Tiffany Charles, CFO of Medtech Solutions, was facing a hard challenge. Medtech, a venture-backed startup running a business for 2 years, needed test equipment important to its operations. While test devices are broadly readily available for most test applications, the tests to become conducted at Medtech needed custom-made equipment provided by just one US manufacturer. Medtech had elevated sufficient investment capital to finance the majority of its development and research projects, however the custom-made equipment’s cost will need an unacceptably large number of Medtech’s research budget, restricting investments in other key areas. Tiffany explored manufacturer financing and contacted several leasing firms, but with no success. Wouldso would Tiffany get the equipment that Medtech needed without needing internal funds crucial for other projects?
Why custom-equipment financing is really hard to obtain
Potential financing sources approach demands with this type financing very carefully. Most financing for venture-backed startups involves a higher amount of risk compared to financing established companies. Financing sources that stretch credit to venture-backed startups are familiar with accepting startup risks. These risks include financing firms that are relatively recent for their markets, which have negative income, which depend on investment capital sponsorship to remain afloat. Notwithstanding these risks, most financing sources are reluctant to defend myself against the additional chance of financing equipment that they’re going to be needed to re-market eventually, but they are not able to maneuver. Most of them realize that a small % from the transactions they underwrite won’t exercise, requiring these to repossess and re-marketing the gear to recuperate because their investment as you possibly can. Custom-equipment presents an enormous challenge for the reason that it provides without any backstop really should other exit channels fail.
Whether a venture-backed startup can acquire financing for custom-equipment might rely on several factors:
The amount of money and percentage the equipment represents from the total to become financed
Whether other assets could be offered as collateral to secure the transaction
The startup’s overall credit profile
Whether management can convince the financial lending company the devices are important to operations and/or profitability
Whether an aftermarket exists and whether there’s any prospect of realizing value in the equipment if re-marketing is essential
If the vendor offers equipment buy-back, trade-in, or re-marketing support, if preferred.
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