owner is if the equipment is damaged or destroyed. Learn of any additional fees that will be due during or at the end of the financing period.
- Select a Financing Team—The financing team should provide all the information needed for a business to acquire equipment to stay competitive in a rapidly changing industry. A business owner should be confident in the lender’s understanding of the business and the ability to customize payments to match budget needs, goals and objectives.