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"Uberization" and Other Top Trends in Equipment Finance

Date: Feb 16, 2016 @ 07:00 AM
Filed Under: Industry Trends

It is an exciting time in the equipment leasing and finance industry. We surpassed the $1 trillion mark in 2015. Growth is forecasted to continue in 2016, with investment in equipment and software expected to grow another 4.4 percent, according to ELFA’s 2016 Equipment Leasing & Finance U.S. Economic Outlook report.  

Yet our massive industry is ripe for change; you can feel the pent up demand from borrowers and vendors in the marketplace ready to burst. From the front lines of equipment finance, here are three trends to watch for in 2016:

Financing Will Become More Important To Sales

If you go to an auto dealership to buy a car, the salesperson can not only tell you the models, colors and trim packages available, but the financing options and the monthly payment as well. This is because at an auto dealership, sales and financing are combined into one process. Consumers have come to expect and take comfort in knowing that they can pick out a car and finance it all in the same place. Today, businesses are looking for the same service and financing options from equipment sellers.

I was on a plane a number of years ago sitting next to an MRI machine sales rep for Philips, the large Dutch conglomerate. I asked him, how do you finance the equipment you sell? I’ll never forget the answer: “Oh, that’s a sore topic with me,” he said. “We’re all over the place.” He went on to tell me that GE was a key competitor and that GE’s financing capabilities made their sales reps difficult to beat. Philips Medical Capital exists today to level the playing field and ensure Philips sales representatives don’t have this problem. This same thing is happening in a lot of vertical market sectors. When IBM Global Financing was born, IBM created a standard that other big technology manufacturers like HP, Dell and Cisco followed. Today, we are witnessing the next rung of technology manufacturers build white-labeled equipment financing capabilities to aid their sales reps with smart finance solutions and a better customer experience.   

We are seeing further evidence of this trend at LeaseQ, where we are being asked to create white-labeled finance solutions that serve all customers with credit from A-to-D, and to customize and integrate financing automation to support better customer service and sales processes. As the market becomes more competitive and creating equipment financing solutions gets easier, we expect more vendors to jump on the financing bandwagon and start aggressively integrating financing with their equipment sales capabilities and offering.

The Industry Will Scramble to Automate

Borrowers are demanding better service, and competition for their attention is growing. Customer requirements like instant quotes and same day funding are driving changes in leasing companies, forcing them to automate.

There are four building blocks in the equipment finance value chain: 1) Origination, 2) Underwriting, 3) Funding, and 4) Servicing. Two of these building blocks are automated and two are not. Almost every equipment finance company has automated its funding processes so the accounting capabilities are efficient. These same companies have also automated servicing functions so that monthly payments can be processed effectively; but most lenders in equipment financing have little to no automated origination or underwriting in place. 

CRM implementation to support sales reps is becoming commonplace, but automated lead generation software, online marketing and a self-serve shopping experience beyond the tired old calculator quote are exceptions, not the norm. Today, out of 1,000 lenders, only 5 or 6 have automatic lease adjudication. The good news is, there are significant opportunities in automated underwriting, and lenders are taking the steps necessary to deliver instant quotes and same day funding — automated adjudication is close behind. Borrowers are demanding better, faster, cheaper and 2016 should be the year the industry responds. Now, it’s automation or bust.

“Uberization” Will Come to Equipment Finance

“Uberization” is everywhere, bringing a mentality that says “it’s a hassle to own things” to the far reaches of every industry. Equipment finance is a prime target, since it reflects the sharing economy paradigm of renting and leasing versus buying and borrowing. In particular, there are two factors that explain why equipment finance is the next industry on the list.

First is the rise of small business. Large businesses performed very well in 2015. The cost of money was low, most companies kept a lot of cash in reserve and the stock market served as proof with one of the biggest runs in history. Cash flow, buying and borrowing money were non-issues. Now, small business is hitting its stride, and one of the smart things small businesses are doing is renting equipment. The industry will not only see an increase in rented equipment volume, but also the adoption of a managed services model. We can thank cell phones and other industries for paving the way for managed services, removing the stigma around monthly payments and enhancing the customer experience with increased options. Equipment finance companies who understand and thrive under this model will get a chance to shine.

The second factor driving the “Uberization” of equipment finance is a millennial workforce. More millennials are entering the workforce than ever before. They are eager to lead and found their own innovative businesses, and care less about stuff and more about the customer. Millennials will use automation and personalization to ensure no borrower is left behind, pushing for creative financing structures to get more small business owners the equipment they need. Equipment finance companies that embrace this mentality will succeed; those who don’t, will falter. And larger, traditional finance institutions like banks will look to buy successful equipment finance companies on the bleeding edge to stay competitive in the market. 

Vernon Tirey
Co-Founder & CEO | LeaseQ
Vernon Tirey, a 30-year veteran in enterprise automation solutions, is Co-founder and CEO of LeaseQ, a marketplace bringing automation and efficiency to small business borrowers looking to finance equipment to start and grow their businesses.
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