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Table of Contents

Significance of Working Capital Management for MSMEs
How SCF is better than other financing options
Why SCF is synonymous to easy financing
How SCF is Transforming MSMEs in B2B Industries
Make your business credit ready through SCF

What is vendor leasing? How does vendor leasing benefit SMBs?

April 3, 2024
min read

Vendors can partner with leasing or business financing companies to boost their sales by leasing their equipment or products to their customers. Vendor leasing comes into the picture when a potential customer has decided to buy equipment from a vendor but cannot complete the transaction until they have acquired financing for the equipment. During this process, the potential customer might lose interest or become discouraged due to the hassle involved in buying the equipment. They may switch to a competitor, or their funding source might finance a competing product.

Such scenarios result in loss of sales for vendors. Vendor leasing enables vendors to offer their customers a one-stop solution to fulfill their orders and acquire financing for equipment at the same time. Customers are also benefited from vendor leasing as they don’t have to acquire separate funding, which may require them to pledge collateral. 

Benefits of Vendor Leasing for Vendors

1. Boost in sales and financial flexibility

Apart from preventing lost sales, vendor leasing can also help in expanding sales volume for vendors. As customers benefit from such financing options, repeat sales occur more frequently. The vendor leasing programs can also allow each part of the rental payment to go towards purchasing the product, making the option of vendor leasing more attractive to SMBs. To further improve sales volume, vendors can provide guarantees to mitigate risks for high-technology equipment. 

2. Control over used equipment costs

Through vendor leasing, vendors can control the used equipment market. The used equipment becomes available to the vendors when it is returned at the end of the lease term when the lease is terminated, or when the equipment is returned for upgrading. Through such scenarios, vendors can acquire large quantities of used equipment which enables them to control the availability and prices of the equipment. They can sell the used equipment in non-competing markets. 

3. Competitive advantage

Through improved market control and expanding sales, the vendors can increase their market share, which provides them with a competitive edge in the marketplace. Vendors that provide leasing options deliver better services and flexibility as compared to vendors who don’t provide leasing options.

4. Better cash management

Through vendor leasing programs, the vendor receives payment within a few days once the customer signs the agreement. As compared to the traditional long-term payment cycles offered by vendors when selling equipment, vendor leasing programs allow for quicker transactions and improved cash flow for vendors. 

Benefits of Vendor Leasing for Vendors

Benefits of Vendor Leasing for SMBs

1. Point of sale financing

With on-the-spot financing, SMBs can have quicker access to vendor equipment. The inconvenience of finding separate vendor financing is eliminated. Your business can immediately begin using the equipment once the agreement has been finalized. You also require lesser cash upfront when you’re leasing as compared to when you are purchasing the equipment.

2. Competitive rates

Businesses get access to faster financing options for buying equipment from vendors using vendor leasing. Vendors offer competitive rates to make their vendor leasing programs more attractive to businesses. Through such vendor financing options, your business can acquire products without tying up your capital in costly equipment purchases.


Types of Vendor Leasing

There are two types of vendor leasing programs - operating lease and capital or financial lease.

1. Operating Lease

In an operating lease, businesses can use the equipment for a specified period of time without ownership. The lease period set in an operating lease is shorter than the life of the equipment. At the end of the lease period, the vendor can reclaim additional costs by reselling the equipment. The operating lease presents financial benefits to SMBs in the form of tax incentives and the leased equipment not being recorded as an asset or liability. 

2. Capital Lease

A capital lease differs from an operating lease in that the lease is reported as an asset for your business. This will increase your company holdings and liabilities. This type of lease provides an advantage in that it allows businesses to claim the depreciation tax credit on both the equipment and the interest associated with the lease. The business can choose to purchase the equipment at the end of the lease.

Vendor Leasing Process

Following are the steps that usually occur when applying for a lease:

  1. Submit an equipment lease application to your vendor. Ensure that you have all your financial data available.
  2. The business financing company, in partnership with your vendor, will review your application and notify you of the result. 
  3. The result is notified within 24 to 48 hours after the application is submitted.
  4. For financing that exceeds a certain amount, you might have to furnish complete financial statements and a business plan.
  5. After reviewing the application, the vendors communicate the approval to your business. 
  6. You need to decide on the leasing structure like monthly payments, or fixed APR. Once this is decided, you can sign the documents along with the first payment.
  7. Once the business financing company that the vendor has partnered with receives the documents and the first payment, they will notify you that the lease has started, and you can get the equipment delivered to your factory.
Following are the steps that usually occur when applying for a Vendor Leasing.

Vendor financing companies in India partner with vendors to provide you with rapid funding and enhanced convenience. At Bizongo, you can obtain comprehensive financing as well as supply chain solutions. Our experts understand the challenges of SMBs in acquiring funding and are equipped with diverse solutions to support your business through supply chain financing, procurement planning, vendor management, and many more services.

If you are a small business looking for quicker, more seamless financing solutions with minimal paperwork and no requirement of collateral, then Bizongo is your answer. Contact us today to resolve all your financial needs and accelerate your business growth. 

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