Sub-Prime . . . What?

One of the most frequent questions we have dealt with in recent client discussions is how the credit squeeze is affecting the imaging business. The surprising answer is . . . not much! Of course, we need to put that statement into perspective. We have no intention to play down the seriousness of the present situation, as no corner of the economy is left untouched by the current crisis. But the impact is still less than one might expect when observing the "mainstream" events and commentaries.

Especially since some sectors of the imaging industry involve major investments, financing is often  part of the business and a key facilitator for most vendors in the mid- to high end of the business. A digital press, a corporate installation of dozens or hundreds of systems, or even the purchase of a single midrange MFP will often be financed through a leasing arrangement. So how could it NOT be that the vendors are seriously affected?

On the one side, that corner of the financial world has been and has stayed notably conservative. Overall, credit checks for imaging equipment are thorough and the decision processes are (in retrospect, thankfully) stodgy. Credit requirements for potential customers have always been strict, sometimes to the point of frustration for the selling companies. Just like the imaging industry as a whole, their financial partners seem to have been maybe a bit boring on the surface, innovative only within limits but certainly profitable if their portfolio was well structured.  

On the other side, the financing for imaging equipment has by definition been well securitized. The hardware is reasonably valued and, as a response to some "playful" calculations in past years, there is rarely any effort to leave any residual value on the books to lower payments. If monthly volumes are included, they also tend to be fairly estimated. One reason is that the contract partners typically have enough knowledge of historical usage levels to provide a good baseline. The other reason is that while lock-ins are good, overage, which is usually charged at a premium, is better. So the volumes tend to be realistic and often even a bit low.

With such a notoriously low tolerance for risk in this space, the market for sub-prime financing for imaging equipment, while theoretically possible, never emerged. If times had stayed good, maybe these players would have been tempted at some stage to get creative and find ways to loosen credit. But we are sure that those players are currently thankful that they stuck to the established credit parameters.