Captive Finance 101– Google looks to finance its Own Vendors

The traditional Captive Finance companies – such as Deere Capital, CAT Financial, or GE Capital helped finance their vast subsidiary sales with various dealer and distributor finance programs. The capital markets have been challenging to these Captives since the Financial recession. One of challenges – choosing where to put their balance sheet, depends on the relative returns of keeping assets on the book or doing some Securitizations to eliminate capital constraints in this new age of higher cost of funds and more capital requirements.

One thing for sure, they are big and rely on sophisticated investment banking techniques.

But now we have a new model of captives, one that is leveraging both the cash on their balance sheet and the technology that is changing the game for small business and consumer finance.

Go figure it would be Google to be the first one to work directly with the Lending Club. According to the release,

Google will use Lending Club to finance resellers, service providers, and consultants tied to its business while putting to work a portion of the tech giant's cash war chest. Google already knows the borrowers; Lending Club will handle the underwriting — including crunching data to evaluate small businesses' creditworthiness — and servicing of the loans.

We know vendors such as Square One, PayPal, and eBay have all announced FinTech credit products, similar to direct loans for their vendors.

We also know that the White House’s SupplierPay initiative is squarely focused on a large corporates pledging not to punish their small suppliers. Perhaps what Google is doing, and what others can do here that have a big spend with professional services, contractors, and resellers is the same.  See Initial White House SupplierPay observations

As Renaud Laplanche, the founder and chief executive of Lending Club says, "There's a lot of interest from large companies to provide credit to customers, partners, and suppliers.

The Google pilot was launched in December. It may provide another volume alternative for online lenders: a corporate partnership to provide small-business lending using a company’s own balance sheet. Now part of the problem is how do we fix the U.S. tax code to help large US globals repatriate overseas earnings (look at Apple with $138B of $156B held overseas).

This will certainly be an interesting trend to follow.

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