Facts About Leasing or Financing Equipment
As this unregulated industry continues to grow, the commercial sectors of both
customers and providers of this financial service become more and more fragmented
and diverse. Chances are that business owners or company decision-makers in small,
medium or large organizations, will at some point become directly or indirectly involved
in this process.
Lease financing of all equipment types from bulldozers to computers is available to
companies and businesses of all sizes. Credit worthiness is the determining factor in
being able to obtain financing such as this and it must be of such a level as to support
the amount of the equipment being financed. The ability and desire to repay the amount
borrowed must be clearly demonstrated as part of the due diligence conducted by the
funding source or bank. Simply put, they evaluate the “four C’s” of a customer’s credit:
As this unregulated industry continues to grow, the commercial sectors of both
customers and providers of this financial service become more and more fragmented
and diverse. Chances are that business owners or company decision-makers in small,
medium or large organizations, will at some point become directly or indirectly involved
in this process.
Lease financing of all equipment types from bulldozers to computers is available to
companies and businesses of all sizes. Credit worthiness is the determining factor in
being able to obtain financing such as this and it must be of such a level as to support
the amount of the equipment being financed. The ability and desire to repay the amount
borrowed must be clearly demonstrated as part of the due diligence conducted by the
funding source or bank. Simply put, they evaluate the “four C’s” of a customer’s credit:
 | character | |
| cash flow | |
| capital | |
| collateral. | |
Equipment Lease Financing v. Traditional Financing Methods
The equipment lease financing product is sold by a variety of different companies, from large
institutional lenders such as GE and Citibank to small, independent leasing companies or
brokers. The popularity of leasing has grown because of several key benefits it offers versus
traditional financing methods.
The equipment lease financing product is sold by a variety of different companies, from large
institutional lenders such as GE and Citibank to small, independent leasing companies or
brokers. The popularity of leasing has grown because of several key benefits it offers versus
traditional financing methods.
- In contrast to traditional bank equipment financing, leasing usually provides for 100%
of the cost of the equipment, sometimes including “soft costs” such as software,
installation, training and shipping costs in addition to cost of the equipment itself.
- Secondly, it preserves the existing credit facilities that a company may need to
operate their business for purposes other than acquiring equipment.
- Thirdly, a leasing company will typically only encumber the specific equipment
being leased. This is done by filing a UCC I document as part of the transaction. A
bank will often use a “blanket filing” on all assets of the company to enhance their
security position in the transaction ( more on this later ).
SEVEN TRAPS TO AVOID WHEN LEASING OR FINANCING EQUIPMENT
As an intangible product or service, there are a number of variables that can influence the
actual “effective cost” of an equipment leasing transaction ., not to be confused with term(s)
“rate” or “interest rate.” Most of these variables are embodied and are part of the related
lease documentation signed by the customer. Since a leasing transaction is a non-
cancelable contractual arrangement, it is truly incumbent upon the customer or buyer to
conduct their due diligence in advance of acknowledgment of the documents.
Once the documents are signed it is too late to change anything about the transaction and
the most leasing companies are not known for their flexibility or generosity in this regard
unless it suits their purposes. Here are “Seven Traps” commonly found as part of the
documentation: SEVEN TRAPS
As an intangible product or service, there are a number of variables that can influence the
actual “effective cost” of an equipment leasing transaction ., not to be confused with term(s)
“rate” or “interest rate.” Most of these variables are embodied and are part of the related
lease documentation signed by the customer. Since a leasing transaction is a non-
cancelable contractual arrangement, it is truly incumbent upon the customer or buyer to
conduct their due diligence in advance of acknowledgment of the documents.
Once the documents are signed it is too late to change anything about the transaction and
the most leasing companies are not known for their flexibility or generosity in this regard
unless it suits their purposes. Here are “Seven Traps” commonly found as part of the
documentation: SEVEN TRAPS
LeasingSecretsInsider.com
Beware! The Hidden Costs of Equipment Leasing
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Equipment leasing continues to be the most widely used method of asset-based financing for companies and businesses of all sizes in the United States. |
| The Equipment Leasing and Finance Foundation, a non-profit organization dedicated to enhancing recognition of the industry, estimated that approximately 300 billion dollars worth of new equipment investment made by companies and businesses, was leased in 2007. |
| © 2007 Equipment Funding Resources |