Prioritize cash flow

The circular economy requires prioritization of cash flows over collateral values as well as legal ownership of assets. Instead, lenders should prioritize cash flows over collateral. This is a common practice in structured loans of larger value providing project finance, but are not commonly provided for smaller loans.

Collateral, assets available for repossession in case of loan payment default, is important in securing loans today. Collateral is only one of the elements that lenders should check, also including borrower credit, cash reserves, and cash flow.

Servitization of products creates financing challenges. For example, by paying for a service unit instead of a product, the buyer may no longer be able to include that asset in their books. This results in less collateral that can be claimed by the lender and, consequently, greater risk of the loan.