Equipment lenders have been adopting new technologies at a significantly higher rate in the past four years, both at small- and large-ticket lenders.
The rate of digital adoption is up 22% since 2019, with a 3% increase in the number of lenders moving their back-office business from paper to digital from Q3 2019 to Q4 2023, according to Wolters Kluwer’s quarterly digital transformation index released Feb. 23.
However, the costs of changing to new tech are slowing industry adoption of digital lease management tools, Tim Yalich, head of motor vehicle strategy for Wolters Kluwer, told Equipment Finance News.
While the pandemic “forced rapid adoption” of digital tools, “non-enterprise entities have less IT budget to advance their solutions,” which is a hindrance, in addition to lenders not finding “the right solution or partner to fit their unique process,” Yalich said.
Mass adoption ahead
Automated lending technology is key to staying competitive for the equipment finance industry, Yalich said.
“As more lenders onboard digital tools, specifically origination tools, the dealers will adopt a single workflow or process that is digitally influenced,” he said. “Any lender not in the program is at risk of being passed over as the dealer preference is consistency of process.”
For leasing firms experiencing high volumes of applicants, digitalizing is almost essential, he said, adding that more lenders are modernizing operations.
The upfront cost of software — which can run into the thousands of dollars, one lender said — is often mitigated as the lender becomes more efficient, allowing for more new business.
Wheatland, Wy.-based C.H. Brown rolled out a digitalization plan over the past four years “to improve its operations and efficiency,” including improving security and application data transfer, Chief Operating Officer Ed Meyer said.
“We’re more in the digital age and less in the paperwork age,” Meyer said, adding that the move allowed C.H. Brown to stop buying “a palette of paper a year,” to shuffle between departments. The efficiency unlocked by digitalization is key to retaining new customers since it allows the company to “deliver a much quicker credit decision.”
Buy vs. build
For some lenders, off-the-shelf software options don’t fit their needs, so they should be mindful of whether it makes more sense to buy technology or build it themselves, said Michael Hong, president at El Segundo, Calif.-based lender Taycor Financial.
Taycor has been building its technology systems to optimize lending for at least a decade.
“Often buy-vs.-build is the first question you ask when exploring new technology,” Hong said. “When Taycor made the commitment to invest into technology, buy wasn’t an option. Over the last decade, Taycor has built and adopted several key layers of information systems that can be organized into borrower facing, dealer supporting, inward optimizing, and product matching.”
Speed is a significant reason to improve technology, multiple lenders told EFN. Hong agreed.
“In an equipment finance transaction, movement comes in the form of communication and transparency of where the deal sits and who is responsible for moving that deal to the next stage,” he said. “Technology was the only way to scale the level of service we wanted to deliver to our customers and our partners.”
Changing operations
Lenders can benefit from working with a tech provider that can customize its platform to their needs, said Brandon Keeling, equipment finance and lease manager at Tustin, Calif.-based Alliance Funding Group (AFG).
The company, which has financed over $2 billion in leases since its 1998 launch and funds equipment up to $25 million, opted to buy software rather than build it, though it did work with provider LeasePath to customize it, Keeling said. AFG began working with LeasePath in 2022.
Keeling said tech is “absolutely in everything” because it helps with generating sales leads and managing financing applications.
Prior to adopting LeasePath, AFG had a department to generate documents; now, the software generates the docs and preliminarily vets applicants.
“What separates us away from the rest of our competition, particularly the large banks, is our speed to approval. All that wouldn’t really be possible without tech,” Keeling said.
Registration is now open for Equipment Finance Connect, the nation’s only dealer-centric equipment lending and leasing event, which will take place May 5-7 in Nashville, Tenn. Learn about the event and free dealer registration at EquipmentFinanceConnect.com.
