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Balancing Compliance and Efficiency To Optimize Equipment Financing

7 Jun 2022
balancing compliance and efficiency for equipment leasing

Lenders and leasing companies involved in commercial equipment financing often walk a tightrope between compliance and efficiency. While government regulation is designed to protect all stakeholders, it also means that financial institutions and equipment lessors need to ensure they are aligned with regulatory requirements.

Overcoming compliance challenges

According to the legal experts at Buckley, commercial equipment lenders and lessors increasingly face the same level of regulatory and compliance requirements that has long been part of the consumer finance landscape. An ever-changing regulatory environment means that equipment leasing and finance companies and their customers must ensure that they can handle the administration and record-keeping required for commercial equipment leases.

Compliance with regulatory requirements for equipment leasing has historically been a challenge for both financial institutions and equipment lessors. It is time-consuming and often requires a manual review of a confusing hodgepodge of regulations. Passage of the federal Dodd-Frank Act in 2010, and the creation of the Consumer Financial Protection Bureau (CFPB), helped consolidate some of the laws pertaining to equipment financing transactions in the U.S. But many tax, accounting, and legal issues go beyond the Dodd-Frank reporting requirements.

While compliance remains a challenge, technology provides an increasing amount of automation to streamline the equipment leasing and financing process. As Deborah Reuben notes in The Certified Lease and Finance Professionals’ Handbook, new automation platforms have facilitated the integration of financial reporting data and improved efficiency related to equipment financing.

In particular, says Reuben, cloud-based equipment leasing platforms and electronic document processing have been game-changers for financial services companies. Technology, she notes, helps equipment finance companies and lessors improve both operational efficiency and the accuracy of processing and managing digital transactions and documents.

Replacing legacy systems to improve efficiency

Replacing manual legacy processes with cloud-based solutions reduces human error and eliminates much of the redundancy required for compliance. In addition to improving compliance, the ability to automate documentation processes reduces overhead for equipment lessors.

Automation technology provides equipment lessors with the ability to efficiently manage compliance requirements without sacrificing the quality of services delivered to customers. As Reuben notes, equipment leasing and financing companies have to understand and comply with a myriad of regulations. In addition to the CFPB, other regulators in the U.S. include the Internal Revenue Service, the Office of Foreign Assets Control, the Finance Crimes Enforcement Network Bank, the Federal Reserve, and the Office of the Comptroller of the Currency — as well as various state and local agencies.

By automating compliance documentation for highly regulated fintech transactions, both lenders and lessors can more cost-effectively manage their equipment financing and leasing requirements. In addition to compliance, companies involved in equipment financing can benefit from using cloud-based tools for everything from credit decisions and documentation processing to loan due diligence and portfolio diversification.

Balancing compliance and efficiency with automation

Compliance requirements often go beyond lenders. For example, according to Reuben, banks typically require third-party processors to follow strict financial reporting requirements for managing payments and transactions. To facilitate compliance, she notes, most accounting software used by the equipment finance industry include Service Organization (SOC) controls, which were developed by the American Institute of Certified Public Accountants. These standards require adequate controls for systems and processes, such as security, payments, billing, and customer service.

According to the 2021 ELFA Software Guide, a key benefit of automated equipment financing solutions is compliance with federal, state, and local regulations. Some software packages can also integrate third-party solutions into enterprise accounting platforms that can handle tax compliance, identity tracking, and insurance.

The ability to customize equipment financing software can help ensure that parameters are well-defined for compliance. The ELFA guide also recommends using cloud-native solutions that can integrate with an organization’s existing system architecture and business processes.

Automation is also essential for the capture and review of borrower documents. The ability to automate the capture and analysis of loan documents facilitates faster lending decisions based on complete and accurate data.

The Ocrolus automation solution for equipment financing, for example, indexes borrower-supplied documents, such as bank statements and tax forms — returning actionable data quickly. Our software can be integrated with Salesforce via embedded API calls, providing document classification, capture, fraud detection, and data analysis. With ready access to verified data, lenders can make informed, documented leasing decisions that support a quick and secure know your buyer (KYB) compliance process.

Automated KYB processes can be a competitive advantage for equipment lessors. By automating the analysis of risk management, compliance, onboarding, digital, and legal data, fintechs can make decisions based on a holistic view of their customers. That results in better and faster loan decisions, reducing costs for the lender while improving overall customer experiences.

Ultimately, equipment financing companies must balance a wide range of tax, licensing, accounting, and legal regulations. A well-integrated automation solution can help reduce risk by keeping fintechs at least one step ahead of regulatory changes and requirements.

Learn more about how Ocrolus can help you automate your equipment leasing process.