Understanding Equipment Finance ProvidersFebruary 3, 2009 by: Enogg
The equipment leasing industry has gone though many changes in the past few years. The consolidation trends, shepherded by companies like GE Capital, have gobbled up the smaller companies to enhance their own portfolios.
Today there are fewer lessors all chasing the top credits. If your company has been experiencing a few hiccups in the last year, be prepared for a more thorough credit analysis. In many cases, the lessors will be looking for credit enhancements to help sweeten the transaction especially if you are not a stellar credit. Be prepared to provide personal guarantees, additional collateral, down payments, etc.
Since credit requirements are tighter, you have to do your homework when selecting a lessor. It’s important to find the right equipment lessor that will provide the necessary guidance and patience walking you through the process. The lessor needs to help you overcome any obstacles. Essentially, you are looking for a business partner who will be there for you even at lease end.
Different Types of Equipment Finance Providers.
There are three types of leasing companies:
Captive Leasing Company- A captive leasing company is the finance arm of a major equipment manufacturer. Examples of captive leasing companies are Pitney Bowes Credit Corporation and Hewlett-Packard Financial Services. Both are subsidiaries of their parent company, primarily responsibilities for providing equipment leasing to the parent companies customers’. The captive leasing company borrows money from the parent company at their cost of funds, then turns around and leases the equipment to you- paying their parent company for the equipment. Generally, the equipment sales rep will introduce you to their leasing subsidiary.
- The captive leasing company has a vested interest in moving equipment for the parent company; therefore lower interest rates are negotiable.
- Many customers prefer one-throat-to choke and bundled solutions
- Customer receives cradle to grave asset control and in most cases environmentally conscious end of lease disposition.
Independent Lessor- An independent lessor is typically a stand-alone company that is not connected directly with a manufacturing parent. They lease directly to customers and do not come into the transaction through the parent company. An example is a bank, such as US Bank or Bank of America. The Independent Lessor generally funds the deals through banking relationship, internal funds or syndication. They also may sell off either their portfolio or individual deals to other financial institutions.
- Can lease a broad array of equipment.
- Has a lot of flexibility regarding structuring a capital lease.
- Primarily the finance partner with limited input regarding the equipment or collateral. (A typical banking relationship)
Broker- A broker is similar to a mortgage broker in that they act as the middleman between the source of funds and the lessee. Typically, the broker has many debt sources in his arsenal and can offer a wide array of lessors to the customer. The broker typically does not have an internal source of funds and will sell off deals individually.
- Will shop deals to a variety of debt sources to find the best structure and price for the lessee.
- Is not subject to credit limits and will shop large transactions to a variety of sources.
- Typically acts as a leasing consultant and has a vested interest to get the deal done or will not be paid.
When choosing a lessor, bear these three types of leasing companies in mind. Also, leasing companies are very competitive with each other. If the leasing company does not want to work hard for your business, then shop elsewhere. Your satisfaction should be key to building a successful partnership with your lessor.
The lessor you chose should be interested in bringing equipment finance solutions to the table and working with you through the hard times. Armed with an understanding of the lessor’s background will help in crafting the best solution for your company. From the desk of Enogg. Stay tuned for more on Equipment Leasing.