Need to optimize liquidity? Consider equipment financing

By Derek Coe, Equipment Finance Sales Manager, Eastern Region, Wells Fargo

Early in 2023, a utility contractor needed to upgrade the service vehicles in its repair fleet, a regular occurrence that improved efficiency and performance. The company budgeted for the capital expense and had adequate funds available for a cash transaction. 

However, with rates rising and an uncertain economic forecast ahead, they chose a different option this time: equipment financing with Wells Fargo. 

Instead of locking up their liquidity in fixed assets, the company financed their boom trucks and service vehicles with a $20 million equipment finance loan. The decision provided a cost-effective solution that simultaneously supported their growth and preserved their working capital for other business strategies. 

Fixed-rate equipment financing attracts first-time borrowers 

As more treasury and finance professionals look for ways to navigate economic headwinds, manage unpredictable supply chains, and reduce their risks, equipment financing is growing in popularity. Mid-market companies—those with revenues between $50 million and $2 billion—find equipment financing particularly attractive right now. Past equipment financing recipients and first-time borrowers are thinking differently about capital expenses, and exploring creative ways to keep working capital intact. 

The benefits are numerous. Financing equipment can help businesses to:

  • Acquire or upgrade equipment 
  • Preserve working capital and liquidity
  • Generate cash by funding owned, not previously financed equipment
  • Automate processes to increase productivity and reduce expenses
  • Manage equipment risk proactively

One of the biggest advantages of equipment financing is its flexibility. Companies can finance projects of all sizes, from $50,000 of telecom equipment or office furniture, to millions for custom manufacturing components, construction hardware, agricultural equipment, business aircraft, and specialty items. 

Companies can even monetize existing assets. Many lenders have options suited to existing equipment with long lifespans.  

Flexible options help companies use cash and existing credit lines wisely

Borrowers appreciate the longer loan terms and fixed rates common with equipment financing. Both help use cash wisely during dynamic times. 

In many cases, equipment financing frees capacity on existing credit lines. Instead of draining other credit facilities (or trying to renegotiate credit limits in a tightening market), a separate equipment finance loan leaves credit available for business expansion, real estate purchases, or other strategies. 

Wells Fargo offers a wide range of loan and lease solutions for equipment financing, from small and high-volume standardized financings to large and highly-structured transactions. Various assets across industries may qualify. 

Equipment financing offsets risk of long delivery windows 

Equipment financing can be a powerful tool when businesses don’t have the luxury of pulling back on capital expenditures. 

A mid-sized manufacturing firm, for example, faced uncertain delivery times for much-anticipated factory equipment. An order they’d placed nearly two years before was finally scheduled for delivery and installation in 2023. 

However, the company was now in a very different situation where tying up their liquidity did not make sense. Instead, they used a $4 million fixed-rate equipment lease from Wells Fargo, matching their long-lived asset with long-lived financing. This strategy kept their working capital free for business expansion and potential acquisitions.

Look for specialized teams with industry expertise

As your organization considers equipment financing, it helps to work with a knowledgeable and experienced bank. Look for a financial institution with deep experience in your industry, and a well-staffed equipment finance specialty area.

These expert resources can share best practices, recommend solutions, and tailor equipment financing packages to the needs of companies of all sizes.