This article is going to discuss what is equipment leasing/financing, what are its benefits, leasing plans and how it relates to the start up and seasoned business.
Leasing is a form of renting but with a buyout clause at the end of the lease to take title to whatever we are leasing. The requirements to get into the lease may be as low as first and last payment and as much as 25%. Each situation is different and this offers the start up and seasoned business a way to invest very little monies into the business. Additionally, all other monies can be used for operating expenses such as marketing and other key areas. Leasing is not a new form of financing but could be a lending solution to the start up business. The small sample of type of industries that leasing can be used for are the following:
Dump,garbage, tow, flatbed, water trucks, over the road trucks and day cabs, heavy and construction equipment such as bulldozers, tractors, excavators, skid steer loaders, backhoes, flatbed, drop deck, refrigerated, dry van trailers, and industries which include limousines, limousine and shuttle buses, and
machinery and production equipment.
The benefits of leasing may result in off-balance sheet financing reporting, tax incentives and conserving cash flow and preserving lines of credit for working capital purposes. Many leasing requirements may only require the initial outlay of first and last rental payment. Most leases finance 100% of the cost of the equipment such as soft costs which include shipping, software, training and installation. Additionally, leasing lets you regularly upgrade your equipment, eliminating your utilization of old, outdated equipment and reducing repair options.
Some of the leasing plans available to the lessee are $1.00, 10% or 20% purchase options as well as Trac Leases and FMV lease buyouts. Additionally, some lenders offer seasonal payments, deferred payments for ninety days, declining payments and half payments for a specified time period. It is important that the lessee understands all these different lease plans available as well as the buyout clauses.
The lessee has many options to consider in negotiating his lease. He must understand each lender’s requirements and see if it fits within the realm of the lessee’s requirements. Some lenders will accept the start up business whereas others will not want to lend to this group. They consider that their risk capital can be invested in other types of portfolios that can be better served. Many lenders require full documentation which includes a couple of years of personal income tax returns, a personal financial statement, and other underwriters requirements. However, in the past couple of years, there is a select group of lenders out there require an application only program. These lenders have their own computer scoring model and eliminate the necessary additional paperwork of other lenders. These application only programs are usually restricted to the seasoned business, however there are a few out in the industry which will work with the start up business as well. The amounts of the application only program run as high as $250,000 for the seasoned business and $100,000 for the start up. Additionally, the lender will lease the qualified asset probably from 36-60 months and many won’t finance any equipment and commercial vehicles over ten years old.
It is important to understand the lease terms, the rate factor the lender is charging and the buyout clauses in the lease to take title. If you anticipate paying off the lease early, you should consult your lender to ascertain there is no prepayments for a early payoff. The last thing to understand that the lessee is going to guarantee the lease.
The last point to consider whether you are a start up and/of seasoned business due to economic conditions, there are some unusual specials available for off leases and repos. The lender has excess inventory on their books that they need to liquidated or re-leased as quick as possible. The minimum credit score for the applicant can be as low as 575 and prior bankruptcies may not be an issue in the credit decision.
Either way, spend your proper time investigating the item you are looking for to acquire, get the best price that you can obtain and secure proper financing.