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.
Source: http://www.isnare.com
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