Evaluating Risks
Another key differentiator between traditional equipment financing and managed services solutions lies in the fact that the components of a non-standard contract aren’t always delivered by a single organization. There are many instances in which a manufacturer is providing infrastructure, but software and services are each performed by third parties. This means each party must evaluate the risks and work together to come up with an agreement that meets each of their individual needs. It also means that all financing companies will also need to become adept at evaluating and managing the risks and logistical challenges that arise from the multi-faceted relationship.
But the number of parties involved isn’t the only risk component to consider. With non-standard financing agreements, the concept of risk extends beyond credit repayment and asset values. Finance companies will need to consider how to get comfortable with contract risk, performance risk and potentially, usage risk.
Interestingly, finance companies with a strong background in government finance might find themselves at an advantage in these situations because, in most cases, those companies are already adept at analyzing and managing annual contract termination risk, which transfers nicely to the need to address termination or convenience options in the underwriting process for managed service agreements.
Creating New Opportunities
Without question, the equipment finance industry is known for its resiliency and ingenuity. Time and time again our industry has evolved to meet the changing needs of customers and the overall business landscape, and the evolution of managed services is no exception.
Each type of lender brings different strengths to the table in today’s market, and the diversity of perspectives and ideas is raising the bar for the entire industry’s capabilities. The industry is pulling together to craft new methods of adding value while providing needed capital to clients and partners.
The equipment finance industry is built on creativity, and the companies that keep their focus on the future and build strong collaborative partnerships will set the stage for the financing models of tomorrow.