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Credit History of Guarantor(s) - Lessors will make decisions based on a lessee's credit history after reviewing their consumer and/or business credit report. The leasing company looks for numerous late or delinquent credit commitments, lawsuits or judgments, bankruptcy, unverified residence, short credit history, and debt larger than what is stated on application. Keep in mind, however, that some of above problems can still be overcome during approval process.
Bank Relationship - Your business should have a checking account that has been established for at least two years and has had an adequate average daily balance for that period of time. If there have been any NSF's, they must not be recent.
Trade Relationships - It's a strong indicator that your business has good cash flow if discounts are offered (e.g., 2% 10 days: net 30 days). The leasing company looks for trade accounts that are paid on time and within terms of agreement.
Financial Statements - Generally, if lease amount is more than $50,000 to $75,000, a full financial package is mandatory. This includes, but is not necessarily limited to, last two year end financial statements, with a complete balance sheet and profit and loss statement. An interim statement for current and last year's comparative period is often required as well if year-end financials are over six months old.
Other considerations include: type and cost comparisons of equipment (collateral), extent of lessee's trade credit and bank borrowing lines, and leasing history of business.
Though it isn't crucial to have every one of afore mentioned points strong, an above average ranking in majority of them greatly increases probability of funding. It also increases your likelihood of receiving a better rate. If your business demonstrates strength in only one or two of these areas, it is still possible to secure financing, though choice of lessors becomes a bit more limited and elevated risk is reflected by a higher lease rate.
It's always in a company's best interest for decision-makers to consider leasing as a means of capital conservation. And as you can see, it's also important to prepare for transaction should decision be made to pursue it. Once you do obtain your lease, chances are you will never go back solely to your old way of equipment financing. The majority of businesses that utilize equipment leasing each year in United States and Canada continue to do so with at least some of their equipment thereafter. Contacting a leasing company representative or a broker can help you determine if leasing can create an environment of improved cash flow and an opportunity for growth in your business.
Mark Uptain is a Business Finance Consultant residing in Washington State. His website, www.EquipmentLeasingSource.com offers free equipment leasing information and quotes to businesses throughout the United States and Canada.