Common questions about Vendor Financing. It’s ok to be curious…
- Why would the customer want a financing option if the customer can go directly to his bank?
You will be providing the customer with choices. The customer will ultimately decide where to go,but let’s review the benefits of offering a financing option
- Customer keeps existing lines for other uses. You have provided a NEW source of credit and that is welcomed.
- As the Vendor, you have resolved the financing problem and now customer has no need to waste time looking for options
- Customer feels more comfortable working with an institution that knows about the equipment he is buying
- As the Vendor, you have control on the sale cycle. Financing is no more a black box…
- Customer may not be aware about leasing and the possible tax advantages he can benefit from
- As the Vendor, you can expect from CCR a dedicated organization that will be engaged in the process until invoice payment has been done. Will the customer bank even take your call?
2. What are the benefits of leasing for your customer?
- Monthly payments vs an up-front cash disbursement
- A monthly payment may be an easier internal decision in the customer’s finance department than a capital expenditure
- Leasing can give the company some tax advantages
- Leasing entities typically only require the equipment as collateral. Most of the banks will need collateral guarantee, probably a real estate assset
- Leasing can be more creative in terms of payment schedules and structures
3. Why partner with a financing institution to sell equipment?
- Ford, EMC, HP, Caterpillar, Oracle, Hyster, Yale, JCB, Dell, Chevrolet, Boeing, etc. can’t be wrong
- The company is resolving two main questions the customer will always have. 1) Why should I buy this equipment? (the technical sale) 2) How am I going to pay for it? (the financing sale)
4. What is the benefit of CCR having capabilities in many countries of Latin America?
- Facilitates managing financing programs by centralizing the process with one company
- CCR has the cultural background to translate needs and business customs of the different cultures
- Facilitates deployment of promotions or payment plans across the board
Common questions about Approval requirements
It is not a black box (well sometimes credit folks do like black boxes…)
The approval and rate conditions are determined by reviewing key elements on a company. Follows some of them.
- Cash flow. A credit app only will review banks statements. Balances, # of deposits, bounced checks.
- Asset Coverage Ratio: Is the ability of a company to cover the existing debt. It will be measured as a ratio between Tangible Assets vs Debt (what the company owns vs what it owes)
- DSCR: Debt Service Coverage Raio: Cash flow available to pay current debt obligations. Measured by the Net Operating Income over Total Debt Service. (what is the cash available and how much is the company paying yearly due to financing obligations)
- FICO: Measurement to assess the capacity of an individual to cover its obligations. Scores are calculated by factoring the following: payment history, level of indebtedness, types of credit used and length of credit history. FICO is key because for Small and Medium business most probably the owner will need to guarantee the company.
But it is important to keep in mind, Financial Institutions in the US have different credit appetites. A company may not get approved on Bank A but can get approved on Financing Institution B or C. Keep in mind though that is there is more risk involved, conditions are less favorable.