Introduction
Financing is often overlooked by companies starting their As-A-Service journey. Most companies finance their first As-A-Service contract successes from their own equity and quickly find themselves limited. As-A-Service is a cash intensive business model, it is therefore key to prepare a funding strategy which enables the business model to be scalable.
Asset financing, which has been practised for many years by Equipment & Vendor Financing bodies (known as Funders), especially in the field of IT assets, can be duplicated for many types of equipment, and can be adapted to the specificities of the As-A-Service business model.
The key aspect of funding is to assess the specific needs of a vendor/customer, whilst simultaneously understanding the different available types of funding. Targeting the most suitable Funder and building a holistic, long-term relationship based not only on the legal responsibilities of both parties but also on trust is crucial. A common understanding of expectations at each stage of the funding process is paramount to the successful implementation of a scaled As-A-Service offer.
The journey from financing to As-A-Service
- Initially solutions were provided by financial institutions (remember, we were talking about equipment finance).
- Then Independent players (such as Econocom, CHG, CSI) entered the market with their capacity to take residual values.
- Then captives (Cisco Finance, Dell Finance, Apple Financial Services) entered or reentered the market as they didn’t want independent players controlling their clients.
- Now and for the future: only the captives will do a real As-A-Service since they are the one who can more easily assume the flexibility and performance risk on the assets they produce
Funder mapping
Funder mapping is the process in which main Funders are selected and subsequently graded as relevant to a customer's specific needs according to defined criteria along with Black Winch’s Expert experience.
As with all businesses, Funders may choose to focus on particular geographical areas, specialise in certain industry sectors and/or offer specific contract types. Due to credit appetite we may also see funding being approved towards certain specificities depending on the appetite of the particular Funder.
When looking to select a Funder to partner with, the differing criteria must be both understood and well investigated to ensure the most suitable match is found.
The most commonly used criteria for Funder mapping by Black Winch are listed below:
- General Vendor experience
- Approval process performance
- The key criteria of Geography
- Type/s of assets approved
- Type/s of contract/product available
- Pricing
- Legal support
- Risk appetite
- Back Office process/Funding package efficiency
The most commonly seen funding types
While Funders are now comfortable with and have success with the full service solution, introducing flexibility remains a challenge. The solutions available on the market are therefore fairly recent and often use classic equipment leasing refinancing methods with some adjustments. Nevertheless, the industry is well aware that As-A-Service solutions are the future and that it is important to be one of the first to propose innovative solutions.
Below you will find a few examples of what the equipment funding industry proposes:
The pros and cons of each funding type should be clearly analysed for their impact on an individual organisation and its requirements for particular conditions to be met. At Black Winch we have a team of Experts experienced in formulating clear and concise reports on all these Funding topics, from mapping to contract type analysis.
CSR and Funding
Globally, many countries are incentivising As-A-Service or other models where producers keep the ownership of the product or the responsibility for its performance throughout its lifecycle. This means there will be increasing advantages to switch to such a circular business model.
This provides an opportunity for manufacturers and integrators to attract asset financing institutions by showing alignment with the regulations. Simultaneously, as regulations are developed and strengthened to encourage circularity, financing institutions will adapt their lending criteria to favour companies actively planning for circularity. In this newapproach, pathways for improved transparency and trust increase, thus building stronger long-term relationships.
For more information on this topic please look out for the CSR and Funding white-paper that Black Winch released.
Conclusion
Businesses are facing new challenges in a rapidly developing world that due to factors such as climate change, the global pandemic and supply chain delays, has catapulted into new business models at a far greater speed than previously. Customers needs are pivotal in the trend of having a new set of requirements more focused on deeper relationships, limited CAPEX spending, maximised flexibility and of course, the move into a more sustainable and circular economy.
The As-A-Service business model provides the scope for many of these new targets to be achieved, however the correct funding partner and strategy selection are of paramount importance from the very start of the journey.
At Black Winch, our team of Experts hold over 25 years of experience in the leasing andfinance sector. Reach out to info@blackwinch.eu for an inspiration session on how we can help you build your funding package.
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