Do equipment finance companies really add value?
Mid-sized and large companies have long counted on leasing, rental and other financial solutions to manage their equipment needs. Over the last several years, more traditional equipment loans, structured capital leasing and simply paying cash have risen in popularity as financial managers approach capital expenditures with a wide variety of highly engineered methods of equipment acquisition. And over that time, the one important item that seems to be getting lost in the process is the equipment itself.
In a 2015 survey of senior financial decision makers, 68% made the financing decision without any knowledge of equipment life cycle or usage
While this is shocking, it’s not altogether surprising that the finance managers and operations managers within a larger company may not be well connected on every matter. But with more than 70% of every piece of commercial equipment being financed in some way, what is the role of the equipment finance company? Where is the expertise in the equipment usage that guides operations managers with life cycle strategies to reduce costs and increase efficiency? Where is the asset-driven secondary market expertise that assists finance leaders in making the best decision for allocation of funds? Have equipment finance companies lost the connection…and even the expertise…with the equipment?
Without real consultative recommendation on a better way to acquire, finance, manage and dispose of the assets to be procured, equipment finance conversations become exclusively about financial engineering and lowering the cost of capital. And while these are important factors for any business to address, they are just pieces of the puzzle.
To add value, equipment finance experts should start by deriving insights from a deep understanding of:
- Equipment usage. An equipment financier should make an investment in understand equipment usage long before they invest in the equipment itself. Determining the optimal life for each equipment class, understanding the operational needs of asset management and understanding international factors are just the beginning of the information required to build the right financial solution.
- Budget limitations. Often CAPEX needs at the operational level seem to outpace the planned budget allocation for these assets. An equipment finance company should understand both the operational and financial budget implications of asset acquisition and offer solutions that maximize the equipment in place for each budget dollar.
- End of life. Alarmingly, few mid-sized and large companies have effective end of life strategies for all of their asset classes. An equipment finance company should bring extensive experience with the secondary market of these asset classes to guide companies on the best financial options for disposal. And once defined, incorporate the end of life value so as to minimize the budget impact and secondary market risk of each equipment purchase.
And that’s just the beginning. At Somerset, we think equipment knowledge makes a huge difference. Equipment acquisition and management is about more than money. It goes beyond finance. In fact, we make markets in the sale of commercial equipment and bring that deep understanding to deliver more flexibility, innovative financial solutions and a more intelligent approach to equipment finance.
How can we help you go beyond finance?