Supply chain pressures push lenders to expand liquidity tools

Supply chain disruptions, tariff uncertainty and rapid technology changes are pushing equipment finance companies to expand beyond traditional lending and help customers manage liquidity. 

The shift comes as equipment finance activity remains resilient despite uncertainty, as total new business volume rose 18.6% year over year in the first quarter. That’s the strongest Q1 on record, according to the Equipment Leasing and Finance Association’s CapEx Finance Index, released April 28. 

ELFA also noted that businesses are using equipment financing and working capital to keep expansion projects and equipment upgrades moving as supply chain pressures persist, according to a release that accompanied the index. 

Longer production and delivery timelines have changed how businesses finance equipment, particularly in the healthcare and technology sectors, John Crum, head of specialty equipment finance and leasing at Wells Fargo, told Equipment Finance News. 

“What we found is that some of these companies had [equipment and goods] stuck on their line of credit too long and longer than they want,” Crum said. “That is more common coming out of COVID than pre-COVID.” 

Supply chain finance supports liquidity 

Equipment finance is also increasingly overlapping with broader working-capital management as companies navigate supply chain challenges, Jeremy Jansen, head of global originations for Wells Fargo Supply Chain Finance, told EFN. 

Supply chain finance can help both suppliers and buyers improve liquidity, Jansen said. 

“Either party can increase their working capital,” he said. “Either party can increase their liquidity by either selling a receivable or pushing a payable.” 

Healthcare and technology remain among the most affected sectors, Crum noted, with many companies still facing long lead times and supply chain disruptions. 

At the same time, growth in data centers and AI infrastructure is creating new inventory pressures for suppliers and dealers, Jansen said. 

“These dealers may have to keep more inventory on their book ready,” he said. “That does create working capital constraints.” 

Technology reshapes lease terms 

Additionally, rapid advances in technology are changing how companies think about equipment financing, Crum noted. 

“The equipment may do the job it’s intended to do for five to 10 years, but the technology is accelerating so fast. We are seeing a trend toward some shorter-term financing and leasing options, just to make sure that they have that technology flexibility, as well as the capital flexibility.” — John Crum, head of specialty equipment finance and leasing at Wells Fargo,

The trend is especially evident in equipment that relies heavily on software, processors, batteries, automation and connected technologies, where technological relevance may become a bigger concern than physical wear and tear, Crum added. That creates new challenges for lessors, who must consider how technological obsolescence could affect residual values. 

Liquidity requires multiple tools 

As a result of ever-changing challenges, businesses should avoid relying on a single source of funding, Crum said. 

 “You need to have multiple outlets available,” he said. Those options can include cash, working-capital facilities, receivables financing, supply chain finance and equipment finance, Crum said.  

Many businesses are still learning about the financing tools available to help manage liquidity and supply chain risk, Jansen said. 

“There are so many different point solutions that are out there,” he said. “Be curious, see what they’re all about.” 

Check out our exclusive industry data here.