When Banks Say ‘No’ to Equipment Financing, It’s Not the End of the Story

Commentary Contributed by Richard Vassallo, NFS Leasing 

June 21, 2024 | Thanks to emerging technologies, from generative AI to data platforms and robotic solutions, companies in the biotech and life science sectors are achieving amazing advances.   

But for every headline I read showcasing a success, I’m reminded of the abiding industry reality: countless promising companies are still struggling to acquire the equipment and technology they need to fuel product development and platform growth. With today’s credit squeeze, if you are a non-investment-grade business, you’ll likely be turned down by most banks and traditional lenders for tech financing. 

A word to the wise for such companies and their venture capital supporters: a bank’s refusal to lend is not the end of the story. A well-established alternative source for financing technology and equipment in the industry—known as “story” credit lending—can be a key part of your overall business strategy. 

A Different Kind of Lender 

Companies that provide story credit lending are known as “story lenders.” They differ from traditional lenders in the way they approach credit decisions and financing.  

Where a bank may avoid riskier ventures—those more vulnerable to regulatory constraints, for example—story lenders make financing decisions primarily based on the customer’s “story.” They look beyond the company’s current assets, liabilities, and equity to understand its full potential. 

Story lenders have financed technology and equipment for biotech and life sciences businesses for many years, partly because banks and traditional lenders have a history of denying financing to companies that may be considered non-investment grade. This trend has accelerated with tightened credit standards, which Federal Reserve surveys indicate will likely continue throughout the year. 

Companies rejected by traditional resources are not the only ones turning to story lenders. Early-stage, emerging, and high-growth businesses are using this type of financing to acquire needed assets without diluting equity. Those backed by venture capital or private equity are also tapping into this option to finance their equipment and conserve capital for other needs, from R&D, testing, and clinical trials to hiring, marketing, and scaling operations. 

Industry Insights 

Story lenders experienced in serving biotechs and life sciences companies know the industry territory. They understand long-term investments are required for essential business processes— development, optimization, trials, and scale-up—and don’t measure return on investment in the traditional way.  

They have found there is no “typical” route to providing financing for the industry. The story lenders’ approach considers qualitative factors, such as the borrower's personal or business narrative, mission, values, and future plans. They customize financing, which may include fair market value leases, capital leases, sales and leaseback agreements, and asset-based loans. Financing is tailored to the customer's specific needs with options such as step payments, quarterly/annual payment plans, and short-term leases. Some include other forms of collateral, providing multiple avenues for financing.  

A Range of Customers and Assets 

Many biotech and life sciences businesses are served by story lenders, to name a few: drug discovery companies developing new biologics and covalent drugs to help treat patients; biotechnology firms creating new platform technologies based on machine learning; and technology-driven companies building advanced software and laboratory technologies. 

Story lenders finance an array of assets, such as robust information technology (IT) infrastructure, from servers and storage systems to cloud computing resources; automation and robotics technologies for tasks such as sample handling, liquid handling, and high-throughput screening; and microscopy systems, imaging software and imaging analysis tools. Other equipment financed includes next-generation sequencing platforms, DNA sequencers, genetic analyzers, and bioinformatics tools; laboratory equipment, such as centrifuges, spectrophotometers, microscopes, and chromatography systems; and upgrades to equipment and technology reflecting rapid developments in AI. 

Reasons for Financing 

Beyond lacking the capital to pay in cash, companies seek financing for many other reasons, from accessing up-to-date technology and protecting against equipment obsolescence to gaining tax advantages and optimizing cash flow. 

Statistics tell the story. An estimated 79% of businesses use at least one form of equipment and technology financing, according to the Equipment Leasing & Finance Foundation. This includes 70% of companies in the professional, scientific and technical services industry. Financing is particularly essential for the healthcare industry, with 75% of medical equipment being secured through a lease, loan, or line of credit.  

The Last Word 

In their capacity to enhance—and save—lives, the biotech and life sciences sectors are innovation at its best. Imagine the possibilities if even more companies had the tech financing they need to deliver on their promise. Don’t let banks and traditional lenders have the last word. Consider a story lender who is experienced in helping companies like yours expand their business horizons to advance the industry. 

Richard Vassallo is Vice President of Business Development for NFS Leasing, Inc., a story lender. He works directly with biotech and life sciences companies in this position and also has extensive experience in medical and IT equipment financing. He can be reached at richardv@nfsleasing.com.