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How equipment financing and working capital play together

Updated: Aug 30, 2023

Expanding Horizons: The Symbiotic Relationship Between Equipment Finance and Working Capital


In the intricate landscape of business finance, companies are increasingly recognizing the synergy between equipment finance and working capital solutions. This dynamic duo ensures not only the acquisition of essential equipment but also the fluidity of day-to-day operations. In this article, we explore how equipment finance companies are venturing into the realm of working capital loans and why this collaboration is proving advantageous.

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Working capital and equipment financing relationship

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The Essence of Working Capital:

Working capital, a pivotal indicator of a business's short-term financial health, is calculated as the difference between current assets and current liabilities. It signifies the liquid resources available to cover immediate expenses, revealing the company's capacity to manage daily financial obligations. A working capital loan, in essence, offers a lump sum or a line of credit to facilitate a business's requirements, often catering to day-to-day expenditures or seizing new opportunities. This financial assistance comes with a relatively short repayment period of around six to 24 months.

A Shifting Landscape:

Historically centered around retail-driven enterprises, the working capital market has undergone a transformation. It now extends its reach to encompass capital-intensive small and midsize businesses in industries like construction, transportation, medical, and manufacturing. Interestingly, there is a significant overlap between the customer bases of working capital and equipment finance. The founders of Channel, a financial institution, recognized this convergence back in 2009. Adam Peterson, the Managing Director at Channel, notes that businesses seeking traditional equipment finance often exhibit positive growth trends, driving their equipment purchases.

Unveiling Opportunities for Small Businesses:

Small businesses form a substantial portion of the clientele seeking working capital loans. These enterprises encounter daily opportunities that demand additional capital infusion. Peterson explains that business owners in this category are constantly evaluating whether to seize these prospects and, if so, how to finance them. By solely offering equipment financing, companies might miss the chance to establish deeper connections with clients by addressing a wider spectrum of their financial needs.

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Navigating the Transition:

For equipment finance companies like Channel, venturing into the working capital realm meant recognizing an existing gap in the market. This gap resulted from the disparity in how companies focused solely on equipment finance or working capital approached transaction flow between these financing types. Channel bridged this gap by offering working capital solutions, acknowledging the demand in the equipment finance sector and positioning itself as a facilitator.

Managing Risk:

Transitioning to the working capital space presents distinct challenges for equipment finance entities. Unlike equipment finance, where risk mitigation predominantly revolves around rates and repayment terms, working capital loans focus on term length. These loans accommodate higher credit qualities with longer repayment periods, while tougher credits have shorter terms. This risk management approach requires adaptability for equipment finance underwriters who might not be accustomed to such scenarios.

Tailoring Solutions:

Working capital loans provide small and medium-sized businesses with remarkable flexibility. The funds are transferred directly to the business, serving diverse financial needs. The task at hand involves assisting business owners in recognizing the associated return on investment and offering suitable financing options. Channel's working capital offerings include a business advance, a conventional working capital loan, and a hybrid line of credit. This flexibility allows businesses to access funds as needed without incurring unnecessary costs.

Closing the Gap:

The divide between equipment finance and working capital is gradually narrowing. Peterson believes that those not offering working capital loans will find dozens of competitors doing so, urging financial entities to consider incorporating this product. As working capital remains accessible, customers might choose competitors for this service if their current provider lacks it. This transition becomes especially significant during a recession when bankable customers become scarcer due to tightened banking regulations.

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Empowering Customers:

Working capital loans prompt businesses to assess various financing alternatives. Each product has its unique value proposition. For instance, factoring can help stabilize cash flows in industries like transportation, while credit cards offer varied terms and rates. Working capital loans offer structure, ensuring repayment within a defined period without exhausting revolving credit lines. Educating customers about these options empowers them to make informed decisions aligned with their needs.

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The evolution of the financial landscape is witnessing a harmonious convergence between equipment finance and working capital solutions. As equipment finance companies tap into the realm of working capital, they forge stronger relationships with clients by addressing an array of financial needs. Recognizing the distinctive risk management strategies and understanding the nuanced benefits of working capital loans are critical for successful implementation. The journey entails seamless integration, careful customer education, and strategic collaboration, ultimately contributing to the holistic growth of businesses in diverse sectors.


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