Equipment Subscriptions

 

The equipment finance industry is adapting to a trend that has transformed the rest of the economy: subscriptions. Procurement managers started using software as a service two decades ago to avoid the upfront cash outlay of a purchase and bundle products and services into one arrangement. Now the equipment finance industry is embracing the concept as an alternative to a basic loan or lease.
  
Procurement and budgetary constraints
 
One of the main value propositions for equipment finance subscriptions is that they provide procurement flexibility to customers who do not have the capital budget to buy expensive assets but may have the operational leeway for a subscription.
 
For example, consider a facility manager at a factory, power plant, or data center who is accountable for performance. They may need to meet a high standard of uptime. But the current equipment is aging, inefficient, expensive to maintain, and not dependable. Unfortunately, the manager does not have the capital expenditure budget required to buy new equipment that is necessary to meet the performance standards. For that manager, subscriptions can be a life saver.  The equipment finance company can retain ownership of the asset for the facility manager. The subscription allows them to obtain the new equipment along with long-term O&M service and pay for all of it through their operational budget.
 
Plus, subscribing to an asset doesn’t mean the customer can’t own it. There are situations where it makes sense for ownership to transfer to the customer after the subscription term. If the equipment has additional life and is performing well, the procurement manager might not want to give it back at the end of the subscription term.

 Convenience

 

One of the most persuasive arguments in favor of subscriptions is convenience. With subscriptions, the equipment owner can bundle together all related expenses to simplify contracts, maintenance, and finance for the subscriber. For example, procurement, licensing, and maintenance can all be rolled into one monthly payment and contract, saving time for people across departments on the customer side.
 
Asset life expectancy
 
The final factor to weigh when considering subscriptions is the life expectancy of the equipment. Some assets perform for many years after an initial subscription term and are therefore favorable to own. Other technologies are rapidly evolving. Customers will want the next best thing to improve performance and avoid technological obsolescence. In those cases, customers will seek subscriptions that allow them to upgrade as the technology evolves.
  
What’s important is that you know what factors to consider — and that your lender has the flexibility required to accommodate your different needs.