COVID-19 Impact on Equipment Finance: 3 Tips for Managing Supply Chain Delays
Stephanie Hall, CLFP is the EVP of the Small Ticket Division of BankFinancial Equipment Finance and constructed this article for the NEFA Note- NEFA’s monthly newsletter.
Countless stories are being written about the drastic effect of the pandemic on the global supply chain and the unprecedented demand for goods, products and services. There are reports of congestion at ports, along with train, trucking and staff shortages and an overwhelmed logistics network that has created supply chain disruptions on a scale never before seen in our lifetime.
Supply chain delays have greatly impacted equipment manufacturers as well as distributors and vendors selling the equipment, which in turn impacts the end user, borrower and lender. If a manufacturer cannot obtain the raw materials or a vendor does not receive the manufactured product, there is no equipment for the borrower to finance.
Our BankFinancial team, across all units, has seen hard assets, including, manufacturing equipment, furniture, fixtures, and material handling machinery, severely impacted by the strains on the supply chain while anecdotally we are hearing of vehicle manufacturers burdened with lots packed with new trucks that are currently unsellable because they are still awaiting electronic components.
While these far-reaching constraints continue to place tremendous pressure on lessors and brokers in the equipment finance industry, there are several ways to manage these extraordinary challenges.
Diversify your sources of business
Businesses that work solely with manufacturers of new equipment should target vendors and distributors who accept trades-ins and have used inventory available. Because of the supply chain disruption, we have seen originators finance more used equipment than in previous years, as the inventory of new vehicles and pieces of equipment is low. The used market helps keep prices down and offers diverse options that fit different budgets. In addition, this market might have stronger inventory and financing alternatives, which means you can get the most value for your equipment needs.
Be aware of market conditions and the pipeline
For those in need of new equipment, disruptions to the supply chain are likely to continue to impact your business. It is important to know market conditions in order to manage your pipeline and be prepared for longer and extended lag times. Work with your financing partners to secure customized financing terms based on your borrower’s unique needs, such as progress payments, deferred billing and seasonal cash flow fluctuations. Expect equipment delays over at least the next six to nine months - you don’t a borrower indefinitely making payments on equipment that is on back order and can’t be delivered, which will lead to it not being utilized to generate income. Especially if the borrower is counting on that income in order to meet their payment obligation.
Explore financing options
The equipment financing industry is going to have to adjust to the complexities of the supply chain and how it impacts client businesses, from the originator all the way down to the end user. At BankFinancial, we work closely to monitor the developments surrounding the global and national supply chain. We also have the ability to finance used assets and through our small ticket group, even private-party sales, which gives end users more options for sourcing the equipment they need.
As an industry, we can use equipment leasing and financing to offer a range of benefits to businesses, particularly small businesses, to continue to grow and remain competitive. By diversifying your sources of business, understanding market conditions and knowing your financing options, you can help your customers experience business continuity in today’s climate.
At the end of the day, we really are all in this together.