By: Ciarra Wagner on December 30th, 2018
What Types of Customers are Best Fit for Financing and Why?
Almost every business needs technology to operate and turn a profit. That’s no secret. The real questions are: How do those businesses acquire the equipment and technology they need in order to operate? What types of businesses lease or finance equipment as opposed to paying with their own cash? Why do they choose to finance?
While these questions are all connected, it’s important we break them down one at a time to really understand the picture as a whole.
How do businesses purchase the equipment and technology they need?
This question seems simple on the surface. When companies make equipment or technology acquisitions to better run their business, they have several options on how to acquire it. Generally, they can use their own cash, bank or credit line, rent or finance via a lease or loan. These options fall into two different camps: a large upfront lump sum or smaller monthly payments over time.
While some businesses don’t want to finance or lease because they believe it costs more than a cash purchase, many times this is not true. When taking into account the depreciation of equipment and the return of other potential investments over time, your clients may actually lose money if they pay a large upfront sum to own the equipment. In the end, most companies finance a portion of their equipment purchases. If you don’t provide a financing option to your customers and potential clients, then you risk losing them.
What types of businesses lease or finance their equipment?
It’s natural to think that certain industries of business are more likely to finance and lease their equipment or technology, while others notoriously only pay cash. A construction company has more expensive equipment needs than a bakery, so they’re more likely to finance. Similarly, it’s easy to believe that small businesses with more restricted cash flows will finance while large enterprises will use their cash.
While there is some validity behind these preconceptions, the truth of the matter is that the lion’s share of all companies finance or lease their equipment. According to the Equipment Leasing and Finance Association (ELFA):
“The vast majority (78%) of U.S. businesses of all sizes—from small entrepreneurs to Fortune 100 companies—in all industries—from construction to healthcare—lease or finance their equipment.”
SOURCE: The U.S. Equipment Finance Market Study 2016-2017 for the ELFA.
This percent has steadily grown over the years, meaning that by now an even higher majority of companies probably finance. As we’ve seen before with Microsoft, there’s no such thing as a company being too big to finance. It’s time to throw those misconceptions out the window and realize that almost ALL of your customers finance.
Why do businesses finance their equipment and technology?
Now that we’ve established that most companies are financing their equipment and technology, you might be wondering why financing is so popular among businesses of all industries and sizes.
Top Reasons All Business Finance Equipment
Here are a few reasons the ELFA gives for why the majority of companies finance. From the same survey mentioned earlier, here are a few of the reasons that coincide with what we hear from our end-users and partners. You can view the full ELFA infographic here.
Technology Stays Fresh
When a company finances their technology, they are creating a monthly budget for that technology. When the lease comes to an end, it is simpler for those customers to keep that monthly spend and get the latest and greatest technology solution – or supplement their technology with another product or service.
Your clients get the benefit of using the new technology without having to pay for it all at once. They can make small payments while the new equipment generates revenue or helps with profitability to balance their ROI instead of paying one lump sum upfront.
Single Monthly Payment
More than ever, businesses want complete solutions for their technology and that comes with a single invoice. Many times with a financing agreement, your customers get one simple solution that includes your equipment, installation, and services in one easy monthly payment that’s easy to budget.
When businesses finance, they are saving their cash to invest in other areas of their business that have higher ROIs such as marketing, hiring or R&D.
Benefits of financing and leasing all around
Financing isn’t just important for the companies that are purchasing technology, however. Financing is important to technology businesses such as Managed Services Providers (MSP), Unified Communications Providers and System Integrators too.
Paying cash for technology will always be an option. Some businesses may even stand resolutely by their checkbook. However, with the rise of As-A-Service, Hardware as a Service bundled with managed services is one great way technology businesses can offer finance and leasing to their customers looking to acquire new equipment. The only thing you have to decide is which Hardware as a Service model works best for your business.
Ciarra is the Content Marketing Specialist in our Unified Communication & IT Group with GreatAmerica Financial Services, where she assists in generating creative content and provides marketing support. Ciarra joined us in 2016 after attaining her Bachelor of Business Administration at the University of Dubuque. She enjoys writing a personal blog as another creative outlet in her free time.