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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. |