Complex rules and regulations abound in the financial world, and starting a small business or side hustle introduces a whole new set of risks to navigate. Many entrepreneurs subsequently find themselves overwhelmed with information and unsure of how best to build their dreams. Here’s how you can guide customers through some of the key differences between traditional commercial financing and point-of-sale equipment financing.
Manual Underwriting vs. Algorithmic Underwriting
One difference your customer will notice right away is the length (and pain) of the approval process for a traditional loan versus Clicklease’s algorithm-driven approval. Most bank loans require human underwriters, who assess an applicant’s time in business, credit score, income, and any other factors that could impact their ability to repay the loan. Underwriters charge a fee for their time and expertise. Because of this, it doesn’t make sense for most banks to offer loans less than $15,000—they have to cover the cost of originating both approved and rejected loan applications, as well as paying the underwriter. All of these additional costs are baked into the terms of the loan itself. Finally, underwriters require time to gather, read, and evaluate information pertinent to the loan, and approvals can take weeks.
But because Clicklease offers customer financing for single pieces of equipment, applicant information runs through an algorithm that returns approvals within minutes. And there’s no need to pay an underwriter, so loan amounts can range from $500 to $20,000. Your customer can get back to their business in less time and with more flexibility.
Outside Collateral vs. Self Collateral
A traditional commercial loan is disbursed in cash, and that heightens risk for lenders. Recovering their capital, should the loan default, could require time-consuming repossession and legal wrangling. So, to offset their risk, they might require a down payment or collateral, which just passes the risk to your customer. Your customer might have a solid small business plan but still feel hesitant to assume such a precarious position. (Unsecured business loans—which don’t require collateral—exist but are difficult to access, especially for small businesses and startups.)
Equipment financing at point-of-sale, on the other hand, poses significantly less risk for all parties. The lender treats the piece of equipment itself as the collateral—if something goes wrong, all their capital is tied up in one recoverable asset. Your customer doesn’t need a down payment or outside collateral to soothe the lender’s anxieties. And you, the equipment seller, get quick funding. Clicklease makes it safe and simple to sell equipment to customers who otherwise might not qualify for traditional financing.
Leasing vs. Buying
Should your customer lease or buy? A traditional lender won’t help much on this crucial question—once the loan is disbursed, the customer is on their own to negotiate terms for spending the cash. You’re the industry expert; consulting you before they secure financing could save your customer significant hassle, as well as building brand loyalty.
For certain types of assets, leasing makes more sense—depreciation might make owning an expensive piece of equipment more costly. Sometimes leases include maintenance and other regular services that protect customers. Some lease terms also end with an option to buy the equipment for a low fee, sometimes as little as 10% of the initial purchase price. Other items might be more sensible to purchase outright, allowing you to get full funding while your customer makes payments.