Insider’s Guide to Snaring the Best Lease Deal

Written by George A. Parker


Every year, thousands of business owners and financial managers are faced withrepparttar task of obtaining attractive financing for equipment their firms want to acquire. Snaringrepparttar 112199 best leasing arrangement requires only a bit of planning and a smidgeon of finesse. You can save time, land a better lease deal and makerepparttar 112200 leasing experience less of a conundrum by considering several important factors.

Plan Ahead

Before seeking lease proposals, invest a little time in planning and preparing. Establish priorities by consideringrepparttar 112201 relative importance of such factors as lease pricing, balance sheet considerations, ongoing leasing needs andrepparttar 112202 necessity ofrepparttar 112203 prospective lessor to have specialized equipment/industry knowledge. Ifrepparttar 112204 transaction is relatively insignificant inrepparttar 112205 overall scheme of things, a truncated planning process might be in order. If not, allow enough time to: 1) identify and pre-qualify lessors, 2) review and select a lease proposal, 3) allow selected lessor to conduct due diligence and get credit approval, and 4) to complete lease documentation.

Assemble an information package for prospective lessors that anticipates what they will want to know before submitting a proposal, including: 1) background information on your company and management bios, 2) three years of financial statements and interim financials, 3) a list of company trade and credit references, and 4) a description ofrepparttar 112206 equipment to be acquired, including acquisition cost. Anticipate questions about your firm and disclose them in advance.

Chooserepparttar 112207 Right Leasing Company

The starting point for getting an attractive leasing proposal is in choosingrepparttar 112208 right leasing companies to bid. All leasing companies are not alike. Some specialize in specific industries, some in certain equipment types, and still others in transaction sizes. Leasing companies also vary in size, capabilities, expertise and integrity. Do your homework to pre-qualify leasing companies that will bid. Lessor qualities to look for include: 1) knowledge; 2) reputation; 3) ability to perform; 4) helpful business contacts; and 5) a relationship approach. Try to identify at least three leasing companies to bid.

As in any field, leasing professionals have varying degrees of knowledge and expertise. Look for leasing representatives and managements that have a good understanding of lease structuring, equipment issues, documentation, credit evaluation,repparttar 112209 capabilities of their firms, your industry and other leasing issues. Avoid lease ‘sellers’ with obvious limited knowledge. It is too easy to be led downrepparttar 112210 painful path of misinformation and misrepresentation.

Becauserepparttar 112211 entry bar for setting up shop in equipment leasing is relatively low, it is important to locate leasing companies that have good reputations inrepparttar 112212 business. Check to see whetherrepparttar 112213 bidding leasing companies belong to one or more ofrepparttar 112214 major industry trade associations (e.g. ELA, EAEL, UAEL, and NAELB). While membership in these associations doesn’t guarantee high ethical standards, each of these organizations has standards and processes to review members’ unethical business practices. Contact relevant associations for references. Then, get several names of customers, banks and vendors to contact.

Along with good ethics,repparttar 112215 ability to perform as agreed is equally important in considering leasing partners. Ask for and get financial information, background information onrepparttar 112216 key managers, a listing of recently completed financings, names and contacts at key funding sources for each leasing company being considered. Review this information and follow up withrepparttar 112217 contacts provided. If your industry and/orrepparttar 112218 equipment to be leased are highly specialized, make surerepparttar 112219 leasing companies have completed several arrangements similar torepparttar 112220 one you are seeking. Check lessors’ websites and brochures to make sure thatrepparttar 112221 type of leasing arrangement you are seeking is specifically referenced and discussed.

Good leasing partners offer more than equipment financing. In many cases, lessors have met or worked closely with bankers, attorneys, CPA firms, business insurers, equipment vendors and investors. Ifrepparttar 112222 leasing company serves a wide variety of customers, some of these contacts can prove invaluable. Try to get a feel forrepparttar 112223 depth and breadth of each leasing company’s ability in this area.

Since you will be working closely withrepparttar 112224 selected leasing company and may have additional leasing needs inrepparttar 112225 future, why not choose a leasing partner that values relationships? Although it is not easy to identify relationship-oriented leasing companies atrepparttar 112226 quoting stage, check customer references to inquire about lessor follow-up, attentiveness, willingness to learn about customers and willingness to be helpful.

Get a Large Enough Lease Facility

Right-sizingrepparttar 112227 leasing facility can save a lot of time. Look for an arrangement that will cover equipment needs for at leastrepparttar 112228 next six to twelve months. A helpful rule of thumb is to obtain a leasing facility that is at least 20% more than what is needed. If a leasing credit line is an available option, this can be a helpful tool in securingrepparttar 112229 right amount of lease financing.

Choose a Lease Term That Matches Equipment Use

The term ofrepparttar 112230 lease should matchrepparttar 112231 expected use ofrepparttar 112232 equipment as closely as possible. Ifrepparttar 112233 term is too short,repparttar 112234 monthly cash outlays forrepparttar 112235 equipment might exceedrepparttar 112236 expected benefits to be derived fromrepparttar 112237 equipment (cost savings or revenue production). If you sign a lease that is too short that also includes fair market value end-of-lease options, and you exercise one of these options, you might wind up overpaying forrepparttar 112238 equipment. Ifrepparttar 112239 lease term is too long, you might loserepparttar 112240 flexibility of upgrading to newer more desirable equipment. More than a few lessees have been stuck with equipment they no longer need, yet they still have a significant lease balance remaining.

Notwithstanding your preference, a shorter lease term returnsrepparttar 112241 lessor’s investment inrepparttar 112242 equipment faster and lessors generally perceive a faster recovery to be a credit enhancement. You might be able to manage any mismatch between your preference andrepparttar 112243 lessor’s by obtaining favorable end-of-lease options. Seek end-of-lease options that include: 1)repparttar 112244 right to returnrepparttar 112245 equipment torepparttar 112246 lessor; 2) favorable renewal options; and 3) favorable purchase options. Seek ways to limit what you are charged by requesting fair market value options that are “capped” (have upper limits) or favorable fixed options.

Look For Lease Flexibility

Obtaining lease flexibility can easily trump obtainingrepparttar 112247 lowest price. In fact, you can trim lots of money from overall leasing costs by having a flexible leasing arrangement.

First, make surerepparttar 112248 lease allows you to include most ofrepparttar 112249 equipment you intend to acquire. Also, check that it will be easy to add more equipment torepparttar 112250 lease as your needs change. The better leases provide for multiple schedules under a master lease orrepparttar 112251 ability to amend existing leases to make additions. What if you no longer need some ofrepparttar 112252 equipment? An early termination formula is useful in these situations. Generally, these formulas consist of present valuingrepparttar 112253 remaining rents. Ifrepparttar 112254 equipment has a strong residual value, try to negotiate a more favorable termination charge by incorporating some ofrepparttar 112255 anticipated residual value.

Ten Ways to Save a Bundle on Your Next Lease

Written by George A. Parker


According torepparttar Equipment Leasing Association (“ELA”), U.S. businesses lease every thing from laptop computers to commercial airplanes, racking up more than $ 200 billion in equipment leased each year. Although four out of five U.S. companies use leasing to acquire equipment, many don’t knowrepparttar 112198 ins and outs of leasing well enough to negotiate a good deal. By focusing on a few key aspects ofrepparttar 112199 lease transaction, you can save a bundle on your next lease and eliminate potential aggravation.

1. Chooserepparttar 112200 Right Leasing Partner

The starting point for saving money on your lease is to selectrepparttar 112201 right leasing company. The biggest savings in this area come from saving time and dodging substandard lease transactions. The wrong lessor choice can result in a slow approval, inability ofrepparttar 112202 lessor to deliver, hidden fees, a poorly designed lease transaction or worst. Give this aspect of obtaining a lease your highest priority. To save a bundle on your next lease, you must do your homework in pre-qualifying bidding leasing companies. Look for lessors with: 1) experience and knowledge; 2) good reputations; 3)repparttar 112203 ability to perform; 4) helpful business contacts; and 6) a relationship approach. Ask for and get lessor financial information, background information onrepparttar 112204 key managers, a listing of recently completed leases, and contacts at key funding sources for each leasing company being considered. Review this information and follow up with all contacts provided.

2. Chooserepparttar 112205 Right Lease You can rake in big savings by obtainingrepparttar 112206 right lease forrepparttar 112207 equipment you are acquiring. When planning your lease financing, determinerepparttar 112208 top three or four attributes your lease should have. During this process, carefully evaluaterepparttar 112209 importance of: lease pricing, lease flexibility, balance sheet considerations, equipment obsolescence,repparttar 112210 anticipated period of equipment usage, and your firm’s credit status. The wrong lease choice can be costly.

Lease pricing is market driven, so get at least three lease bids. Carefully evaluate bids by doing a comparative analysis of discounted cash flows incorporating all anticipated costs and fees. Make sure your lease has favorable end-of-lease options, a reasonable end-of-lease notice period,repparttar 112211 ability to relocate equipment by notifyingrepparttar 112212 lessor,repparttar 112213 right to terminaterepparttar 112214 lease early without an onerous charge, andrepparttar 112215 right to assignrepparttar 112216 lease to another user under agreed upon conditions. Look for an arrangement that will cover equipment needs for at leastrepparttar 112217 next six to twelve months.

Big savings can be realized by knowing when to select a lease with a bargain purchase option versus a fair market value option. If you know you will be keepingrepparttar 112218 equipment beyondrepparttar 112219 initial lease term, a bargain purchase option is usuallyrepparttar 112220 most cost-effective alternative. Ifrepparttar 112221 equipment is prone to obsolescence or if it is unlikely you will retainrepparttar 112222 equipment atrepparttar 112223 end ofrepparttar 112224 lease, consider a lease with fair market value, end-of-lease options.

Know your firm’s credit standing. If your firm has been in business for a number of years, is profitable, has a good track record and has a strong balance sheet, it deserves great lease pricing and terms. If your firm has a spotty credit record or weak balance sheet,repparttar 112225 challenge is to getrepparttar 112226 best deal possible. Identify and offer credit enhancements that will make your transaction more attractive. Allow plenty of time to get throughrepparttar 112227 credit review and due diligence process.

3. Ask for Fair Market Value ‘Caps’

If you decide that a fair market value lease isrepparttar 112228 way to go, you can realize big savings by limiting that value. Fair market value rental and purchase options atrepparttar 112229 end ofrepparttar 112230 lease allowrepparttar 112231 lessee to either continue leasingrepparttar 112232 equipment or to buyrepparttar 112233 equipment atrepparttar 112234 then fair market value. These values are generally quoted byrepparttar 112235 lessor at lease end based on aftermarket data, but most leases allowrepparttar 112236 lessee to obtain an appraisal from a qualified equipment appraiser. To realize significant savings and to eliminate unpleasant surprises, request fair market value options that are “capped” (have upper limits). Beware, however. Lessors may insist on fair market value ‘floors’ (lower limits) when they agree to ‘caps’. The availability of a fair market value cap will depend onrepparttar 112237 size ofrepparttar 112238 transaction (may not be available on small transactions), competition among lessors, andrepparttar 112239 credit status of your firm. 4. Keeprepparttar 112240 End-of-lease Notice and Renewal Periods Short

To avoid hefty unintended lease charges, seek notice and automatic renewal periods that are short. The primary purpose ofrepparttar 112241 end-of-lease notice period is to allowrepparttar 112242 leasing company sufficient time to redeployrepparttar 112243 equipment if you elect to returnrepparttar 112244 equipment. The secondary purpose is to notifyrepparttar 112245 lessor of your plan to either continue leasingrepparttar 112246 equipment or to purchase it. The notice period generally ranges from one to six months, with three months being typical. If you violaterepparttar 112247 notice period,repparttar 112248 lease kicks into an often unfavorable automatic renewal period, usually one to six months. Ifrepparttar 112249 lessor is unwilling to negotiate this provision, you can save money by making surerepparttar 112250 notice requirement is fulfilled withinrepparttar 112251 allowed time.

5. Slash Interim Rent

You can slash lease costs significantly by limiting interim rent. Interim rent isrepparttar 112252 rent you pay for daily use of equipment betweenrepparttar 112253 equipment acceptance and lease start dates. The rationale for interim rent is that you have use ofrepparttar 112254 equipment andrepparttar 112255 lessor is obligated to payrepparttar 112256 equipment vendor during this period. Whilerepparttar 112257 rationale is not unreasonable, interim rent can balloon lease pricing by arbitrarily extendingrepparttar 112258 term ofrepparttar 112259 lease (albeit by only days). The best approach is to schedule equipment delivery and acceptance towardrepparttar 112260 end ofrepparttar 112261 month. Most lease terms officially startrepparttar 112262 first day ofrepparttar 112263 month following equipment acceptance. Another strategy is to negotiate a truncated period atrepparttar 112264 end ofrepparttar 112265 lease such thatrepparttar 112266 interim period and truncated period total one month ofrepparttar 112267 quoted lease term. A last strategy is to request a limit on interim rent (perhaps ten or fifteen days) regardless of equipment acceptance.

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