THE IMMEDIATE AND LONG-TERM VALUE OF CAPTIVE FINANCE COMPANIES

The immediate and long-term value of captive finance companies

As a construction manager you know the importance of using the best machinery possible. And perhaps the most crucial component to finding the right tools for the job is having the necessary construction equipment financing to fund your efforts. That's why partnering with an experienced captive financing company can be just the upper hand your business needs to truly excel.

This model is not a new one, as manufacturers financed a substantial share of durable goods in the U.S. In 2013, 58 percent of companies that made new investments in durable equipment utilized debt-financing options extended by the manufacturer of the goods, a Yale University study found.1

 

The immediate advantages of captive financing

You might have considered going to a local bank to obtain financing for capital equipment, whether in the form of a small-business loan or some sort of cash advance. However, the offerings of these types of lenders are limited solely to the funding they can provide you, and that's it. A captive finance company, on the other hand, is typically owned by the parent company that manufactured the dozer, excavator or other type of construction machinery you're looking to purchase or lease. In this capacity, the parent company provides the upfront capital for financing the equipment.

 

"A captive finance company bundles together a variety of insurance coverages."

 

In addition to providing equipment funding, a captive finance company also bundles together a variety of extra coverage, such as damage, theft or overturn insurance, for your construction equipment. By bundling together everything in one place, a captive finance company makes the entire process effortless.

Contractors are exposed to a litany of risks on a daily basis, and utilizing a captive financing company to provide coverage for the equipment can give you the tools you need to protect your firm's financial strength, noted accounting and consultant firm BKD.2

Not only does captive financing have more robust offerings than a traditional lender, but this method also has several different financing options. These may include:

With so many options, captive financing gives you the flexibility to make the choices that best suit your company's needs.

 

The long-term value of captive finance

You need durable machinery made for the long haul. Since captive finance companies rely on the resale value of their equipment, these firms provide customized support for the borrower and the machinery. This creates an environment where financed products depreciate more slowly, ensuring prolonged value on the equipment.

Due to the relationship between the parent company and the product, research shows the financing of one's own sales in the captive financing model can potentially result in lower down payments than what a traditional lender would provide due to higher resale values in the future.3

 

Contractors working with a captive finance company gain a partner with industry expertise.

Contractors working with a captive finance company gain a partner with industry expertise.

 

Building a solid customer relationship

In addition to the value captive financing provides you, there is also an intangible benefit in the form of building a strong relationship with the provider.

If you go to a bank to obtain funding for buying durable goods, the extent of the customer relationship is comprised solely of repayment of the loan and that's it. Any additional support typically dries up once a bank delivers the capital. Often this is due to the fact that the bank doesn't understand the nuances of the industry the borrower operates within.

However, a captive finance company is much more invested in your success and the long-term functionality of the loaned equipment. So if you run into hard times, suffer an injury or experience a natural disaster, you're not going to suddenly lose your equipment. The relationship with the captive finance company can last for the life of your business.

 

Industry expertise

With decades of industry experience helping similar companies grow, a captive finance company has the capabilities and know-how to collaborate with its partners on immediate and long-term strategies for success.

The people you're working with at a captive financing company are industry experts, and their knowledge extends beyond just the financial side of things, such as the business cycle, the market and the industry you're operating in.

 

Contractors are exposed to a variety of risks and should consider construction equipment insurance from a captive finance company.

Contractors are exposed to a variety of risks and should consider construction equipment insurance from a captive finance company.

 

A captive finance company:

  • understands the seasonal shifts and industry trends that influence the sales cycle
  • can customize packages based on this knowledge
  • provides an ideal solution for equipment financing throughout the year
  • makes informed recommendations beyond just the financing and leasing aspects

This means they're going to make sure you leave not only with the best product offering, but also the flexible and sustainable financing needed to succeed in your market. With on-call and on-the-ground support, a captive finance company can provide your company uninterrupted productivity with its one-stop shopping for all your construction equipment financing and insurance needs.