Escaping Captivity

By | April 26, 2010

finance payments and captive programsDo you know what captive financing is?

I can tell you what it’s not – it’s not taking finance payments on a kidnapping ransom (admittedly, that was a lame joke, but us equipment finance guys aren’t know for our quick wit… still, not bad for two seconds of thought!)

Anyway, Captive Financing is when a company – say a vehicle or equipment manufacturer – creates their own financing company for the purpose of differentiating themselves from the competition. The thought is, if you have the financing in-house, and it only takes a trip into the finance guy’s office, the likelihood of a sale increases. If nothing, consumers (and businesses) like convenience. And buying something and getting financing right then and there is attractive.

However, a lot of companies have had trouble with their captive financing over the years – essentially, it hasn’t always proven profitable. One reason – at least in this finance guy’s opinion – is the overall focus of the company is to make product, and then make sales. The focus isn’t on financing. In short, financing equipment is not usually an equipment manufacturer’s forte’. Thus, the equipment financing end suffers some – it’s mainly there to help the sales end, and little more.

Well, I’ve seen a trend lately. Without mentioning any names, I’ve seen some of the smaller, lesser known captives cease to exist, and I have heard rumblings that some name ones might throw in the towel. And you know, that’s probably a good thing. Companies like mine are perfect to pick up the slack, with little effort from the manufacturer. In fact, equipment financing companies like mine have made doing business with them so simple that the manufacturer can have the same office, and even the same finance guy as before. Just the credit application goes to an equipment financing company instead of the in-house financing company. And the purchaser? They still get a great rate and fast approvals.

It actually makes a lot of sense. I mean, companies hire ad agencies, marketing companies, etc. Why? Simple – it’s cheaper and easier to hire out than to do it yourself. It’s the same thing with an equipment finance company – better service, and much easier.

There’s really no difference… well, ok, ONE difference: We won’t lose anybody money.

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