While leasing is certainly not for every business or municipal/governmental entity, it’s worth noting that all of the Fortune 500 lease a portion of their equipment or software and according to the SBA, more than 80% of other business lease at least some of their gear. On the whole, 33% of all equipment is acquired via lease.
One can conclude from these figures that leases not solely for those businesses that are “cash poor.” When one thinks about it, one of the biggest benefits of leasing is that it does preserve cash for other unexpected and more promising uses.
If you are an equipment or software vendor selling to businesses, you are almost certainly leaving profits on the table if you are not offering your clients a lease plan. If you don’t offer a lease program, your competition surely will!
Review some of the other reasons that leasing can be a valuable resource for purchases of equipment or software by for-profit firms:
Why is leasing such a bright idea anyway?
- Faster financing approvals = Faster closings. Many leases can be approved with just our one page application. No further financial information need be given. (Applications up to 75K+)
- Some or all of the payments may be written off as operating expenses. (Please consult your tax professional on the amount and how this would apply.)
- No additional collateral.
- Easier budgeting; the lease has a set term & fixed payments that all parties agree to and will remain the same for the life of the lease.
- Simple Documentation.
- Equipment doesn’t show up as property on the balance sheet. (You don’t own it until the end)
- Our leases are non-callable by us; bank loans can frequently be called at any time.
- Fixed payments for the life of the lease. Rates will not change for the lease term.
- Maintenance of a compensating balance is not required.
- No covenants restricting further borrowing are required.
- Leasing protects bank lines of credit.
- Frees up working capital for higher and better uses.
- Protects against obsolescence.
- Many banks may want a 20-30% downpayment. With leasing, you can finance 100% including soft costs such as travel and training expenses.
- With a bank loan you can only expense depreciation and interest. With a lease, you may be able to expense 100% of the payment.
- Many banks will not finance soft costs. You can include soft costs in a lease.
- Profits are derived from the use, not ownership of capital equipment.
- Eliminates the need for large, up-front cash outlays.
- Private Label leasing may be available to municipal suppliers who can meet volume requirements. Ask your LeaseSource representative for more information.
- Allows customers to eliminate the financial and operational challenge of keeping worn-out or obsolete equipment in service.
- Provides customers a quick, professional & cost effective choice in their financing options.
- Allows for greater budget flexibility because these plans can be tailored to fit the cash flow requirements of each individual customer.
- Provides for immediate use of the equipment with fixed, manageable payments.
- Eliminates the need for voter approval (municipal entities only and in most states).
- Enables state and local governments to take advantage of low interest rates available to qualified political subdivisions.
- Allows a customer to purchase equipment at today’s prices, not next year’s increase.
- Maximizes limited budget funds, as only the current years lease payments are included in the operating budget (municipal entities only).
- Our non-appropriation clause* allows governmental entities to be released from the lease obligation on an annual basis if funds are not budgeted.
- Frees up additional capital for other pressing needs.
- Major or more complex projects can be accommodated when we fund into escrow. This is very helpful when the installation will be over time to one or more vendors. When we fund into the escrow, then the municipal or other governmental client can authorize disbursements over time as they see fit to either pay a single vendor as they complete stages of their required work or pay multiple vendors as they deliver their portion of the overall project.
Do you also lease to non-profit organizations?
Yes! We do finance for these entities, also known as 501(c)3 organizations, named for the IRS code that governs them.
In the past we have financed equipment and software for religious institutions, private schools, charitable organizations, hospitals and trade associations. Please click here for our non-profit lease application. Have a transaction you wish to discuss? Contact us with no obligation, to review your options.
As a supplier, I don’t want to ask my client for a deposit before I order his gear. How can LeaseSource help me with this?
Excellent question. Qualified suppliers can get between 50%-90% prefunding. This means that we’ll advance money to you on behalf of your client. The final disbursement of funds will be made once the client gives us the verbal OK, typically once the gear is installed and goes “live.”
OK – I’m convinced that Leasing is the way to go. Why should I use LeaseSource?
- Breadth of experience – we’ve been leasing equipment and software since 1989.
- Ability to handle virtually all types of credit: A – D. Start-ups can be accommodated as well.
- We offer our suppliers a rental program that allows them to control the residual, building a prodigious cash machine!
- Flexibility of lease plans; 90 day deferred, step plans and others. Naturally those with better credit have more choices.
- Marketing Assistance for Suppliers: Our innovative Links to Leads Program could help you make more money.
- Why let your customers select the company who will pay you? Will they check the leasing company’s credit to be sure they are legitimate? We are listed in Dun & Bradstreet.
- Exercise better control over financing proposals. Know the status of your pending applications.
- Credit consistency & uniform programs; helps supplier salespeople discuss financing intelligently with prospects.
- Consistent turnaround and funding times. Know when to expect payment.
- Know what is being said to your customers in lease closing situations.
- Suppliers can select from programs that are customized for their industry.
- Loyalty breeds mutual trust.
- Increased volume allows for special lease programs.
- We handle all paperwork, freeing supplier salespeople to sell.
- Cash loans are also available
- We finance used gear with few restrictions as to the age of the equipment.
- We will lease to sole proprietorships, not just corporations and LLCs/LLPs
- We will lease where the supplier is Canadian.
- No rate increases for shorter lease terms (less than 36 months).
Lease: A contract in which one party conveys the use of an asset to another party for a specific period of time at a predetermined rate.
Residual: The value of an asset at the conclusion of a lease. Depending on the agreement, the actual residual value can be determined at either the beginning or end of the lease.
Sale-Leaseback: A sale-leaseback constitutes an arrangement where the seller of an asset leases back the same asset from the purchaser.
Essentially, the seller of the asset becomes the lessee (“borrower”) and the purchaser becomes the lessor (“lender”) in this arrangement.
The lease arrangement can be made immediately after the sale of the asset or at a later date, with the amount of the payments and the time period specified. If the underlying collateral is “soft,” such as computers, office furnishings or telecommunications gear, it’s best that the sale-leaseback take place shortly after the purchase. Hard assets, usually those with an established secondary market (machine tools, agricultural equipment, & vehicles for example), can be leased back years later.
A leaseback arrangement is useful when companies need to untie the cash invested in an asset for other investments, but the asset is still needed in order to operate. Leaseback transactions can also provide the seller with additional tax deductions. The lessor benefits in that they will receive stable payments for a specified period of time.
Municipal/Governmental Lease: A specialized, tax-advantaged type of financing that allows government entities to acquire almost any kind of new or used, essential-use equipment, real estate, hardware, vehicles or software. From energy management to fire apparatus, police cars to modular classrooms and everything in between. These are lease-to-own programs with no residual and no end-of-lease buyout. Title passes at delivery, not at lease end. It’s all about maximizing the buying power of the budget dollars you have now, for what you need today and tomorrow. This can be done without the cost and hassle of bonds! Because of the tax treatment of the proceeds, we are able to offer rates as low as the low single digits. (See also: non-appropriation clause.)
*Non-Appropriation Clause: A non-appropriation, or “funding out” clause enables the public sector lessee to terminate the lease agreement at the end of the current appropriation period without further obligation or penalty. This can be done only in cases where the lessee is unable to obtain funding for future payment obligations on the lease. We include this provision in all our municipal leases, where allowed by law.
Cross Corporate Guaranty: A guarantee by one corporation to pay the lease obligations of another corporation.
Dollar Buyout: Assuming that the lessee is not in default, an option at the end of the lease to buy the leased property for $1.00. Sometimes this is also known as a “bargain purchase option.” Most governmental leases fall into this category.
Fair Market Value Purchase Option: An option to purchase leased property at the end of the lease term at its then fair market value. The lessor does not have the ability to retain title to the equipment if the lessee chooses to exercise the purchase option.
Security Deposit: An amount of money paid by the lessee at the initiation of a lease. However, the deposit does not reduce the number of payments left on the lease. Assuming there is no default under the lease, the deposit is usually returned to the lessee at the end of the lease or applied towards the purchase of the equipment.
Use Tax: Many states charge a “use” tax in lieu of a sales tax when equipment is leased. So instead of paying a sales tax for purchase of the leased equipment, taxes are collected by the lessor as a percentage of the rentals over the lease term. Currently only 2 states, New Hampshire and Oregon, exempt all commercial leases from use tax. Other states may have selective exemptions such as for software that is downloaded instead of provided on disc. For more information ask your LeaseSource representative.
***The fine Print: All programs are subject to change without notice and are of course subject to acceptable suppliers, collateral and the underlying credit of the applicant.