Let’s say the business equipment your company manufactures comes in at a higher price point than most small- to mid-size enterprises are comfortable paying out at any one time. And let’s keep in mind that the notion of “higher price” varies depending on how mission-critical the equipment in question is, and of course what specific prices we’re talking about.
In this view, a real estate agency being asked to pay a $500 lump sum for one of those self-directed vacuum cleaners to keep its office spic and span may hesitate to make the investment. After all, $500 is a good chunk for a vacuum cleaner, and a Roomba isn’t exactly core to the business of selling property. On the other hand, it’s pleasant and impressive to have a clean office, and you might save enough on other janitorial costs to offset that $500 pretty quickly. Still, $500 all at once…
Complications from the pandemic
Now let’s suppose a small forestry company learns it could secure bigger contracts if it bought a bigger log loader to help it gather and ship more raw timber. If fact, their research and experience leads them to believe a specific rig going for about $30,000, and available directly from the manufacturer, would do the trick nicely. Again though, $30,000 can be tough to come up with on the spot, even if the machinery seems likely to pay for itself in a few seasons.
When a business is uncertain about equipment purchases from a financing perspective, it can be enormously beneficial for manufacturers to offer to let them pay in installments. Sometimes it’s easier to commit to paying for a $500 robot floor cleaner over time than to shell out immediately. Not because that’s a prohibitive sum, but because it can make better sense from a cash-flow perspective to start enjoying the benefits of a clean office and lower overall janitorial costs when the equipment is being paid for in digestible installments. Same goes for the forestry company, which may prefer paying for its new logging equipment over several years to spread the outlay out as even the company benefits from its capital investment.
Factor in an unprecedented economic contraction in Q2 this year brought on by the coronavirus pandemic, and you can sense why many businesses are thinking twice right now before making large purchases, even if the spending is essential to their post-Covid competitiveness.
“As a consequence, being able to finance client purchases is a boon to manufacturers large and small — whether the offering consists of robo Hoovers, log loaders, custom-embroidery machines, photocopiers, or blueberry rakes — especially in the face of systemic economic challenges like those we’re all confronted with these days,” says Dmitry Voronenko, co-founder and CEO of TurnKey Lender, a pioneering lending-technology maker. “The big question for manufacturers, especially smaller ones that can’t rely on a network of dealerships and re-sellers, is how to provide financing.”
Whether to outsource or do it in-house
In other words, should a manufacturer engage with a third-party lender — whether it’s a chartered bank or a specialist equipment-purchase lender — or work with a technology provider like TurnKey Lender to provide an in-house, white-label lending solution?
The answer to the question may differ from manufacturer to manufacturer in response to a thorough review of its own as well as its clients’ business priorities.
Among the factors that favor third-party lenders are:
Ubiquity. It’s easy to find established lenders in the capital-equipment game with a quick web search.
- Absence of credit risk
- Less need for staff training
- Receiving the full purchase amount upfront. The actual loan settlement is between the buyer and the third-party lender. The manufacturer is out of the loop once its paid and the equipment is off its hands
In this light, the in-house-with-technology option may seem like a second choice, but it really shouldn’t be — certainly not in this day and age. TurnKey Lender caters to a growing contingent of scrappy yet sophisticated manufacturers with state-of-the-art, cloud-based lending functionality powered by cutting-edge artificial intelligence. This option’s advantages include:
- Increased operational efficiency supported by artificial intelligence to facilitate smart decisions quickly
- Improved portfolio yield from technology that lets retailers optimize portfolio yield by working only with the most profitable customers along with predictive models to pinpoint optimal rates and terms
- 100% of transaction fees
- Staff training and 24/7 IT support and customer service to answer the retailer’s questions in real-time
- Client-data integrity and security. In this model, customer data is not shared with third parties
- In-house underwriting rules. The manufacturer sets its own criteria for credit decisions and controls which clients it wants to approve using risk-based pricing to control risk
- Business metrics to help manufacturers get a deeper understanding of client behaviors and preferences
- Mobile-lending capabilities via encrypted apps for secure, on-the-spot service whether the client representative is there in person or using a connected device remotely
- Affordability due to its modular structure. With TurnKey Lender, a manufacturer can start small and add functionality as needed
- Scalability that lets a financing program grow as the business grows
Request a live TurnKey Lender demo tailored to your business.
Further benefits of the in-house option
Tech-enabled in-house lending also enhances client loyalty to the manufacturer. With a fully-supported white-label you don’t have to worry about clients getting confused by third-party documentation. This makes for more ongoing “touch points” between the manufacturer and its clients, which leads to opportunities for loyalty-program enrollment and for up-selling.
The fact that in-house lending, at least with TurnKey Lender, uses advanced AI to make credit decisions and set rates can provide more scope to provide financing for longer-term contracts, such as the logging equipment mentioned earlier, as well as big-ticket items needed by healthcare professionals. Third-party lenders can cost their clients on this front, rejecting applications that look riskier than they really are — subtleties non-industry participants may overlook.
“Equipment financing by installments isn’t a cure-all,” says TurnKey Lender’s Voronenko. “Manufacturers face headwinds from the coronavirus and an economic downturn that seems to be deepening as cases of Covid-19 reach new heights at a faster clip than ever.” Giving businesses the option to pay for typically larger-ticket items over time through installment financing can “mitigate ticket shock, build loyalty, and help manufacturers close more sales, even in hard times.”
Adds Voronenko: “In implementing equipment financing, however, capital-equipment makers should consider whether they’re best served by outsourcing the program or working with a lending-tech vendor to keep more control.”