Clinch the deal with a finance package.

Losing your equipment customers because they have financing problems? Offering them your own special finance program just may help speed up sales -- and even attract more business.

A commercial equipment manufacturer on the verge of closing an important deal faced a difficult dilemma: Unless it could offer its customer a financing contract, it risked losing the business to a rival. Because the manufacturer's customers were small to middle-market companies, equipment costs were expensive for them, and they often had less solid credit profiles. These factors delayed credit decisions, which meant lost sales. So the manufacturer could either assume all the credit risk to make the sale, or it could avoid the credit risk but chance losing the business.

If your company manufactures or distributes commercial equipment, this is probably a familiar tale. Here are some other situations that might ring a bell:

* The customer needs your equipment now, but only if it can get financing.

* A prospect is "shopping" your proposal. If you could offer financing, you could get the deal off the market and close the sale.

* Your pricing is competitive -- but a competitor offers extended terms that address the market's cash flow realities.

* A customer wants to upgrade its equipment, but hasn't paid off the existing equipment financing.

If these types of situations are often a problem, consider providing customer financing through a "vendor finance" program. Finance packages can be powerful sales tools. They give you a competitive advantage by helping to shorten the sales cycle, capture more business and retain customers. But a successful finance package requires a program that meets your needs and those of your customers.

First, decide whether to establish an in-house financing program or work with a third party. The viability of an in-house program depends on your internal resources. For some companies, it's feasible to establish a lending program in-house. Generally, the larger the manufacturer, the more likely it is to have the infrastructure necessary to support the program.

To successfully manage an in-house financing program, you need a credit department to analyze transactions; legal and documentation capabilities to prepare contracts and filings for regulatory agencies; collections to establish policies for and implement work-outs; accounting to handle billings and generate tax and year-end reports; and customer service to respond to myriad customer requests. A key component is a treasury function that can source and manage the funds, whether through a bank, finance company or the public markets.

If these functions exist, an in-house lending program may be a good idea, and it offers you a great deal of control. For example, you can directly influence the response time for each transaction, taking the analysis only to the level you deem necessary and perhaps mandating internal response times. Further, you completely control the customer base. Customers work exclusively with you, not a third party.

These benefits, with the potential gains earned from the finance charges, must be weighed against the cost of supplementing your existing human and systems resources. If you decide an in-house program isn't worth the cost, however, you can partner with an outside finance company to develop an equipment financing program.

PULLING THE PURSE STRINGS 

With the right finance-company relationship, you can tailor financing packages to specific customers' needs. As with in-house programs, you and your financing partner can better control the sales process. And you don't need to rely on the customer's bank to finance the venture before closing the deal. This is increasingly important in today's highly regulated banking environment, because many banks have refocused on providing traditional, shorter-term loans against more liquid collateral, such as accounts receivable and inventory. While the finance company will still consider your customer's creditworthiness, specialized knowledge of the industry and equipment as well as credit support from your company encourages it to support equipment loans.

The finance company's lending ability hinges on your customers' credit and interest rates. Your ability to serve your customers, then, depends on how you choose to structure a program with the finance company based on those critical factors.

Here are three possibilities:

* Your company could provide full recourse to the lender. By assuming all the risk, you benefit from the lowest rates and quick response time to individual credit requests and can also expect up to a 100-percent approval rate. This arrangement is similar to establishing an in-house lending program, with the finance company as a consistent source of funds.

* Conversely, you can elect to assume no risk, expecting the finance company to independently decide the vendor's customers' creditworthiness. The trade-off here is in the response times and higher interest rates. Approval times can range from a few hours to a few weeks, depending on the availability of information and each customer's standing. Often, you'll find lower approval rates, since the finance company will reject less creditworthy customers.

* A third alternative is to structure a limited liability, or ultimate-net-loss, program. Because you don't offer full recourse with a UNL structure, your contingent liabilities are less. For example, in a $10-million portfolio with a 10-percent UNL, your recourse is limited to $1 million. The vendor's financial statement notes reflect the lower contingency. This "portfolio" approach to credit decisions, as opposed to the case-by-case method, expedites decisions and keeps the interest rate offered to the vendor's customers consistent.

SHARE AND SHARE ALIKE

Under any of the financing methods described -- full recourse, without recourse or limited liability -- you can share in the interest rate offered to your customer or subsidize the rate to bolster sales. For example, if the rate offered to you is 8.75 percent, you can write customer transactions at 9.75 percent and earn the 1-percent spread. Or, as a purchase incentive, offer customers a 5-percent rate, paying the difference to the finance company in cash, invoice discounts or delayed funding.

A prearranged program that addresses interest-rate changes, credit quality, risk and remarketing of the equipment encourages quick deal approval, limiting the potential fallout from "shopping around." And a prearranged program supports repeat business or sales to customers with similar credit profiles.

Choosing the right finance-company partner is critical, however. Some lenders are very transaction-oriented. As a result, once customers are on the books, the lender may treat them poorly and subject them to one-sided end-of-lease negotiations. Since most companies rely on long-term customer relationships and repeat business, it's imperative that your finance company mirror your customer philosophy.

Also, make sure the company you select is committed to the industry. One commercial equipment manufacturer suddenly found itself scrambling for alternative funds when its original financing company got out of the business. In recent years, the industry has seen considerable shake-out. Not only are banks shying away from equipment-based lending, but several conglomerates with financing operations have left the equipment finance business to focus on their core competencies. If you're in that position, seek financing sources with specific industry expertise, so they can step in quickly.

As companies streamline their vendor relationships by working with fewer, trusted suppliers, they can help build stronger customer ties by offering financing. Whether you develop an internal financing program or partner with a finance company, helping your customers finance their equipment purchases is a good investment in short-term sales and long-term customer relationships.

Mr. McMackin is executive vice president of Heller Financial in Chicago, Illinois.