Emerging Tech in Equipment Finance

Introduction

During our exploration of cutting-edge technological progressions, it becomes increasingly apparent how they dramatically reshape both business operations and customer interaction protocols. Ground-breaking developments such as artificial intelligence (AI), blockchain technology, and the Internet of Things (IoT) hold immense potential for transforming highly influential changes within in the equipment finance industry. The industry stands on the top of a revolutionary change with the advent of these emerging technologies. Moreover, there is a prevailing anticipation that a significant portion (55%) of equipment acquisitions will be financed by the year 2023. It is worth noting that the Equipment Leasing and Finance Association foresees U.S. businesses contributing over USD 2 trillion towards investments in equipment and software by the same year. The purpose of this blog post is to examine how emerging technologies are influencing equipment finance.

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Aspects of Equipment Financing

• A significant number of American companies, close to 80%, opt for various financing options like loans, leases, and lines of credit while acquiring equipment.
• In 2021 U.S. businesses, nonprofits, and government agencies invested an estimated USD 2 trillion in plant, equipment, and software.
• Around 58% of that investment was funded by loans, leases, and lines of credit. Which were obtained from Americas' equipment finance companies. These finance companies play a significant role in granting access to capital.

Leasing is a widely preferred form of equipment financing, enabling businesses to temporarily rent equipment for a specified duration. This choice is particularly suitable for companies that require expensive machinery but do not wish to make an outright purchase. An illustration of this can be seen in the construction industry, where a company may opt to lease heavy machinery for a major project. In fact, the global average for leasing constitutes 55-65% of the total construction equipment business[R1] .

Loans present an another option for equipment financing where one can borrow money from a lender to acquire the necessary equipment. According to recent data, leasing accounted for 25% of the most popular financing method[R2] s in 2021, while secured loans made up 19% of the choices. This option is particularly suitable for businesses with a stable cash flow that can comfortably meet their loan obligations and desire outright ownership of the equipment.

Lines of credit are a highly flexible form of equipment finance that enables businesses to borrow money when necessary for equipment purchases. Traditional banks typically offer equipment lines of credit up to USD 500[R3] ,000. This option is particularly suitable for companies experiencing fluctuating cash flow who desire the capability to borrow funds on an as needed basis.

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Unveiling Emerging

Innovations in Equipment Finance

Implementing cutting edge technologies such as automation, AI and analytics can greatly simplify the equipment finance process resulting in significant time and resource savings. Additionally, these advancements empower companies to obtain more precise and comprehensive insights regarding their operations ultimately enhancing operational efficiency and facilitating informed decision making.

I. Artificial Intelligence (AI) and Machine Learning:

Streamlining Credit Decisions:

AI powered algorithms and machine learning models have brought about a revolution in the equipment finance credit decision making process. As stated in Accenture's[R1] Tech Vision for Equipment Finance report, a whopping 93% of equipment finance executives mentioned that their organizations are currently piloting or embracing AI. A striking[R2] 78% of financial institutions possess a keen understanding of the potential advantages brought by AI and machine learning. Furthermore, an impressive 76% of respondents affiliated with banks holding assets exceeding USD 100 billion are presently carrying out AI strategies.

Enhancing Risk Management:

The adoption of AI driven risk assessment tools and predictive analytics has brought about remarkable advancements in risk management practices within equipment finance. According to a recent survey conducted by Deloitte and the European Financial Management Association (EFMA[R3] ) perceptions of the potential impact of AI on organizations differ greatly among firms in the financial sector as reported by over 3,000 C Suite executives.

Optimizing Portfolio Performance:

Equipment finance companies can optimize their portfolios by utilizing AI and machine learning to analyze large volumes of data. According to a survey conducted in 2020, 85% of respondents[R4] stated that AI would become a "mainstream technology" at their company in 2021. Additionally, 73% of executives believe that AI is the most significant business advantage of the future.

II. Internet of Things (IoT):

Remote Asset Monitoring:

IoT sensors and connectivity facilitate the constant monitoring of equipment assets, which ultimately results in enhanced maintenance practices, reduced instances of downtime, and optimized performance. According to recent research there has been a notable 32% rise in the utilization of IoT[R1] for asset performance management. Furthermore, it is worth mentioning that there are approximately 14 billion IoT devices connected at present. It is projected that by the year 2030 a staggering 76% of all devices will be IoT devices.

Predictive Maintenance:

By utilizing IoT data, equipment finance companies have the opportunity to employ predictive maintenance strategies. This approach aids in decreasing equipment failure and enhancing the overall lifespan of assets. In 2022, the IoT based predictive maintenance[R2] market was forecasted to reach a value of USD 13 billion showing significant growth from its value of USD 3 billion in 2018. Furthermore, by taking proactive measures such as repairs and adjustments businesses can prolong the lifespan of their assets and avoid incurring expensive repair or replacement costs

III. Blockchain Technology:

Streamlining Transactions:

Blockchain technology provides secure and transparent transactional processes, which help to decrease the necessity for intermediaries in equipment finance. As of June[R1] 2023, approximately 8,830 cryptocurrencies being utilized worldwide with an astounding number of 405376.120 Bitcoin transactions occurring on a daily basis. It is noteworthy to mention that by incorporating blockchain technology, financial establishments have the potential to save up to a staggering USD 11 billion annually. When it comes to improving the asset-based lending and equipment finance process, blockchain technology stands out as an incredibly promising tool. This cutting-edge innovation has the capability to drastically diminish both loan closing times and expenditure by eradicating any inefficiencies related to manual procedures.

Enhancing Security and Data Integrity:

The security and prevention of fraudulent activities in equipment finance are guaranteed by the unchanging properties of blockchain. According to a report carried out by PwC, a remarkable 84[R2] % of executives believe that blockchain is more secure than traditional systems, thereby increasing both trust and transparency within the industry.

IV. Automation and Robotics:

Improved Operations:

Automation and robotics have brought about a significant revolution in equipment finance operations encompassing areas such as documentation, loan origination, and asset management. Through their utilization companies are able to effectively diminish costs linked to manual labour substantially enhance turnaround times and elevate the precision of various processes. Furthermore, the integration of robotic process automation (RPA) enables the automation of repetitive tasks like document indexing and data entry.

Cost Reduction and Efficiency:

Automation has the capability to automate tasks that were historically performed manually, leading to a decrease in errors and a more streamlined workflow[R1] . Additionally, it can potentially reduce the requirement for extra personnel thereby decreasing expenses related to equipment funding. An estimated[R2] 50% of organizations hold the belief that automation has the ability to decrease or completely eliminate human error. Automation also presents a potential surge in productivity of around 31%, and notable savings on labor costs of up to 22%.

Conclusion:

The equipment finance industry is being reshaped by the emergence of technologies like AI, blockchain, Internet of Things, and automation. These advancements are bringing about improved credit decisions, streamlined transactions, enhanced risk management, and optimized asset performance. The statistics highlight that businesses have recognized the significant impact of these technologies and are actively incorporating them into their operations. However, we have also recognized the obstacles that come with introducing new technology including factors like cost, and complexity. Despite these challenges, it is imperative for the equipment finance industry to adopt and integrate emerging technologies. Doing so will enable companies to remain competitive and effectively cater to the changing demands of their customers. It is now high time for action to be taken in order to fully embrace the future of equipment finance.