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.

Create a Formal Partnership With One or More Finance Sources

  • 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.

Create an Informal Partnership With Multiple Finance Sources for One-Off Transactions

  • 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.

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