Private label programs are one step beyond the “equipment financing provided by X” referral programs I had written about earlier. With a private label program, a vendor’s financing will appear to be internal, to a degree (I say to a degree, because somewhere in the print the actual finance company’s name will likely be mentioned).

The advantage here is the financing, from the end user customer’s eyes, is seen as internal, as opposed to external. In terms of marketing, this helps in a convenience sense (people like the “everything under one roof / one stop shopping” mentality.) It also allows for a closer working relationship with the equipment financing company. And that closer relationship can lead to several interesting promotions/etc.

What type of promotions, you ask? Well, things such as “same as cash” “0% financing” and “skip your first payment” are possible. The vendor will usually subsidize these promotions via a discount on the invoice to the financing partner. But to the end user customer, it’s a financing deal, not a discount, which is very attractive in a marketing sense. These things become possible when a vendor and a financing company work closely together and become comfortable with each other.

One thing that I’ve read “out there” is that in this type of vendor/lender relationship, the vendor assumes some financial (credit) risk. That is NOT necessarily true – in a simple “non-recourse” private label program, the vendor is not responsible for repaying losses when a customer defaults on their payment obligations. In those non-recourse scenarios, the extent of a vendor’s risk is typically limited to the risk associated with entering into any contract as a named party – occasionally a deadbeat customer drags the vendor into collection court proceedings simply because the vendor is named on the lease or loan documents.

When a vendor assumes credit risk, that’s another type of vendor/lender relationship, called a “Vendor Recourse Program” – and those type programs are sometimes combined with private-label – but we’ll explore that one another day.

Ok, let’s end this with some Section 179 talk (big surprise, right?) But really, if you have read some of my past posts on Section 179, you’ll see it’s a great deal for 2011. But you know, we’re nearing the halfway point of the year… have you thought about the nice write offs you can take yet?

But, and this is to be expected, those topics are usually from the “buyer’s” perspective. However, every so often, I like to remind people of “the vendor side” of equipment financing. I’ve posted previously about using equipment financing as a marketing tool and the like, and over the next few weeks, I’d like to return to this “other side” and discuss equipment financing from the equipment seller’s point of view.

Let’s begin by introducing the four common types of Vendor/Lender relationships (heh – I like saying “vendor/lender”… it sounds like something that should be part of an NFL snap count… “Vendor/Lender 47 Right hut HUT!!!”)

Anyway, here’s an introduction to the big four. Future posts will explain each in a little more detail.

• Referral Programs – A referral program for equipment financing is typically the most common type of vendor/lender relationship. This type of customer finance program can be set up fairly quickly, and is essentially marketed as “equipment financing provided by XYZ Lender”.

• Private Label Programs – This is the logical progression from a referral program. With a private label program, the equipment financing company (us) almost becomes the vendor’s financing department in the customer’s eyes because some or all of the written material is in the vendor name rather than ours. This allows for better branding, and also requires a closer working relationship between vendor/lender. Oftentimes, promotions like “same as cash”, “0% financing”, and “skip your first payment” can be worked out.

• Vendor Recourse Programs – This is the next step, so to say… with Vendor Recourse Programs, the vendor wants to offer financing to a certain group of customers, sometimes without regard to credit history. In a nutshell, the vendor agrees to guarantee weaker credit transactions (there’s a lot more to talk about here – like I mentioned earlier, we’ll go over all of these in more detail in future posts.)

• Captive Programs – This is essentially an extension/modification of Vendor Recourse programs, and are often used with unique circumstances where a vendor wants to get their equipment into their customer’s hands, sometimes regardless of losses suffered from defaulted finance transactions (indeed, many captive programs are a loss leader… to give an example, think of a company offering special financing to rapidly gain market share in a new vertical. Might be a good way for the parent company to gain a solid foothold, even if it’s financing subsidiary expects plenty of short term defaults.)

Anyway, that’s your big four of the vendor/lender relationships. Like I mentioned, we’ll go over each one in the future. Stay tuned.