Capital Equipment Financing: The Middle Market’s Unmet Need

by Kevin Ronan

Kevin Ronan, Senior Vice President, leads the Capital Equipment Finance section of CIT’s Commercial Finance business. CIT is a leading provider of equipment financing solutions to middle market and large-cap businesses in industries including construction, transportation, brown water vessels, manufacturing, energy, healthcare, and media and entertainment. He leads a team of experienced sales and underwriting professionals nationally, providing a range of specialized financing solutions tailored to the needs of the borrower.



Kevin Ronan, senior vice president of capital equipment finance for CIT, breaks down the what and why of capital equipment financing and what to expect in the next few years.

Capital equipment financing is a discipline all its own – especially when working with middle market companies. Few institutions have the requisite industry experience, let alone resources and creativity, to craft industry-specific financing solutions for individual customers. And that means there’s a need for more.

America has nearly 200,000 middle market companies, and each of them faces supply chain disruptions not seen in a generation. The combined effects of supply/demand imbalance, war in Europe, and – most important – the lingering effects of the COVID-19 pandemic have led to delays, shortages, increased costs and rising frustration at all levels of business and society.

In the face of these challenges, a growing number of companies are investing in capital equipment – rolling stock, manufacturing facilities, maintenance machinery, etc. – to gain greater control over their supply chains. The less dependent they are on others, goes the reasoning, the more strategic options they have and the more secure their planning.

The Opportunity

Any time there are fractures in the existing order, new possibilities open for those nimble enough to take advantage of them. In the case of middle market lenders, this is a good time for capital equipment transactions ranging in value from $3 million to $100 million.

The freight and logistics industry and the construction industry are both projected to grow at 5% per year at least through 2027. At the same time, demand is outpacing production in equipment for infrastructure, transportation and construction. That’s why companies are eager to buy or lease capital equipment: to strengthen their competitive positions and gain future advantages.

In advising customers, it’s important to remind them of the glitches and lags that often delay equipment delivery. Encourage them to act now to expand their fleets, upgrade their enterprise technology and strengthen their manufacturing capabilities. The longer businesses wait to get started, the greater their chances of being stuck at the end of a long wait.

Customers should also understand that the Fed’s anti-inflationary, tight money policies could mean continuing interest rate rises. Right now may be the most attractive rate environment potential borrowers will see for several quarters.

Almost all businesses will seek to finance their capital equipment, as the cost of outright purchase will be too great. We – their bankers – are in the ideal position to help. We have the financial strength and flexibility to finance their purchases; and the experience and advice to help them make better decisions. We know our customers better than any online lender possibly could. So we deal with individuals, not applications. Strong relationships are leverageable, and superior customer knowledge translates into superior financing packages.

What Customers Need from You

While the terms of a loan – its rate and duration – will certainly be important, the greatest value you can provide is strategic. You must create the solution that works best for a customer who may not know what that is.

Does the business intend to acquire new or used equipment? Does it need rolling stock – trucks, trailers, barges, railcars, etc., or manufacturing equipment? Are they talking about a single big piece, like an earth grader; or something complex, like an entire food processing system? Do they want to lease the equipment or buy it outright? What about a lease-to-purchase arrangement? What’s the business’s seasonality? Are there any specialized requirements for the equipment?

Equipment financing is much more than knowing the benefits of an operating lease versus a capital lease. It’s a relationship, not a transaction, and you’re helping a business grow. With the tools and information you possess, you can “game out” potential scenarios based on quantitative information informed by real world experience, providing your customer with nuanced options.

Make it clear that your organization has the strength and flexibility that inspire confidence. At CIT’s Capital Equipment Finance Group, for example, we offer flexible terms of up to ten years, with up to 20 amortizations; and with advance rates tailored to the equipment and credit strength of each borrower. We have lease products that allow customers to return equipment at lease end; letting them upgrade to new technology or dispose of surplus equipment while paying less than cost of the equipment over the lease term.

Focus Always on the Customer

In my role at CIT, a division of First Citizens Bank, it’s become clear to me that a lender needs three things: the financial resources to make it happen; the freedom to design flexible solutions for individual businesses; and the willingness to be all-in on behalf of the borrower. Of the three, the last is by far the most important. You must be as committed to your customers’ success as they are.

When events appear to be their most chaotic, some businesses will hunker down and wait. Others, though, know that the future often belongs to first movers. With confidence in the future, they need only additional resources to move forward. This is where Capital Equipment Financing can help them reach their goals.

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