From Ownership to Utilization: Rethinking Equipment Financing in a Rapidly Changing Market

A new report from Wells Fargo commercial banking finding that long production cycles, rising costs, and liquidity pressures are leading healthcare and tech companies to adopt tools once used by the consumer goods sector.

Now with both sectors facing parallel pressures to balance liquidity as well as flexibility and stability, the reporting does suggest that they use supply chain finance to lock trapped cash across receivables as well as inventory and payables, as well as preserve balance sheet flexibility.

And leverage equipment financing.

But the study also has implications for consumers and how they can maneuver costs.

Well joining me is one of the authors of this report how working capital has become the infrastructure behind resilient economies is John Crum, Head of Specialty Equipment Finance and Leasing at Wells Fargo.

Good morning, John.

Thank you so much for joining us.

So first and foremost, tell us what concrete steps companies can take to reduce the risk of tech equipment becoming outdated.

Yeah, it's a great question.

And so, what, what we're really seeing is there's been a mind shift with, with how quickly technology is emerging.

For, for years and years and decades and decades, businesses were thinking of an ownership mentality.

And we're seeing a shift from that, should I own the equipment, or should I be running the Equipment.

And that's a significant shift in how businesses are thinking about it.

If you should, if you're thinking about how running this equipment's gonna improve your business, rather than how owning the equipment is gonna improve your business, it opens up a whole new world of possibilities as you're thinking about your working capital and your liquidity.

And building on what you just said, John, what are the key questions that business owners should be asking to actually monetize capital preservation goals in healthcare as well as tech.

They should definitely be thinking about, I'll say multiple things.

First of all, I'll go back to what I just said.

Should I own it or should I be using it, right?

And should I be preserving my cash and my bank lines and my other working capital for things that are actually going to improve my business or make money in my business?

So that'd be the first thing that that we want them to think about.

Second thing is, what are the technology cycles that that we're thinking about here?

And is the equipment going to be still functionally working?

But technology is going to be obsolete, so they may have something that's doing the job they intended it to do, but the technology may be 2 or 3 years old, so they want to make sure they're building in flexibility in their refresh cycles.

We're seeing a lot of companies really consider leasing with some optionality to have certain upgrade cycles in that.

And then the third thing is, is really making sure they understand what the investments that they do make with their OEM or their vendor partners, when is the next version of it going to come out and what's going to happen to the pieces that they're using if something new comes out.

So again, would they be functionally still working, but technology, they're going to be behind the times or behind competitors.

So they need to make sure that they're building that flexibility with their equipment so they can upgrade to the latest and greatest.

And speaking of which, it goes about saying that there are shifting supplier bases as well as sourcing routes and changes in demand patterns.

So why do companies actually need to create financing strategies that are adaptable?

Yeah, we've seen, you know, really since COVID really highlighted it, but now with tariffs and everything else that's changed in the global supply chains, is that companies need to have multiple sources, so they can't be reliant on one OEM or one source to fund their business.

If something happens and they don't have the programs in place with if if if.

OEMA is not able to deliver something that they need to be critical for their business.

They need to quickly shift to OEMB or vendor C, and they need to have the ability to fund the things they need to run their businesses at a moment's notice.

So they need to make sure that they're having their own resiliency plan, not just for the supplies.

But how they're going to fund it and then what that impact is going to mean for their business, they need to make sure that they have both the short term and the long term plans where they maintain that flexibility should something happen in their supply chain.

And we've seen a lot of successful businesses do this and, and really hone those skills for that resiliency and their capital preservations and their funding plans.

Since COVID, before that, of course, but really highlighted in COVID and then accelerated through the supply chain disruption with global tariffs and other things that are going on in geopolitics.

Yeah, and as you highlighted, risk mitigation as well as contingency planning are key.

So finally take us through how businesses can reduce power grid reliance as well as build their own infrastructure.

Yeah, yeah, it's, that's, that's, we, we love this one.

We talked to, to our clients and stakeholders about this all the time, and it's really shifted from a nice to have plan to a need to have plan.

And, you know, I think for for decades, again, it was a given that there was going to be reliable power here.

But as we have seen with the increased demands on the grids and some of the resiliency issues and challenges they have, companies can't rely on that anymore.

We are seeing increasingly companies develop multiple strategies.

So it might be just simply backup power, battery storage, energy storage, behind the meter um capabilities where they're doing their own power and not relying on a third party to do it.

And so increasingly there's there's multiple strategies to both fund that and deploy that, and we're seeing our stakeholders really examine all of those in multiple ways.

Well, there's a reason why people say hindsight is 2020.

So thank you so much for weighing in today, and I appreciate all of your insights as well as perspective.

You're a match.