According to the Equipment Leasing and Finance Association, equipment finance accounted for approximately $1.17 trillion in the United States in 2023, supporting a wide range of industries, from manufacturing and construction to technology and healthcare. If you've ever found yourself navigating the complexities of closing deals in equipment finance or asset finance like lengthy paperwork and back-and-forth negotiations with clients during origination, you know that time is of the essence. The longer it takes to close a deal, the higher the probability of application drop-offs or of losing deals. In this blog, we'll walk you through practical strategies that will empower you to streamline your equipment or asset finance deals and help increase equipment sales through equipment financing.
Read along to know more about the equipment finance process, how is it different from equipment leasing, tips to close deals faster using text message automation, loan origination automation and other advanced technologies, specific guidelines for the sales team to sell equipment financing options to companies and get an edge over the other players in asset financing space.
What is Equipment Finance?
Equipment finance, also known as equipment leasing or asset finance, is a financial arrangement in which a business or individual obtains the use of equipment or machinery without having to purchase it outright. Instead, the equipment is leased or financed from a specialized equipment finance provider, such as a leasing company or a financial institution. The lessee, or the party seeking to use the equipment, pays regular installments or lease payments to the lessor for the agreed-upon duration of the lease term. At the end of the lease term, the lessee typically has the option to purchase the equipment, return it, or renew the lease.
This form of financing offers several benefits to businesses, including preserving capital and credit lines since they don't need to make a substantial upfront investment in the equipment. Equipment finance also provides flexibility, as businesses can easily upgrade to newer and more advanced equipment at the end of the lease term. Additionally, it allows companies to better manage their cash flow and budgeting since they can spread the cost of the equipment over time. Whether for small businesses or large corporations, equipment finance is a popular and practical option to acquire essential assets without the burden of full ownership.
Step-by-Step Process of Equipment Finance
1. Identification of Equipment Needs: The first step is for the business or individual to identify their equipment needs. This involves determining what type of equipment is required to support their operations, whether it's machinery, vehicles, technology, or any other specialized tools.
2. Selection of Equipment Finance Provider: Once the equipment needs are identified, the next step is to research and choose an equipment finance provider. This can be a leasing company, a bank, a financial institution, or a manufacturer's financing arm. It's essential to compare various providers, their terms, interest rates, and lease options to find the most suitable fit for the specific equipment requirements.
3. Credit Application and Evaluation: After selecting a finance provider, the applicant needs to submit a credit application. The finance provider will then evaluate the applicant's creditworthiness, financial stability, and business history to determine the risk involved in offering the financing.
4. Financing Proposal: If the applicant meets the credit requirements, the finance provider will present a financing proposal outlining the terms of the equipment lease. This proposal will include details such as the lease amount, interest rates, lease duration, and any additional fees or costs involved.
5. Negotiation and Agreement: At this stage, the applicant has the opportunity to negotiate the terms of the financing agreement, if necessary, to ensure they are favorable and aligned with their business goals. Once both parties reach an agreement, they sign the equipment finance contract.
6. Equipment Acquisition: After the agreement is signed, the finance provider purchases the equipment on behalf of the applicant. The applicant takes possession of the equipment and can start using it to support their business operations.
7. Regular Payments: Throughout the lease term, the applicant makes regular payments to the finance provider. These payments can be monthly, quarterly, or customized to fit the business's cash flow.
8. End of Lease Options: At the end of the lease term, the applicant typically has several options. They can choose to purchase the equipment at a predetermined buyout price, return the equipment to the finance provider, or negotiate a lease extension.
9. Return or Renewal: If the applicant decides to return the equipment, they can explore leasing new or upgraded equipment. On the other hand, if they choose to renew the lease, they can continue using the same equipment for an extended period.
Considerations for Equipment Finance
1. Loan Amount
When obtaining equipment loans from lenders like banks or NBFCs, the sanctioned amount is used for procuring, leasing, upgrading, or repairing machinery. The loan size is determined by several factors, including the type of machinery, business turnover, and the credit score of the owner. Additionally, it's important to note that a higher loan amount usually comes with a higher interest rate.
2. Collateral
For new businesses seeking machine loans, providing collateral is typically required to secure the loan. However, there is no need for business owners to pledge external assets such as real estate. In this case, the machinery itself, for which the loan is being taken, is automatically considered as collateral. Should the borrower fail to repay the loan, the lenders have the right to seize the machinery.
3. Interest Rates
Equipment loans generally come with reasonable interest rates. However, since machinery prices can vary significantly, the interest rate on these loans is determined by both the loan amount and the chosen repayment period. Larger loan amounts typically attract higher interest rates, whereas longer loan tenures usually result in lower interest rates.
Why Offer Equipment or Asset Financing?
It is a common reality in the business world that purchasing expensive equipment or machinery outright can pose financial challenges for customers, especially for small and medium-sized enterprises. When engaging in transactions involving significant sums, customers may explore various payment options, including using their available capital, seeking loans from traditional banks, or considering leasing arrangements. However, not all customers may have easy access to these avenues, and the sales process can hit roadblocks if financing is not readily available.
Customers often have a genuine need for it. Even if they may not openly admit it, the fact remains that when they engage in negotiations for purchasing equipment or devices ranging from $5,000 to $500,000, they usually don't have the full amount readily available in their checking accounts. While some clients may consider paying with cash, using credit cards, securing a bank loan, or opting for equipment leasing, it is essential for businesses to offer a competitive financing program. This is particularly crucial in case the customer's initial "Plan A" for payment falls through. By having a financing option readily available, businesses can retain greater control over the sales process, and clients are not solely dictating the payment options.
As a smart business strategy, offering in-house financing or partnering with reputable financing companies can prove highly beneficial. By providing customers with accessible and competitive financing options, businesses ensure that the financial barrier to acquiring their products or services is significantly reduced. This increases the likelihood of closing deals and establishing a long-term customer base.
Moreover, when businesses control the financing process, they gain greater influence over the sales negotiation. Instead of being at the mercy of the customer's preferred payment method, they can offer tailored financing packages that align with the customer's specific needs and financial situation. This positions the business as a reliable and customer-focused partner, which can lead to increased customer satisfaction and loyalty.
What Makes Leasing and Financing Different from One Another?
The world of equipment financing can be perplexing for consumers, particularly when it comes to distinguishing between different leasing options. Among these, the capital lease stands out as a vital financing solution, akin to a loan with specific tax implications. This article aims to shed light on the nuances of capital leases and their advantages, enabling businesses to make well-informed financial decisions when acquiring essential equipment. By demystifying the concept of capital leases and fostering transparency, equipment leasing companies can build trust with their clients, leading to successful equipment acquisitions and stronger business relationships.
A capital lease functions like a borrowing arrangement, where the lessee borrows the equipment's cost for the lease term. Unlike operating leases that entail returning the equipment at the end of the lease, capital leases offer an additional benefit. Lessees often have the option to purchase the equipment at a predetermined price, making it resemble a loan agreement. This flexibility grants businesses greater control over the equipment they acquire, fostering a sense of ownership and long-term utility.
The term "lease" can evoke negative connotations, potentially discouraging potential clients from considering this financing option. To address this issue, equipment leasing companies must proactively communicate the benefits of capital leases. Fixed and predictable monthly payments are a key advantage, allowing businesses to budget effectively and manage their finances with ease. Furthermore, well-qualified buyers can enjoy competitive and reasonable interest rates, making the capital lease an attractive and cost-effective means of acquiring essential equipment.
While capital leases offer competitive interest rates, creditworthiness plays a significant role in determining the final terms. Buyers with credit issues or new businesses with limited financial history may face slightly higher interest rates due to perceived risks for the lender. Despite this consideration, capital leases remain a viable financing solution for businesses seeking to invest in expensive equipment without straining their immediate cash flow.
To encourage clients to embrace capital leases confidently, leasing companies must proactively educate them about the nature of this financing option. Dispelling any misconceptions and promoting transparency will foster trust and empower clients to make well-informed financial decisions. Through this educational approach, leasing companies can establish stronger bonds with clients, ensuring successful equipment acquisitions and enhanced business relationships.
Understanding the significance of capital leases in equipment financing is key to navigating the complexities of the financial landscape. By clarifying the mechanics and benefits of capital leases, equipment leasing companies can foster trust and empower their clients to make the best choices for their businesses. Embracing capital leases as a viable financing tool will pave the way for smoother equipment acquisitions, streamlined operations, and strengthened business partnerships.
Tips for Closing Deals Faster in Equipment Finance in 2024
Streamlined Documentation Process
Simplify and digitize the documentation process to reduce delays and administrative hurdles. Implementing an efficient digital platform for gathering and processing paperwork can significantly speed up the approval and funding stages. This is one of the best practices in loan origination in equipment finance.
Pre-Qualification and Pre-Approval
Pre-qualify potential clients to ensure they meet basic eligibility criteria before delving into detailed discussions. Similarly, offering pre-approval options based on preliminary assessments can instill confidence in clients and fast-track the financing process.
Personalized Solution
Understand your client's specific needs and tailor financing solutions accordingly. Offering customized packages that align with their business goals can demonstrate your expertise and lead to quicker decision-making.
Clear Communication
Maintain transparent and open communication throughout the process. Keep clients informed about every stage of the financing procedure, addressing any questions or concerns promptly. The clarity in communication builds trust and fosters a positive client experience.
Quick Credit Evaluation
Expedite the credit evaluation process by leveraging data analytics and technology. Faster credit assessments allow you to present suitable financing options promptly, increasing the likelihood of closing the deal swiftly.
Collaboration with Vendors and Dealers
Establish strong partnerships with equipment vendors and dealers. By working closely with these partners, you can gain valuable insights into client needs and expectations, while also streamlining the equipment selection and financing process.
Competitive Terms and Rates
Stay up-to-date with market trends and offer competitive financing terms and rates. Being responsive and presenting compelling offers can persuade clients to choose your financing solution over competitors.
Follow-up and Proactive Engagement
Regularly follow up with potential clients to gauge their interest and address any new concerns that may arise. Being proactive in your approach shows commitment and dedication, which can lead to faster deal closures.
Leverage Technology and Automation
Utilize technology to automate routine tasks and workflows, freeing up more time for meaningful interactions with clients. Loan origination automation can speed up credit checks, documentation processing, and communication, streamlining the entire financing journey. For example, you can use App0 to automate client-facing workflows using text messaging services.
Experienced Sales Team
Employ a skilled and experienced sales team that understands the equipment finance industry and can effectively guide clients through the process. A knowledgeable team can expedite decision-making and inspire confidence in clients.
Specific Guidelines for Vendors to Sell Equipment Financing to Companies
- Initiate Financing Early in the Sales Process: Sales representatives should avoid the mistake of waiting until the end of the sales process to discuss financing options or expecting customers to inquire about it. Instead, they should bring up financing early on to determine the customer's qualifications and financial capability. Offering financing options from the beginning can prevent unnecessary time wastage and help avoid price discounts that may affect profit margins.
- Include Payment Details in Every Quote: Incorporating payment options in every quote is a valuable strategy to leverage financing as a sales tool. Sales reps should not shy away from discussing financing terms, as doing so may strengthen customer interest and lead to increased sales opportunities.
- Ask Crucial Questions to Prepare for the Sale: Sales reps can gain valuable insights by asking three essential questions to customers: How long do they plan to use the equipment? Do they intend to finance the purchase? What are their plans for the old equipment? These inquiries aid in understanding the customer's needs and preferences and guide the sales approach accordingly.
- Memorize the 36-Month Factor for Quick Estimates: Having knowledge of the 36-month or 3-year factor enables sales reps to estimate payment amounts quickly and gauge customer reactions to pricing and affordability. By understanding this factor, sales reps can adjust payment terms to suit the customer's financial preferences.
- Emphasize Payment Programs over Equipment Price: Instead of focusing solely on the equipment price, sales reps should prioritize selling the payment programs and promotional offers. Highlighting affordable payment options allows for a higher profit margin and flexibility in making adjustments to meet customer requirements.
- Justify Productivity Gains against Payments: When presenting equipment benefits, sales reps should not overlook the significance of demonstrating cost savings and productivity gains. Showing the value of the equipment in terms of monetary benefits can be more impactful for the customer than merely discussing features and specifications.
- Collect Completed Credit Applications during Meetings: Requesting a completed credit application before the meeting concludes shows a higher level of commitment from the customer and indicates a genuine interest in conducting business.
- Address Potential Credit History Issues Upfront: Sales reps can avoid surprises by inquiring about the customer's credit history, particularly if there are any issues that may impact the financing process. This proactive approach helps set realistic expectations and allows for appropriate preparation when dealing with financing companies.
- Prepare Customers for Financial Requirements on Larger Deals: Sales reps should inform customers about the possibility of providing financial statements for larger deals. By preparing customers for potential financial documentation requests, sales reps can address any concerns and create a smoother financing process.
Benefits of Providing Customers with Equipment Finance
Enhanced Customer Retention
Offering customers financing options increases their satisfaction and provides them with convenient and flexible choices they might not find elsewhere. By tailoring financing to incentivize customer loyalty, businesses can encourage customers to return for future equipment upgrades or replacements, fostering long-term relationships.
Boosted Incremental Income
Providing finance options not only enhances the likelihood of closing a sale but also generates additional income for the business. This comes through interest income earned on the financed amount and the potential to sell equipment above its book value. By offering financing, businesses empower customers with increased buying power, enabling sales representatives to close deals more easily and potentially upsell them on additional add-ons or upgrades.
Added Value and Comprehensive Service
As an equipment supplier, your primary role is to offer solutions to customers' equipment needs. By also providing financial solutions, you offer an increased value in service, addressing not only the equipment aspect but also customers' financial considerations. This comprehensive approach distinguishes your business and positions you as a trusted partner for customers' equipment acquisition needs.
Competitive Edge in the Market
In a competitive landscape, providing equipment finance sets your business apart from competitors who may not offer such options. The availability of financing can be a deciding factor for customers when choosing a supplier, giving your business a unique selling point that attracts and retains more customers.
Streamlined Sales Process
Offering financing options simplifies the sales process for both customers and sales representatives. Customers can explore various payment plans and choose the one that best suits their budget, making the purchasing decision more convenient. For sales representatives, having financing options readily available can expedite the sales cycle and reduce the chances of losing customers due to financial constraints.
Conclusion
You've now reached the end of our guide on how to close deals faster in equipment finance or asset finance. By following the strategies and tips outlined in this blog, you've equipped yourself with the tools necessary to accelerate your deal-making process and achieve success in the competitive world of finance.
Incorporating a proactive approach to understanding your clients' needs and tailoring solutions to their specific requirements will undoubtedly set you apart from the competition. Remember, it's not just about selling a financial product; it's about building lasting relationships with your customers. By demonstrating genuine care and interest in their success, you'll establish trust and loyalty that will lead to repeat business and referrals.
Additionally, staying ahead of the curve through continuous learning and adaptation is crucial in this ever-evolving industry. Embrace technological advancements, embrace data-driven insights, and be open to adopting new strategies that align with the changing landscape of equipment and asset finance. By embracing innovation and being receptive to change, you position yourself as a forward-thinking professional capable of navigating challenges with ease.
Lastly, never underestimate the power of communication and collaboration within your team. Foster an environment that encourages open dialogue, knowledge sharing, and cooperation among team members. Together, you can leverage each other's strengths and experiences to tackle complex deals more efficiently. Closing deals faster in equipment finance or asset finance may be a challenging endeavor, but armed with determination, expertise, and a customer-centric mindset, you're now ready to conquer the world of finance and elevate your career to new heights.
How Does App0, an AI Messaging Platform, Expedite the Process of Closing Deals in Equipment Finance?
We have interviewed leaders in equipment finance and other financial services companies, and they have identified several crucial challenges in closing deals, particularly in dealer/vendor-led programs:
- Dealing with extensive back-and-forth communication via phone and email during the application and underwriting stages.
- Facing difficulties in collecting sensitive information, such as SSNs, from end users (lessees), especially when a personal guarantor is required.
- Handling the collection of various one-off documents like ID proofs, W2s, etc., during the origination process.
To address these concerns, App0 has been developed with a primary focus on equipment finance and asset finance, catering to the specific needs of the financial services industry.
App0 is an innovative text messaging AI platform that transforms every text notification into a two-way conversation, enabling equipment finance companies to accelerate their origination timelines by collecting necessary documents through simple text messages.
Our platform is dedicated to revolutionizing workflow automation through text messaging, streamlining origination timelines, and facilitating faster deal closures. We offer next-generation customer experiences through conversational interfaces and user-friendly design, all while prioritizing security and compliance in the equipment finance industry.
Request a demo with App0 now to automate customer experience during loan origination using messaging.
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