Equipment lenders tackle residual value uncertainty on new tech

As new equipment becomes increasingly tech-driven, lenders looking to navigate residual value uncertainty are aligning themselves with resellers, OEMs and service providers. 

A wave of technology solutions including autonomy, telematics, grade-control systems and battery-electric powertrains have hit the market in recent years to address labor shortages, boost efficiency or meet regulations. 

But lenders have expressed reluctance to finance such machines due to uncertainty around their residual value, driven by: 

• Limited historical performance data; 
• A lack of a resale market; 
• Rapid obsolescence; and 
• Maintenance concerns.  

Backstopping risk 

Lenders can overcome these challenges by negotiating a “backstop” agreement with manufacturers, David Normandin, president and chief executive of Wintrust Specialty Finance, told Equipment Finance News. A backstop provider acts as a safety net for lenders by guaranteeing aftersale support, whether that’s remarketing, repurchasing or maintenance.  

“You need to be thinking about, ‘How am I going to manage an asset that, frankly, probably hasn’t been remarketed before or not at scale?’” he said. “The best way to do that is to align yourself with the resellers or the manufacturers themselves to create a relationship to help them move more assets.” 

Ensuring aftersale support is especially important because the biggest risk lenders face with emerging technology is “actually not the obligor’s credit,” Normandin said. 

“The biggest risk is the ongoing service that’s required, a lot of times by venture capital-backed, private-equity backed companies that, frankly, aren’t financially sustainable unless they continue to raise more equity. And if they go under, these deals will default because there’s nobody to support and continue to keep the equipment running right.” 

— David Normandin, CEO, Wintrust Specialty Finance

Thus, lenders must factor the service providers into their underwriting for tech-heavy machines and develop an asset management plan accordingly, Normandin said. 

“That’s really the work that you’ve got to do to shore yourself up on residual values, but also performance issues related to the collateral and the solution that’s being sold,” he said. 

Financing service 

The global construction equipment telematics market is projected to more than triple to $4.7 billion in 2034 from $1.5 billion in 2024, according to Global Market Insights. Equipment and software investment is expected to jump 9.9% year over year in 2025, according to the Equipment and Leasing Finance Foundation.  

As new equipment innovations ramp up, it’s crucial for lenders to create financing solutions that “provide ongoing service through the life of an asset” along with the machine itself, Normandin said.  

“We’re finding ways to finance that overall outcome that includes some equipment services, sometimes consumables along the way, to provide an outcome that a customer is willing to pay for,” he said.  

Financing renewals of equipment software subscriptions is one example of this, he said.  

“That’s what I think about as far as where innovation is happening with technology finance, and I think that goes to how products are being sold,” Normandin said.

“They want you hooked on the juice forever.” 

— David Normandin, CEO, Wintrust Specialty Finance

OEMs step up  

More OEMs are considering the financing needs for technology upgrades while addressing residual value concerns. For example, CNH Industrial’s new machine control system is upgradeable from 2D to 3D, which “really opens up a second life of that machine,” Kevin Scotese, global director of digital innovation strategy and product portfolio at CNH, told EFN. 

“The residual value of that to a customer is huge because maybe the first customer only needed 2D for his application,” he said. “So, he buys that machine, and when he sells, the next customer says, ‘Hey, I need a 3D system on that machine,’ knowing he can upgrade that with plug and play. That adds a lot of value to him.” 

Moreover, OEMs can seamlessly finance parts, service and technology upgrades by owning their entire technology stack, Scotese said. 

“If a customer wants to buy a Case machine but somebody else’s technology that we’re not familiar with, we might be hesitant to lease it, not knowing what that’s worth or what the loan-to-book value would be,” he said. “By owning the full line of tech stack, we can hone our strategy and the residual value.” 

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