10 Leasing Tips Every New Business and Startup Should Know 3

10 Leasing Tips Every New Business and Startup Should Know

By Michael Lockwood, President of TEQlease Capital

While startups and new businesses may already realize the many benefits of leasing their equipment, including conserving their cash and significant tax benefits, they also need to carefully research their equipment financing needs before signing the dotted line. Startups and new businesses should consider the following tips to make sure that they don’t make any costly mistakes.

  1. Understand your business credit and organize your financial information before contacting an equipment lease financing provider.
  2. Don’t assume your bank or the equipment manufacturer’s captive finance company will offer the best terms. The majority of equipment leases are done by equipment lease providers. Always compare rates, lease terms, fees and options.
  3. Do due diligence on your proposed financing provider. Once you have a short list of providers make sure to check them out thoroughly. Go to Google and run a search on them. Also run a search on social media sites like Twitter. Work only with established financial solution providers.
  4. Don’t pay upfront “application” fees to an equipment financing provider.
  5. Be prepared to explain in advance any negative business results to a lease financing provider. For example, if you had a business loss in 2010 explain why.
  6. Do the math and determine whether the Section 179 deduction and bonus depreciation will benefit your business or not. Section 179 allows businesses to deduct the cost of qualifying businesses equipment placed in service in 2012 up to $125,000. In 2013, the deduction will drop significantly to just $25,000 unless Congress acts.
  7. Understand the difference between a Fair Market Value Lease and a $1 Purchase Option Lease. A Fair Market Value (FMV) Lease is one of the most common leases that businesses select because it offers the lowest monthly payments, provides the greatest flexibility at the end of the lease, and may also provide tax incentives. A FMV lease is often used for acquiring technology equipment.On the other hand, a $1 Purchase Option Lease gives businesses the ability to “purchase” equipment for a $1 at the end of a leasing period. The monthly payments are higher than a FMV lease. In addition, you may also have additional financial benefits including depreciation and interest expense benefits for tax purposes.
  8. Describe to the equipment lease financing provider how the equipment acquisition will benefit your business. Provide a projection of cost savings or incremental realizable margins.
  9. Consider bundling multiple equipment acquisitions from different vendors under one lease with an independent commercial equipment lessor. Rates tend to be higher for smaller transactions. Bundling equipment acquisitions generally results in lower rates, and also minimizes processing fees.
  10. Ask your equipment vendor for payment terms so you can defer a portion of the equipment cost, and coordinate deposits, progress payments, and performance retention payments.

 

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  • http://www.lancastermanufacturing.com Tony Carey

    Michael:

    Thanks for distilling what can be a tough thing to talk about into something a lot simpler. As an equipment seller (in the restaurant business) we do not and do not want to offer leasing but work with several companies to arrange leases on our equipment.

    Do you have a few simple tips that we as manufacturers can follow to make our equipment more favorable for leasing and just as importantly make the process smoother for our customers?

    Thanks

    Tony Carey

    • http://teqlease.com/ Michael Lockwood

      Tony,

      Thanks for asking for this clarification. We work with a lot of equipment vendors that are similar to your firm, and they have the same dilemma. On the one hand, equipment leasing for equipment vendors is very important: more than one third of capital equipment purchases are leased by the purchaser, according to the Equipment Lease and Finance Association; and also, leasing is important for customers who want to purchase the equipment but hesitate to use cash reserves, especially in this economy. But leasing is perceived as a difficult process for equipment vendors and purchasers because it adds a level of complexity to the sale. Customers come in all shapes and sizes (from a creditworthiness perspective). Many customers have had a few bad recent years because of the recession, and banks won’t lend to them.

      Here is what I suggest to make the process smoother:
      - Identify as early in the process as possible whether the customer is going to need lease financing to complete the sale, or if the customer wants a leasing option
      - Ask the customer to organize its financial records and be ready to promptly go through the credit approval process
      - Make sure the equipment leasing companies you use are experienced and competent
      - Demand prompt turn around for credit decisions, but realize the leasing company can’t make a decision until it has received the customers full credit information package

      There isn’t much you can do to make your equipment more favorable for leasing. Lessors and lenders either will lease it or not – for example, restaurant equipment isn’t that well regarded right now because of how tough it is to start or expand a restaurant in this economy. However, a lessor or lender’s biggest fear is to have to sell the equipment because the lease payments aren’t made. You can offer a remarketing arrangement for any returned equipment – who better to sell used equipment than the equipment manufacturer or vendor?

      I hope this helps and gives you some ideas. Equipment leasing can truly boost your sales if it is used well.
      Mike

  • http://ayrshireseocompany.co.uk business consultant uk

    It’s hard to find well-informed people about this subject, however, you seem like you know what you’re talking about! Thanks

About the Author Mike Lockwood is President of TEQlease Capital, a nationwide provider of equipment lease financing solutions. He is also Managing Partner and founder of TEQlease Capital Partners, a Los Angeles, California-based equipment lease finance investment firm. Mike has over 25 years of structured finance, asset-based finance and leasing experience, including equipment lease portfolio acquisitions and equipment… Read more »

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