Professional Development: Equipment Financing
By William G. Sutton, CAE
From the June 2014 issue of Today’s Facility Manager
Facility managers (fms) have a powerful ally to rely on as they seek to outfit their organizations’ plant, equipment, and software needs. Equipment leasing and financing providers have the resources to make these acquisitions affordable and beneficial in a myriad of ways. Finance companies—from commercial banks to manufacturers to specialized commercial finance providers—offer a variety of options and can arrange financing that best suits an fm’s capital plant and equipment needs, and financial structure. Whether operating in the public or private sector, knowing the ways equipment financing can work within budget constraints and keep an organization running smoothly is a critical advantage for fms.
Virtually all organizations face budget constraints, so it comes as no surprise that budgeting and maintaining cash flow are among the most often cited reasons given by end users for financing equipment. The availability of 100% financing of equipment with no down payment is a critical benefit that enables working capital to be used for other areas of a business, such as expansion, improvements, or marketing.
By financing equipment fms help maintain cash flow and offer greater certainty in budgeting by setting customized rent payments to match cash flow (even seasonal cash flows). Oftentimes, cash flow requirements extend beyond a typical scenario, such as a 30 day or 45 day receivables cycle.
One example that illustrates this benefit took place in a school district in Alabama. The district required a schedule of payments that would allow it the time necessary to collect $1 million in pledged donations to cover the cost of new technology equipment for each of its 3,500 students. Lease financing not only enabled the district to create its ideal budget by making payments over time, but it also ensured that no student would have to use a computer more than five years old.
In another instance, a non-profit university was named the beneficiary of a seven-figure donation to be received over a five year period to launch a new specialized chemistry department. The university needed funding to make large initial technology and laboratory acquisitions. Its financing provider created a solution that smoothed out the university’s cash flows relating to charitable gift receipts, and enabled it to manage technology refresh cycles so it could position itself as a technology leader.
Technology upgrades and equipment replacements that can be included in equipment financing agreements are key benefits with implications for a facility’s budget. Having access to new technology within a stream of payments enables an organization to be competitive. It also eliminates the risk of obsolescence and the responsibility for equipment disposal.
Leasing, loans, or other financing also can enable fms to acquire more and better equipment than would be possible without financing. It is more feasible to make monthly payments than to make large cash outlays for equipment up front.
Financing providers can also offer solutions for business needs beyond equipment. Customized financing solutions that provide an immediate injection of cash flow are available to organizations looking for sources of funding to grow and sustain their businesses.
Acquiring equipment through leasing and other financing methods is more flexible and customizable than most other funding options. Equipment finance is an $827 billion industry in the United States, and fms can find industry participants who customize their service offerings by industry, equipment type, ticket size, or end user size.
The type of lender chosen also impacts the flexibility of financing options. For example, an independent lender is not subject to certain regulatory controls and may have wider latitude in considering subjective factors in how it extends credit.
An example that illustrates this benefit took place at a non-profit aquarium that required equipment to support its work in marine research, deep-sea exploration, and hands-on education. The aquarium was able to secure financing for the equipment it needed through an independent equipment financing company. In extending credit to the aquarium, the company was able to give consideration to a state grant that would support a portion of the lease payment—and also considered the important role the aquarium plays in the community.
This is a particularly good time to finance equipment because there is so much liquidity in the marketplace. There are many funding sources—leasing companies, banks, and some manufacturers—that are looking to lend because they have the cash available to deploy. A highly competitive marketplace makes this a favorable time for fms to finance productive equipment. Preparing with thorough, accurate information will enable fms to obtain the equipment they need at the best possible terms.
Sutton is President and CEO of the Equipment Leasing and Finance Association, a trade association that represents companies in the equipment finance sector.