What is vendor financing is a very common question we get asked.
The most basic answer is that vendor financing is when the seller or manufacturer of the equipment is providing the equipment financing to their own customer to complete the purchase.
From a financing context, there really aren’t many true vendor financing programs that would fit this definition.
Even for larger companies, there is going to be a separate arm or entity of the company that has a financing division, which will underwrite and fund any credit requests.
For most small and medium sized equipment dealers and licensed resellers, it’s not going to be practical to be financing customer purchases out of their own resources and instead they turn to equipment financing and leasing companies to provide that service to their customers.
So a more accurate definition of vendor financing programs for equipment would be that small and medium sized equipment resellers and dealers have prequalified equipment financing sources for their customers and in the event that a customer requires financing to complete a purchase from the dealer or reseller, the customer can easily be directed to a highly relevant vendor financing program.
By external, we mean that the vendor financing program that may be offered by an equipment dealer or reseller is underwritten and funded by a third party financing company providing equipment loans and/or equipment leases.
The actual program to the customer will outline the basic financing parameters that the third party financing company can offer and the average terms and conditions available.
Being that each financing situation is going to be somewhat unique in terms of the customer’s credit and financial profiles, the financing that is available will always be subject to approved credit.
The real value of a vendor financing program to the customer is that the financing company or companies listed by the equipment dealer have prequalified the types of assets the dealer sells, the amounts they are sold for, as well as the financial stability of the dealer.
If a customer started looking for equipment financing on their own, they would first have to find someone interested in the types of assets they wanted to acquire and prepared to finance equipment sold by a specific equipment dealer.
The dealer qualifying process is important to an equipment financing company as they want to make sure their customer is going to get good service and that the dealer will stand behind their products sold so neither the customer or the financing company have anything to worry about with respect to product support post sale.
One of the biggest challenges with a vendor financing program is making sure it meets the requirements of all parties.
From the dealer side, this can include how and when the dealer gets paid by the financing company to complete the purchase.
From the customer side, the vendor financing companies need to not only be able to provide funding, but funding that has the flexibility to meet the rate and term requirements of the customer.
Further, if the financing companies qualified by the dealer are only capable of approving a very small percentage of deals sent their way, then they are likely a poor match for the average customer’s financing and credit profile.
Good vendor financing programs allow sales to be completed faster, which is good for everyone involved.
Poor vendor financing programs put sales at risk when either customers cannot get approved by the program, or the financing offer is not acceptable to the customer.
To find out more about how to best tailor a vendor financing program for your customers, please give us a call and we’ll make sure you get all your questions answered right away.