Every year, … of business owners and … managers are faced with the task of … … … for … their firms want to acquire. Snaring the best leasing …
Every year,Guest Posting thousands of business owners and financial managers are faced with the task of obtaining attractive financing for equipment their firms want to acquire. Snaring the best leasing arrangement requires only a bit of planning and a smidgeon of finesse. You can save time, land a better lease deal and make the leasing experience less of a conundrum by considering several important factors.
Before seeking lease proposals, invest a little time in planning and preparing. Establish priorities by considering the relative importance of such factors as lease pricing, balance sheet considerations, ongoing leasing needs and the necessity of the prospective lessor to have specialized equipment/industry knowledge. If the transaction is relatively insignificant in the overall scheme of things, a truncated planning process might be in order. If not, allow enough time to: 1) identify and pre-qualify lessors, 2) review and select a lease proposal, 3) allow selected lessor to conduct due diligence and get credit approval, and 4) to complete lease documentation.
Assemble an information package for prospective lessors that anticipates what they will want to know before submitting a proposal, including: 1) background information on your company and management bios, 2) three years of financial statements and interim financials, 3) a list of company trade and credit references, and 4) a description of the equipment to be acquired, including acquisition cost. Anticipate questions about your firm and disclose them in advance.
Choose the Right Leasing Company
The starting point for getting an attractive leasing proposal is in choosing the right leasing companies to bid. All leasing companies are not alike. Some specialize in specific industries, some in certain equipment types, and still others in transaction sizes. Leasing companies also vary in size, capabilities, expertise and integrity. Do your homework to pre-qualify leasing companies that will bid. Lessor qualities to look for include: 1) knowledge; 2) reputation; 3) ability to perform; 4) helpful business contacts; and 5) a relationship approach. Try to identify at least three leasing companies to bid.
As in any field, leasing professionals have varying degrees of knowledge and expertise. Look for leasing representatives and managements that have a good understanding of lease structuring, equipment issues, documentation, credit evaluation, the capabilities of their firms, your industry and other leasing issues. Avoid lease ‘sellers’ with obvious limited knowledge. It is too easy to be led down the painful path of misinformation and misrepresentation.
Because the entry bar for setting up shop in equipment leasing is relatively low, it is important to locate leasing companies that have good reputations in the business. Check to see whether the bidding leasing companies belong to one or more of the major industry trade associations (e.g. ELA, EAEL, UAEL, and NAELB). While membership in these associations doesn’t guarantee high ethical standards, each of these organizations has standards and processes to review members’ unethical business practices. Contact relevant associations for references. Then, get several names of customers, banks and vendors to contact.
Along with good ethics, the ability to perform as agreed is equally important in considering leasing partners. Ask for and get financial information, background information on the key managers, a listing of recently completed financings, names and contacts at key funding sources for each leasing company being considered. Review this information and follow up with the contacts provided. If your industry and/or the equipment to be leased are highly specialized, make sure the leasing companies have completed several arrangements similar to the one you are seeking. Check lessors’ websites and brochures to make sure that the type of leasing arrangement you are seeking is specifically referenced and discussed.
Good leasing partners offer more than equipment financing. In many cases, lessors have met or worked closely with bankers, attorneys, CPA firms, business insurers, equipment vendors and investors. If the leasing company serves a wide variety of customers, some of these contacts can prove invaluable. Try to get a feel for the depth and breadth of each leasing company’s ability in this area.
Since you will be working closely with the selected leasing company and may have additional leasing needs in the future, why not choose a leasing partner that values relationships? Although it is not easy to identify relationship-oriented leasing companies at the quoting stage, check customer references to inquire about lessor follow-up, attentiveness, willingness to learn about customers and willingness to be helpful.
Get a Large Enough Lease Facility
Right-sizing the leasing facility can save a lot of time. Look for an arrangement that will cover equipment needs for at least the next six to twelve months. A helpful rule of thumb is to obtain a leasing facility that is at least 20% more than what is needed. If a leasing credit line is an available option, this can be a helpful tool in securing the right amount of lease financing.
Choose a Lease Term That Matches Equipment Use
The term of the lease should match the expected use of the equipment as closely as possible. If the term is too short, the monthly cash outlays for the equipment might exceed the expected benefits to be derived from the equipment (cost savings or revenue production). If you sign a lease that is too short that also includes fair market value end-of-lease options, and you exercise one of these options, you might wind up overpaying for the equipment. If the lease term is too long, you might lose the flexibility of upgrading to newer more desirable equipment. More than a few lessees have been stuck with equipment they no longer need, yet they still have a significant lease balance remaining.
Notwithstanding your preference, a shorter lease term returns the lessor’s investment in the equipment faster and lessors generally perceive a faster recovery to be a credit enhancement. You might be able to manage any mismatch between your preference and the lessor’s by obtaining favorable end-of-lease options. Seek end-of-lease options that include: 1) the right to return the equipment to the lessor; 2) favorable renewal options; and 3) favorable purchase options. Seek ways to limit what you are charged by requesting fair market value options that are “capped” (have upper limits) or favorable fixed options.