The equipment finance area is pretty crowded. Many of the options that are out there are brokers or intermediaries, which means they’d be willing to help someone set up a financing agreement for a drone just as easily as they would for a car. As you can imagine, the differences between someone who is looking to secure financing for a drone are far different than someone looking finance a car.
That’s one of the reasons it’s important to understand what kind of financing options are available. Securing financing for a drone might allow an organization to move forward with adoption of the technology, but does that agreement cover the software, services and training that might be required to successfully utilize the technology? Are extended warranties being passed through? Is there an ability to upgrade your drone? These are just some of the considerations that need to be taken into account, and it’s why working with a direct lender like AP Equipment Financing can make all the difference in the world.
Direct Lender Distinctions
AP Equipment Financing is a direct lender, which means they’ve secured their own capital to invest in leases and loans. They’re not selling the paper off to a third party lender who would then ultimately bill and collect on that loan. When they book a transaction on their system, it remains in-house and is managed by the same people that a person did business with at the beginning. It’s a distinction that’s important for anyone looking at their options, but it’s not the only difference between AP Equipment Financing and their competitors.
“There are very few lenders who have someone who is familiar with UAVs,” said Nick Gibbens, Sr. Vice-President of Vendor Finance at AP Equipment Financing. It’s a byproduct of our experience in the surveying/mapping/geospatial industry. We’re looking to connect with people who view drones as an extension of their core business. We understand the importance of data to our customers. Drones can gather data quickly, but that info needs to be implemented into a business model just as quickly. We want to minimize the barrier to entry that’s associated with making that happen.”
That understanding and expertise is important, and for many brokers and intermediaries working in other industries, it’s not necessary for them to have. With something like a UAV that might have servicing issues, or equipment issues, or issues associated with trading up or anything that can happen in the life of a lease, it’s really important to have someone who’s familiar with the industry the equipment is operating in. Selling the contract off to a bank puts them in the driver seat regarding what sort of options are available to you. Anyone looking at financing options needs to consider the kind of feedback they’ll get from a broker with no involvement in the industry versus a company that understands drones should be viewed as just another tool in the tookit.
What Does the Financing Process Look Like?
Figuring out what kind of financing partner to work with is just the first part of the process though, as there are various options and details that need to be worked out once the decision to finance has been made. The majority of people are simply looking to finance a purchase, but there are also lease agreement options where the lessor rents the customer the drone. In either case, the process to secure the financing begins with filling out an application.
“Once someone has filled out an application, we gather quickly information on the end user, which is basic commercial credit info,” Gibbens explained. “After the request is approved, we prepare electronic documents that state the terms of our agreement. The customer agrees to pay us X amount over the agreed to time period, and there are terms and conditions under which the agreement is written. Once that commitment is back in house, we issue a purchase order to the dealer or manufacturer, and with that they can record the sale. There are other details associated with shipping and payment terms to sort through, but it’s a very quick process. We’ve done transactions from start to finish in the same day.”
Smaller clients appreciate the ease of this kind of process, while larger ones enjoy the flexibility it offers them. Those larger clients might be looking to acquire more equipment in another few months, or expand on what they have. Having a master lease in place allows a finance partner like AP Equipment Financing to make that process even simpler, which opens up all sorts of operational options. While there are various financial entities that can enable those options, making a decision about which to use goes beyond how those options will be leveraged operationally.
Why Not go to a Bank?
Using a bank line as opposed to a lessor like AP Equipment Financing is a common argument that gets raised by various stakeholders. Someone looking to acquire a drone will often look to their bank or even their own funds to secure the cash needed for an investment in drone technology. These are certainly options, but anyone considering them needs to be aware of what it means to pursue either.
“Cash will always be king,” Gibbens said. “It’s scarce, and it might not always be there. Going to your bank for this kind of loan might wipe out your ability to open another office to expand your business or acquire a fixed asset with fewer financing options. That’s a decision someone can make, but we want people to know that we’re an excellent alternate source of capital. We might be slightly more expensive than someone’s bank line, but we also don’t attach all the assets of the business to our loan. We’re really just securing the drone itself, not anything else. Never underestimate the need for cash, or the need to make adjustments which are wholly dependent on that cash or the availability of it.”
At it’s core, financing is about giving operators the ability to get tools that are going to deliver value out into the field at a low opportunity cost, and it’s one that is not unique to drones. Financing provides a low cost of ownership and the full benefits of ownership such as depreciation expense, which is why it’s an attractive option to so many companies. Anyone interested in exploring these options should understand that they come in a variety of forms while also understanding the benefits associated with working with direct lenders that specialize in the drone industry like AP Equipment Financing.