VIP Apps Consulting urges lenders to put asset lifecycles at heart of sustainable finance

Asset finance providers need to move beyond funding individual transactions and take a greater role in managing assets throughout their lifecycle if they are to support the transition to a circular economy, according to VIP Apps Consulting.

The consultancy argues that changing commercial models, environmental pressures and growing demand for resource efficiency are increasing the importance of refurbishment, redeployment, secondary leasing and recycling within asset finance.

As businesses increasingly explore usage-based leasing, pay-per-use and Product-as-a-Service models rather than capital-intensive ownership, lenders will need greater visibility over asset condition, usage and maintenance history, VIP Apps Consulting said.

This could enable finance providers to keep equipment economically productive for longer while protecting residual values and creating opportunities for assets to be financed across multiple lifecycles.

Daypesh Patel, managing director at VIP Apps Consulting, said: “Sustainability in finance cannot simply be about funding greener assets.

“It needs to be about understanding what happens to an asset throughout its entire lifecycle and how we can keep it productive, valuable, and in use for longer.”

The company believes the shift could have important commercial as well as environmental benefits. Better lifecycle information could help lenders manage residual value risk, improve secondary-market outcomes and identify opportunities to refurbish and redeploy equipment rather than replace it.

“The real opportunity is to put the asset, rather than the financing transaction, at the centre of the conversation,” Patel added.

“If we understand the asset’s entire lifecycle, finance becomes part of the solution to circularity rather than simply funding another purchase. That delivers clear benefits for the environment and the underlying economics of the business.”

However, VIP Apps Consulting warned that existing technology and processes could present a barrier to adopting more circular financing models.

Managing mid-term contract changes, secondary originations and assets passing through multiple financing arrangements can expose limitations within traditional core platforms.

The consultancy said creating unified asset data layers could give lenders greater visibility over equipment health and history while supporting secondary originations and compliance without adding administrative complexity.

VIP Apps Consulting argues that this requires a change in thinking among asset finance leaders – moving from a focus on how an asset is initially funded towards how its value can be maximised throughout its useful life.

Finance providers able to develop the technology, data and operational capabilities required to manage assets across multiple lifecycles could therefore be better positioned as usage-based models and circular economy principles become more established in enterprise finance.