Financing options encourage customers to commit to larger purchases on average, providing equipment vendors an advantage over their competition. To increase your business, you may consider adding leasing as an option for your customers, or modifying your current leasing program to better serve your customers. As you consider your options, keep in mind that not all leasing partners are the same and you need to find a partner which will be best for and your customer. The following pointers will assist you in making the right choice for your business.
Tip #1: Prepare to Compare
When choosing the leasing company, it is important to understand the unique needs of your business. Leasing may not work well for you if your product offerings do not meet the following criteria:
Product Offering Suitability
Equipment value is below $5,000 in value Equipment under $5,000 is not enticing for a company to facilitate because these amounts are typically paid with credit card or net accounts.
Equipment value is below $100,000 If your products are below $100,000, most companies are not going to require financial statements. They will generally use a credit scoring program to render approval.
Above $100,000 in equipment cost:
Typically most leasing companies will want to review financials statements in order to approve a customer when the equipment cost is over a $100,000.. In general they would like to review 2 years financial statements.
Expected contract length based on useful life of equipment A leasing program may not prove viable if it requires a contract length that exceeds the life of the equipment. For example, it would not make sense to finance a laptop computer for 7 years, but it might make sense to finance a large printing press for that long of a term.
As a vendor, it is important to package your offerings to a specific time period, because it creates another opportunity to upgrade the customer at the end of the lease term.
Tip #2: Know the Players
There are 3 main players in the equipment leasing industry: brokers, independent leasing companies, and financial institutions. All three funding source alternatives provide excellent opportunities for financing the lease of equipment.
Broker – Brokers are financial intermediaries that work with multiple funding sources.
The advantage for your customer is a broker will have a large array of financing options for your customers. They will most likely have the ability to finance your customers due to the fact they work with a few funding sources who have contacts. The disadvantage of working with an equipment leasing broker is once the lease is funded with the broker, they are out of the picture in terms of any decisions involving that lease going forward.
Independent Leasing Company – Independent companies get their funds from bank lines and/or investors.
An independent leasing company usually will bill or collect the rental payments and will have control of the decision process for their customers, as well as any subtle changes to the documentation if needed. In addition, will also allow you to create a more customized program for your customers.
Financial Institution Financial Institutions are the big boys in the equipment leasing space such as Wells Fargo, US Bancorp, and GE Capital.
These institutions are going to have specific programs available. However, they will be more rigid in most cases on their lending requirements: If you and your customers fit within their parameters, this is an excellent option. The downside is that big institutions can make quick changes, especially in the current market. You could be out a leasing partner overnight if they decide they no longer want to finance your specific equipment. Most larger banks and institutions are going to have a more rigid policy for credit and documentation.
As you and your company grow, you might find that a broker is the best option forever based on your requirements. Perhaps a financial institution may work best as your company grows. Consider each of these contributors to make sure you’ve maximized the service you can provide your customer and your own business advantage.
Tip #3: Know What Is Required of You and Your Customers
Most leasing companies will allow you to include services outside of the equipment cost such as warranties, installation, and training. A majority of leasing companies will want to keep these costs under 20% of the total cost of the lease of equipment. Some leasing companies will go as high as 50%. It’s a wise business choice to discuss the options with your potential partner upfront so they understand your business.
Pre-funding is the ability for the vendor to advance funds on the contract as soon as the contract is sent back to the leasing company. Some companies will advance 50% and some as high as 100%. Let your leasing company know your specific cash flow needs, along with your desired delivery time. A leasing company might not want to advance funds if it takes 6 months for your product to deliver and install, but if you have a shorter window, like 2 weeks, they should be willing to advance you funds.
Leasing companies can also use a residual to help lower your customers’ payments and give them the ability to return the equipment at the end of the lease, or purchase if they like. The purchase option is an excellent way to create a selling opportunity for you at the end of the lease. Some companies will also allow the vendor to re-purchase the equipment from the leasing company.
Tip #4: Staying Safe & Smart
– Ease of Contract
Ask to see a copy of the contract the leasing company uses for funding. Make sure that you understand the terms and the options for your customers. If you are well informed with the leasing contract, the smoother the process will be to get the equipment you need for your company to excel. It is also important to understand the implications of the contract, such as notification policy for residual payment and purchase options. Most companies have easy to understand lease contracts, but be aware that some have hidden conditions.
– Get References
Ask the leasing company you’re working with for references. Compare other leasing companies to find similar dollar amounts and annual sales amounts so that you can find the leading leasing company that complies with your business.
– Check for Qualifications
Whichever you choose, make sure they are members of at least one of the leasing associates such as NAELB, UAEL, EAUL, or ELFA.
– Don’t Let Your Customers Go it Alone
At a minimum, you should have a leasing company to refer your customers to if you don’t have an established relationship. Any effort you make now to create a relationship will pay off in big dividends. Having financing options shows your customer that you care about their needs.
The world of equipment leasing does not have to be intimidating or a black box process. By taking a few minutes to talk to leasing partners, you will see the process is very easy. Like any relationship, especially in business, it is important to make sure you know what you need and what you want.
By knowing this, you can provide your laundry list and see if the leasing company can accommodate you or at least meet you halfway. It has been demonstrated over the years that companies that offer leasing sell more equipment. Equipment purchasing and leasing go hand-in-hand because it’s all about cash flow, and the relationship between your customer, your company, and the equipment leasing company of your choice.