What is Capital Lending?

Malcolm Tatum
Malcolm Tatum

Capital lending is a type of financing that companies may use to aid consumers in purchasing the high-ticket items sold by those companies. Somewhat similar to consumer finance options, this type of financial service is normally aimed at other businesses, with the items purchased generally used as a means of producing revenue for the buyer. The concept of capital lending has been around for decades and often is the financing option of choice for purchasing heavy-duty machinery, fleets of automobiles, and similar major purchases.

Large farm equipment purchases such as tractors typically qualify for capital lending.
Large farm equipment purchases such as tractors typically qualify for capital lending.

The idea of capital lending is sometimes confused with the concept of consumer finance. In general, consumer finance is a situation in which companies provide financing options for consumers that are considered to be retail purchases. For example, an automaker may operate a subsidiary that offers financing for the purchase of a new vehicle, similar to the loan plans offered by a local bank or credit union. This arrangement would be considered consumer financing, since the purchased automobile is not intended for use in a business operation, but as a pleasure vehicle for an individual owner.

In contrast, capital lending is more of a business to business lending situation. A manufacturer of heavy farming equipment may provide financing that allows a commercial farm to purchase a fleet of tractors, hay balers and other heavy equipment that ultimately aids the farm in producing revenue. In like manner, an automaker may finance the purchase of several automobiles to a cab company, making it possible for the buyer to use those cars directly in the revenue generation process. The key difference between capital lending and consumer finance has to do with whether the purchase is to an individual who simply wants to use the purchased item for his or her own benefit, or if it is intended to aid a business in producing revenue from the sale of goods or services that are directly related to the general operation of that business.

As with any type of financing, companies that have the opportunity to make use of capital lending offered by a manufacturer should consider the terms and conditions of the financing very carefully. While often the most convenient means of financing the purchase, taking the time to compare the rates and terms with those offered by other lenders may result in identifying an alternative source of financing that saves the company a great deal of money over the years. This is especially true if the buyer has an established line of credit with a financial institution that includes a competitive fixed rate of interest that is lower than the interest rate available via the capital lending offered by the manufacturer.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

Readers Also Love

Discuss this Article

Post your comments
Login:
Forgot password?
Register: