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Is Vendor Financing Right for Me?

Posted On: March 8, 2018 author Paul Kendall

As you’re starting and growing your capital equipment business, there are a lot of variables that go into determining whether or not you’ll be a success within your market and industry. While it’s impossible to cover every single aspect in a single article, we’re going to explore one of the possible solutions that can impact your ability to secure customers that come through your doors.

Vendor financing is a form of financing that is utilized by different medical device companies, heavy equipment manufacturers, and any capital equipment company that sells something over $10,000.00.  The best Vendor financing programs will help  companies ensure that customers are more likely to buy their products than they would be if vendor financing wasn’t an option. While vendor financing won’t necessarily guarantee you’ll secure more customers or increase sales, it’s merely another option available, and options can be great for improving the likelihood of a sale. Let's explore how you can leverage vendor financing to crush your sales goals!

What Is Vendor Financing?

Businesses that need to make a purchase that's out of their capital equipment budget will ask an equipment vendor to give them terms on their purchase. Before we determine the pros and cons of vendor financing, we first have to define what it actually is.

Vendor financing is a form of financing that is provided from the capital equipment business (e.g., manufacturer, distributor, equipment dealer, etc.) to the customer with the help of an experienced financier that can fund sizable financial initiatives. In the majority of vendor financing cases, an outside financier or lender provides the funds and infrastructure for your business to provide an alternative form of financing to your customers.

However, to the customer, they don’t realize on the surface that the financing system is managed by an outside financier and to them it can even look like you are providing the service in-house. There are multiple ways to structure a vendor finance program based on what you want to achieve.

An equipment vendor will need to decide whether to work with a 3rd party equipment leasing company to offer financing to their customer's or use their own money to offer offer financing to customers. 


From a Business Sales Perspective

Vendor financing allows you to make a sale that would otherwise be impossible if your customer doesn’t have enough funds to make the purchase. 


From a Customer Perspective

As a customer, vendor financing enables them to make a purchase quickly they would otherwise not have access to under traditional means. 

In one possible scenario, a customer may wish to make a purchase for a type of product that your business provides, but cannot get the funding necessary to make the purchase. For example, the customer may need to get a loan in order to make the purchase, but doesn’t have the time to wait for their local bank’s approval, or they may not be able to meet all of the requirements by their local bank to be approved.

In this case, they could get the “loan” from you via vendor financing, which is like making you the bank, except you’ll not only get the sale, but you’ll be able to earn the interest that the customer would have otherwise paid to a bank. This is one form of captive vendor financing and companies like Trust Capital can help you set up Captive financing programs.

In another scenario, a business may be interested in buying a lot of equipment that you sell. They may not have the cash reserves to complete the transaction, but with vendor financing with a 3rd party equipment leasing company they can complete it. By making payments over a series of months or years, they can acquire the equipment necessary to do business while distributing the cost over an extended period of time.

Should I Implement Vendor Financing In My Business? 

Deciding if you should add vendor financing is a combination of market variables, your business goals, and your patience with setting up and managing a vendor finance program.

If your business involves selling equipment for businesses of any kind, especially if it has a higher dollar amount or is occasionally sold in high volumes, then including vendor finance may make sense to be added as an option to your customers.

It has the potential to help you increase sales. If you have higher dollar amounts for your equipment or sell in large batches, adding customer vendor finance options to your list of solutions for your customers can help you to directly increase sales with your business, Exponentially. I've seen vendor financing represent up to 90% of a manufacturer's revenues. No one is going to turn down cash but it's better for your customer to invest their cash into things that appreciate like employees and marketing and lease equipment that depreciates. A ROI scenario based on a monthly payment will put in perspective how quickly a customer can begin to recognize profits for their business. Delaying the purchase, most often than not is costing them money. Opportunity cost happens to many businessses reluctant to make a good buying decision.

If you decide to lend your equipment on your books. You’ll be able to pocket the interest or other associated fees that banks and financial institutions would otherwise take. Because you are acting as a financier for your customers, they’ll be paying you the interest instead of the bank (depending on how your agreements are established).

How risk adverse are you? While it may be tempting to add vendor finance programs as options for your customers when you hear about the potential increase in sales, you have to weigh the risk associated with this form of financing. Banks normally handle the risks and therefore have a lot of experience with analyzing potential risk; risk that you would now take on by becoming a financier yourself. This risk can be mitigated by partnering with companies like Trust Capital to set up a vendor finance program. 

Is there a need for vendor financing in your market? On the surface it might make sense to add this solution to your customers. However, if your customers aren’t likely to actually use it, or there’s no evidence of an actual need for it being expressed by your market, then you may be taking on more work than is necessary to implement it within your business.

Why Partner With An Equipment Financing Company

Let's face it. Leading with equipment leasing lowers the sticker shock of high priced items. 

• Boost productivity by removing the administration burden of managing your own equipment financing program, without hiring new employees. Trust Capital provides a streamlined application lifecycle and consistent communication.

Increase Communication with an equipment leasing web portal that provides up to the minute status updates, workflow updates, sales/marketing support, application processing, quotes, reports, credit underwriting, pricing and documentation.

Increase revenue's by gaining repeat sales that are easy to add on to your customer's current financing program. A customized financing solution with an equipment leasing company makes it simple to upgrade and finance additional equipment.

Increase efficiency with the full service approach and just one point of contact. Trust Capital's full service approach provides access to a wide selection of premiere funding sources and a full suite of financing products to meet your clients’ specific needs. Best of all, everyone in your organization can contact just one person to get the service they need.

Close the sale quicker by offering your customers easy payment solutions that will keep the sales process moving. Passing the lease to other finance companies or banks often causes unpredictable delays that could decline the credit or even worse refer the deal to another vendor.


How Do I Implement Vendor Financing In My Business? 

The quickest way to start leading with leasing is to use lease rate factors. The beautiful thing about lease rate factors is all you have to do is multiply the lease rate factor by the funding amount to calculate the monthly payment. An equipment leasing partner can provide you with a competitive sheet to work off of. It's common for equipment leasing companies to have an online financing proposal generating tool or excel quoting tool for you to use from your desktop. 


Make the right decision

At the end of the day, it really comes down to whether there’s a need for it and whether or not you’re willing to take on the risk of utilizing lending yourself or partnering with an equipment leasing company to offer financing to customers. As with all types of business decisions, each situation is unique and there’s no black and white answer. If you think there is a possibility that it can help your business, then it’s worth talking to a company like Trust Capital to get their input.

Contact us today to learn more about vendor financing, whether or not it’s right to implement into your business, and how to go about creating a vendor finance option within the structure of your capital equipment business.

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