Financing Options

What are the financing options for equipment manufacturers and vendors?

Develop Financing Capabilities In-House

Utilize the parent company or manufacturer's balance sheet or lending facilities.
Open a separate lending facility with or without support (guarantees) from the parent and fund and hold loans and leases on the captive's balance sheet.
Assign loans and leases directly to a funding source. A program agreement must be negotiated and executed with one or more funding sources. These arrangements may be made with or without recourse from the captive or parent.
Pool loans and leases and sell them into an Ultimate Net Loss (UNL) Pool. The captive will be responsible for a percentage of the first loss (typically 5 -9.9%) of the outstanding book value of the pool, which recharges to a current book value annually.
Fund and pool leases and loans and sell them to a funding source on a non-recourse basis.
Create an asset-backed securitization (ABS) facility that can be borrowed against to fund new loans and leases upon take down. May not be able to fund 100% of each deal.

Capital and infrastructure requirements are among the main reasons why manufacturers favor third-party programs over starting a captive finance organization.
Relationships with a third-party vendor program allow the manufacturer to provide financing options without an investment in resources, expertise and infrastructure to start a financing organization.
Frees up resources to dedicate to the manufacturer/vendor's core business.
Vendor programs provide many of the same benefits of a captive finance company without taking on additional risk of credit/portfolio deterioration.
Structure the program to allow the company to take the next step, if desired, toward being a true captive.
Developing a formal relationship with a captive generates additional income for the captive in addition to an incremental increase in equipment sales.

Lack of demand is the No. 1 reason companies opt to rely on an informal partnership and not create a captive or a vendor relationship.
Most manufacturers who choose this option look to their dealer to provide leasing/financing to their customers.
When a leasing/financing need arises, the organization develops an informal network to meet the customer's financing needs.
Limited or no additional income is typically generated with this type of business model.