Technology Is Revamping Equipment Financing

There were more than $2 trillion invested in capital goods and software in the U.S. in 2022, according to the Equipment Leasing and Finance Association. About 57% of this was financed through loans, leases and other financial instruments.

Community banks are active players in this huge market. They recognize that for their small business customers, equipment financing can be a lifeline. 

“In today’s market, probably more than any other time, the ability for small business to create efficiencies becomes a life-or-death proposition for them,” says Gerald Reiter, president and CEO of $300 million‑asset Granite Bank in Cold Spring, Minn. 

At the same time, technology is revolutionizing equipment and entire industries. Whether it’s agriculture equipment using super-precise spray technology or 3D printers delivering immediate, affordable orthodontic appliances, technology-driven equipment is everywhere. 

“I don’t think you can purchase much of any equipment that doesn’t have state-of-the-art technology,” Reiter says.

The value that technology drives can be eye-popping, making new equipment an excellent investment. “The robotics going on in agricultural equipment makes it possible to produce faster, better and more,” says Janet Silveria, president and CEO of $400 million-asset Community Bank of Santa Maria (CBSM) in Santa Maria, Calif. “That’s an investment in the quality and quantity of the product they’re delivering.”

But technology can be expensive, and banks and customers must carefully consider if it’s an investment that will pay off. “We try to get deep in the weeds modeling the business cycle to help customers manage costs and investment dollars,” Reiter notes. 

“Innovation through technology is the easiest way to reduce costs. We can help [customers] realize the positive impact on their bottom line.”

—Janet Silveria, Community Bank of Santa Maria

Robust due diligence is needed

Granite Bank is currently financing a vapor deposition machine for a medical equipment manufacturer. Reiter acknowledges the equipment is “pretty pricey.” 

After careful analysis, Granite Bank agreed to offer financing for the equipment. Reiter reports that the investment is working out well for the customer. “It’s allowing them to enhance their margins and be more efficient and [generate] less waste in manufacturing,” he says. “It’s an enhancement to their market position.” 

A willingness to finance high‑tech equipment can win business for banks. Ultima Bank Minnesota in Fosston, Minn., recently won the business of D3D, which produces dental and orthodontic appliances, when it agreed to finance 3D printers for the company. 

After noticing the proactive response and innovative solutions for their financing need, D3D’s owners turned to the $296 million-asset community bank for assistance. Ultima Bank Minnesota did the research and determined that an SBA 504 loan made it a feasible transaction. D3D brought their business to the bank, and Ultima Bank Minnesota was willing to lend to a company outside the norm.

The community bank also finances high-tech agricultural equipment. Ron Lemer, chief lending officer at Ultima, worked with a dairy farm that wanted to purchase robotic milkers, feeders and manure cleaners. He visited a farm already using robotic milkers to check out the equipment firsthand. He convinced Ultima’s board that the equipment, while expensive, could potentially offset labor costs and improve overall herd production. 

“High-tech equipment is expensive, but if you use fewer commodities like fertilizer and seed, the equipment pays for itself by raising revenues and lowering expenses,” Lemer states.

Making the equipment loan process seamless

Community banks are actively seeking ways to make equipment financing relatively friction-free. CBSM has established in-house, preapproved “guidance lines” for regular commercial customers that have repayment plans tied to specific types of equipment. Silveria explains that the guidance lines expedite internal approvals for financing. 

She says the guidance lines have been especially helpful in the wake of recent changes to California state emissions regulations that required companies to upgrade or replace vehicles more quickly than had been expected. 

“We’ve been doing a lot more guidance lines to help those customers that need to turn over equipment quickly,” Silveria says. “When a customer finds the equipment they need, they can have their money the next day.”

As community bankers are well aware, technology is also changing lending transactions. Carey Ransom is managing director of BankTech Ventures, which invests in banking technology companies. He urges bankers to look more closely at how they can embed their banks in equipment finance transactions. He compares this to the way that financing for the retail auto business moved into dealerships for same‑day approval. 

“That same reality is starting to happen in business-to-business transactions,” he says. “It’s very unlikely that, say, a dentist seeking orthodontic equipment and the person selling the laser will have that conversation at the bank. Smart banks are saying, ‘We need to be in the room when that conversation happens.’”

Ransom explains that a third party that collects data from the buyer and the seller, allowing banks to make a decision, could be the bank’s opportunity to participate in that transaction. “That takes the banks to where they have an opportunity to present themselves in the conversation,” he says.

Equipment ‘lending as a service’

Trnsact, a fintech company that provides digital solutions for commercial equipment financing, offers this type of third-party presence. Trnsact provides a portal, accessed through a digital app, through which equipment dealers can work with preferred lenders. 

“Lenders need a better way to work with buyers and dealers,” says CEO Beckham Thomas. He describes Trnsact’s approach as “lending as a service.”

Thomas observes that community banks are better equipped and have better-aligned interests with local customers than national lenders or equipment manufacturers. He notes, however, that some community banks may not have developed the infrastructure to support digital origination, booking and servicing. 

“That’s where lending as a service comes in,” he says. “We provide the infrastructure, and the community banks have the involvement to meet with dealers in their area and say, ‘We can now be a financing option for your customers.’”

The rapid advancements of technology can be a challenge to keep up with. Reiter maintains that good customer relationships help bankers stay up to date. “We learn most of what we know about technology through our customers,” he says. “They educate us themselves or point us in the right direction.”

While community bankers aren’t necessarily technology experts, Silveria believes they can encourage their customers to stay alert for new technologies and how they might benefit. “That’s where we can step in for business and ask questions about what are the innovations that are happening in their industry,” she notes. 

“Some customers may think they don’t have an avenue to innovate, but we’re there to help with that. Innovation through technology is the easiest way to reduce costs. We can help them realize the positive impact on their bottom line.”