Financing technology needs: A better option for businesses
Entrepreneur frees up cash with IT loan
(NC)—Omar Hammoud faced a challenge most entrepreneurs would envy: how to cope with rapidly increasing demand for his company's products.
Hammoud is President and CEO of APG-Neuros, a business that makes air turbo blowers for waste water treatment and other industrial applications.
APG Neuros got off to a slow start after being founded in 2006, but then demand took off for its award-winning blowers. Last year's sales topped $26 million, mainly in North America.
The strong demand and ambitious plans to expand overseas led to growing pains.
“Our limit wasn't the number of orders,” Hammoud says, “it was our capacity to track production, manage our supply chain and schedule activities for efficient delivery to customers.”
In response, Hammoud decided to upgrade the company's basic technology. The firm purchased an Enterprise Resource Planning (ERP) system, a software package that could manage all facets of the business, increasing efficiency from order entry, through production and accounting to final delivery.
It was a major investment and the big question was how best to pay for it.
“How do you finance it? That's always the issue,” Hammoud says. “If you use working capital to buy information technology, it reduces the cash flow you need for immediate expenses, as well as your ability to invest in expansion.”
He decided the best solution was to use outside financing. He turned to the Business Development Bank of Canada (BDC) for a medium-term loan to pay for the ERP system.
“Most banks are reluctant to finance software because it's an intangible asset, which can't be held as security,” he says. “However, the loan we received is giving us the time and money we need to improve management of all our processes. At the same time, it has freed up capital to develop our markets in Europe, Africa, the Middle East and South America.”
“Major hardware and software investments, while risky and sometimes expensive can build a significant competitive edge for businesses,” says Michel Bergeron, BDC's Senior Vice President, Marketing & Public Affairs. “If your financial resources are stretched, you shouldn't have to deplete your working capital to support a long-term investment.”
A better option is to finance IT investments so your business can benefit from upgrades immediately but pay for them over several years.
Bergeron says technology is vital for the competitiveness of both individual companies and the Canadian economy as a whole.
“Canadian businesses invest about 40% less in technology than their U.S. counterparts and our productivity lags by 25 to 30%,” Bergeron says. “There is a direct link between the two.”
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