Equipment Financing Companies vs. the Bank- Part 3

By | March 13, 2008

low cost financingTwice in the last month, I wrote about some of the advantages of financing equipment through a company that specializes in equipment financing and equipment leasing, as opposed to going to a traditional bank.

I feel like I’m on a roll here, so today I’d like to offer another advantage that equipment financing companies have over banks- and that advantage is simply willingness.

Now, on the surface, it may seem like both equipment financing companies and banks are willing to finance equipment. And yes, to a point that is true. I say to a point, because what is being financed matters.

To illustrate this, let’s pretend I go to the bank for a delivery van loan. No problem, right? They assess the value of the van (which is essentially a predictable value based on year, make, model, and condition), and give the loan based on that (and some other factors, like my credit score and how much they like me, too.)

The bank is interested in the vans value because they will partially use the van as collateral. If I fail to make payments, they will come get it (which might make for an interesting day, if the movie Repo Man is any indication.) And once they come get it, they auction it off (because there’s a big market for vans) to recoup their loan money. Thus, a bank is usually happy to discuss giving you a loan for a popular item like a van.

So now lets try something different – Lets ask the bank to finance software. Or perhaps a website. Or ask them to lease you an obscure glass grinding machine that has little (mainstream) retail value.

Depending on the bank, your answers will vary wildly. While both equipment financing companies and the bank may use the equipment as collateral, many banks just don’t want to get involved in the glass grinding business if they need to come get (and then sell) the machine. So they often refuse to finance something obscure altogether.

On the other hand, equipment leasing specialists really don’t care what the equipment is because they know you need it, so they’ll finance (or lease) it. In fact, as I’ve said before, most equipment financing companies will happily finance anything that a UCC can be filed on (this means almost any tangible product that can be sold), and they’ll even offer things like custom software leasing or the like. This is a far cry from what your local bank can offer you.

To sum this up, there’s a big difference in what the two entities are willing to finance (or lease). Banks = very limited. Equipment leasing companies = almost unlimited.

This gives me another idea for a post! I’ll start looking back into my archives and find the oddest piece of equipment that I’ve seen financed. We’ll hopefully have a winner in the next few weeks.

See you next week.