Eqiupment Leasing
How To Choose An Equipment Leasing Company by George A. Parker
Leasing has become a preferred form of equipment financing,
accounting for more than 30% of business equipment acquisitions. Each year,
thousands of U.S. companies face the challenge of finding attractive financing
to acquire business equipment. Many of these companies approach the lease
sourcing process seeking the lowest lease rate. While securing a low rate is a
worthwhile goal in choosing a leasing arrangement, it alone is usually not a
reliable standard for obtaining the best lease transaction or leasing
experience.
To obtain attractive lease proposals and to avoid lease
blunders, make sure you choose the right leasing companies to bid. Ultimately,
the wrong lessor choice can result in a slow approval, inability of the lessor
to deliver, hidden fees, substandard lease terms, or worst. To secure the best
lease arrangement, you must do your homework in pre-qualifying bidding leasing
companies. Give this aspect of obtaining an attractive lease arrangement your
highest priority.
How Leasing Companies Differ
Leasing companies
can vary in a number of ways. Some specialize in specific industries, some in
lease types, some in certain equipment types, and still others in transaction
sizes. For example, some leasing companies specialize only in a single industry
like health care, printing, agriculture, or transportation. Others focus
exclusively on a lease type. They may only offer operating leases for equipment
with attractive residual values. Some lessors specialize in full-payout finance
leases. Still others focus on small ticket transactions with equipment cost
under $ 100,000. It is important to understand the specialization of the lessors
bidding on your lease transaction. To get the most attractive deal and to avoid
the run-around, stick with lessors who focus on the type of transaction you are
seeking.
Leasing companies also differ in resources and capabilities.
Many large leasing companies are owned by banks, financial companies, or other
large industrial concerns. These firms usually have abundant resources and
expertise in a number of leasing segments. Mid-size and smaller leasing
companies greatly outnumber large lessors. While these companies cannot match
the resources of their larger brethren, they often have highly skilled
professionals, sufficient resources and more flexibility to meet lessee needs.
The goal is to obtain the best leasing arrangement for your firm. By
establishing priorities for the leasing arrangement you are seeking, you will be
able to determine whether a leasing firm with sizeable resources or one that is
nimble and flexible is a better choice.
When And Where To Look
The
time to start your search for a leasing company is early in the lease-planning
phase, once you have established criteria for a leasing arrangement. Some
criteria to consider for a leasing arrangement are: pricing, monthly cash
outlay, financial statement impact, the appropriate lease type, lease term,
lease flexibility, lease facility size, and whether your equipment will be
accepted for lease. Use criteria like these and the qualities you are seeking in
a leasing company to start your lessor search.
A great starting point
for finding bidding leasing companies is through professional and personal
referrals. Check with your attorney, your accountant, bank contacts and
colleagues in your industry. Also ask friends and acquaintances who use leasing
in their businesses. Asked them for contacts at leasing companies that
specialize in your industry or that offer the type of lease you are seeking.
Call your industry association and ask whether they have names of leasing
companies serving others in your industry.
Another approach is to call a
couple of the major equipment leasing trade associations. Major association
websites include: www.elaonline.com, www.eael.org, www.uael.org, www.naelb.org,
www.aglf.org, www.mael.org, and www.nvla.org. Describe the type of equipment and
the industry you are in. Ask whether they are in a position to provide you with
a list of members to contact regarding your lease. If you receive such a list,
you may need to narrow the candidates based on further homework and the criteria
you have established.
Evaluating Leasing Companies
Qualities to
look for in any leasing company you consider include: 1) experience and
expertise; 2) reputation; 3) ability to perform; and 4) a relationship approach.
Interview prospective bidders carefully. Discuss their expertise and
experience in the leasing business. Ask about experience with the type of
transaction you are seeking, involvement with similar firms in your industry,
and the types of lease products they offer firms like yours. Discuss your
equipment needs. Find out whether they will be able to lease most of the
equipment you need. Ask whether they will finance your lease using internal
funding or whether they will broker the lease to another funding source.
Get enough information from and about bidding lessors to decide whether
to include them in the bid process. If possible, ask for financial information
from potential bidders to evaluate their financial condition. Also, if you can,
obtain a Dunn and Bradstreet report (“D&B”) for each bidder. In the D&B
report, look for lawsuits filed against the lessor, judgments, severe payment
delinquencies, poor financial performance and similar issues that might impact
performance on a new lease transaction.
Ask for and check customer,
vendor, bank and trade references for each lessor. Contact each reference and
verify key information given to you by the lessor. Ask how the lessor handles
its account and whether there have ever been any problems or issues. Ask
customer references about the lessor’s ability to perform and about
attentiveness to customer problems and concerns.
Investigate bidders
online. Check Google (www.google.com) to see whether prospective bidders appear
in any newsworthy articles. Hit the message boards and newsgroups. Look for
unresolved problems, fraud, financial problems, success stories, and awards.
Visit bidders’ websites to get as much information as possible before extending
an invitation to bid. You may be able to screen out undesirables.
Lastly,
make sure prospective bidders belong to one or more industry trade association.
While membership alone does not speak for the integrity or expertise of members,
most of the associations set standards of conduct for their members.
A
Word About Lease Brokers
Lease brokers serve roles similar to insurance
brokers. They profit by placing lease transactions with the ultimate financing
sources for those transactions. You should decide whether a lease broker would
serve you better than seeking direct bids from lessors. Lease brokers can be
useful in finding sources for difficult transactions, due to weak credit or
unattractive equipment. They also can be useful in placing transactions that are
highly specialized. Only work with lease brokers who have high integrity, who
have a good understanding of leasing, and who understand the market you are in.
The entry bar for becoming a lease broker is relatively low and not all
brokers are well trained or reputable. Check the broker’s references and
capabilities thoroughly. Check to see whether the broker belongs to the national
trade association for lease brokers, NAELB (www.naelb.org) or to one of the
other major equipment leasing associations. Use the same guidelines for
evaluating brokers as outlined above for leasing companies.
Parting Words
Of Caution
Avoid high-pressure lease sellers. Whether they are brokers or
leasing company representatives, the odds of you being misled or disappointed
with the outcome are very high. Only work with lease representatives or brokers
who have a good understanding of leasing and who are sensitive to your needs. To
do otherwise might result in delays or disappointment.
Avoid giving lease
deposits or advance rentals to brokers. Brokers do not provide the financing
directly and, in possession of your money, represent a potential credit
risk.
If the lease broker or leasing representative says anything that
constitutes a significant misrepresentation, walk away. Chances are the first
such misrepresentation won’t be the last. There are too many knowledgeable
leasing professionals with high integrity. Avoid spending time with those who
are unprofessional.
Lastly, make sure you get at least three or four
lease bids from qualified lessors, if you can. At the end of the day, lease
pricing is market driven. Getting several bids will help ensure that you get
competitive pricing and terms.
Choosing the right leasing company is
worth the effort. By taking a few easy steps during the planning and bidding
phases of the lease procurement process, you can eliminate or greatly reduce
time wasted with unqualified lessors. You can also avoid getting the run-around.
Allow enough time to carefully check out all bidders. Be partial to lessors with
high integrity, great reputations for performance, good expertise and who
communicate well with you. You will invest a little time upfront, but you will
thank yourself later.
About the Author
George Parker is a Director and Executive Vice President of
Leasing Technologies International, Inc. (“LTI”). Headquartered in Wilton, CT,
LTI is a leasing firm specializing nationally in equipment financing programs
for emerging growth and later-stage, venture capital backed companies. More
information about LTI is available at: www.ltileasing.com .