To refresh your memory, during the busy holiday travel season, Southwest Airlines canceled a great majority of their flights. At first they blamed the weather, but that narrative didn’t last long. After all, every other competing airline, serving the exact same airports, had scant issues with the weather. Sure, there were a few storms, and other airlines had to cancel / move around a few flights, but nothing even remotely approaching Southwest’s issues.

It was then revealed that Southwest’s software was outdated, and not up to the task of efficiently scheduling pilots and crews amidst a hiccup (like a winter storm.) It was also revealed that they knew their software was outdated, but put off updating it due to costs. Coupled with leaner operations, this led to disaster for the carrier. 

As I write this in January 2023, it’s unclear how much damage was done to their reputation, but I can’t imagine a scenario where this doesn’t affect the future bottom line in a major way. Thousands of customers will never trust them again. 

Software… we often don’t think about it, but for many companies, it’s their nervous system, and if there’s a glitch, everything is affected. But upgrading software is easy to push aside because it’s usually not a direct profit-generator. Buying a new production machine (or a plane) is both exciting and directly profitable. But upgrading your software… only the IT guys get excited about that – everyone else groans.  

Well, we can’t help you with the excitement part, but there’s a way to get new software without worrying about the non-immediate revenue aspect of it – you can finance it!

Software financing is something that not many companies consider, probably because not too many lenders offer it. But a few do, including us. In fact, we’ve been offering software financing for a LONG time. Did we even finance applications that came on floppy disc? You bet we did! 

Do not let aging software affect your operations in a negative way. It doesn’t have to be “we know we need this, but the budget…”. Spreading a major software purchase over years of monthly payments actually puts it more in line with the “back end” nature of its revenue responsibility. That’s smart business. 
We’re well into the 21^st century – software runs everything. Staying competitive means your backend operations need to be as efficient and modern as your machinery. In short, software matters. Just ask Southwest.  

It is true that equipment financing can be similar to automobile financing in terms of the equipment being part of the collateral in the big picture. But only to a degree, and it also really depends on the equipment. Let me give you a few examples of equipment that isn’t great collateral:

• Specialized equipment for specialized industries – This is probably one of the bigger issues with using equipment as collateral. If the equipment is even somewhat specialized, it can be tough to sell, as there’s just not a big market for it. For example, think about the machine that makes those little hard candies that come on a paper strip – you know what I mean, right (they’re right next to the wax bottles of colored liquid). Well, a machine does that, and it’s not a machine that every business can use. So if it has to be repossessed, the line of buyers might be small indeed. My sister (who loves that candy) might even pony up a few dollars for a used candy maker.

But it doesn’t even have to be a super-specialty piece of equipment. Even something like a large printing press might not be easy to sell these days.

• Computers and other electronic equipment – No brainer here. Computer equipment ages like no other equipment. And almost any electronics aren’t far behind. How’s that monster 48” rear-projection TV doing? Call me on your flip phone and tell me, ok? If I don’t answer, hit up my pager.
• Software – Again, no brainer. Especially software that’s named after a year (anyone buying Office 2010 these days?) Plus, you really can’t repossess software.
• Vehicles – Surprising? Not really. Most vehicles lose value annually. Although after a huge drop when it leaves the lot (assuming a new vehicle here), the rate of depreciation is slower. Plus, it also depends heavily on the vehicle and industry. Some vehicles are easy to resell (you can always find a willing buyer for a dump truck), but some aren’t (not a huge demand for septic trucks).

These are just a few examples of equipment that doesn’t make great collateral in an equipment financing deal. Maybe next time I’ll explore things that make very good collateral.