As a financial consultant and center of influence for your clients, you always want to provide solutions that fit your clients’ and prospects’ financing needs. That can be more difficult than it seems. Sometimes the bank has reached its credit exposure comfort level with a good client or perhaps you're not interested in doing a “one-off” equipment loan for a prospect without the ability to garner the full banking relationship.
However, not all hope is lost. As a banker, you can provide your client or prospect with the option to fund their equipment acquisition via an equipment lease. If this is an option you’ve never considered for your client, and you’re unfamiliar with the benefits of leasing, here are some things for you and your clients to think about when considering an equipment purchase via cash, loan or lease.
The top reason businesses fail is due to lack of liquidity. Maintaining ample cash balances in their depository accounts should be a top priority for a company of any size. Leasing allows your client to conserve cash for times they need it most. Your client should be funding a long term asset via longer term financing rather than internal cash flow or their revolving line of credit, which is meant to fund short-term working capital and daily operations.
You know your clients, and you know that most of them don't want to undergo a lengthy and cumbersome application process including furnishing vast amounts of financial reports. Equipment leasing companies won't burden your client with excessive reporting requirements. At most firms, leases up to $150,000 can simply be completed with a one-page application along with the equipment quotation or invoice detailing the asset to be acquired.
One tip though - make sure to return the application with an equipment quote as this can make the process even faster. With all the paperwork handled, your client can expect an approval within 24-48 hours depending on the firm they’ve decided to work with.
3. 100% Financing
Conventional bank loans many times require a down payment up to 25% of equipment cost or more. Leasing can provide 100% financing, allowing your client to acquire the equipment they need without a major cash outlay. Many leasing companies can also finance the soft costs associated with an equipment purchase into the lease amount (i.e. freight, installation, rigging, tooling, consumables, software, and training).
4. Tax Advantages
Leasing provides a company with substantial tax advantages that cannot be achieved via cash or traditional bank financing. The recently modified IRS Section 179 allows businesses to write off up to $25,000 during 2015. Industry experts predict this will be increased to the 2014 level of $500,000 for 2016.
5. Fixed Payment
Your client doesn’t need to worry about the rising cost of money if they decide to proceed with an equipment lease, which comes with a fixed monthly payment for the entire term of the lease. Some leasing firms even offer a forward payment lock. This means they will fix their payment even if they don’t plan to take possession of their equipment until the end of the year because of a long machine-build time.
6. Start-Up Financing
Oftentimes, a bank may not consider a business for financing if it has less than two full years in operation. This can be detrimental to a new business if they need equipment to begin generating revenue. Typically, the only lenders that will provide financing to start-up businesses are those with a niche expertise in a particular line of equipment or industry. Therefore, if your client is a new business owner, leasing may be the best (and the most competitive) option for acquiring new equipment.
7. Establish Credit
By establishing credit with a commercial leasing or finance company, it'll be easier to acquire your next piece of equipment with a track record of good pay history.
8. Flexible Payment Options
Leasing is an extremely flexible financing tool. Unlike traditional financing options that only offer fixed, level payments, leasing can offer flexible payment options. Programs such as step-up, deferral, skip, and/or annual payment programs give your client the option to customize their payment plan based on the cash flow of their business and industry.
To summarize, having equipment leasing as an additional “arrow in your quiver” will help round out the financial solutions you can provide your clients and prospects.