Sell More…Sell Smart with Leasing
By Jim Noel, Marlin Leasing
What is leasing?
It’s one of the fastest growing ways to finance equipment in today’s marketplace. In fact, a recent industry survey revealed that nearly 80% of all U.S. companies are currently leasing equipment for use in their businesses. Leasing is a financing option which allows a business to obtain the necessary equipment while at the same time…
1.Preserving working capital.
2.Preserving bank lines of credit.
3.Providing potential tax advantages.
4.Reducing equipment maintenance costs and down time.
Why should your customers lease?
Today’s business environment changes rapidly and seems to fluctuate in the blink of an eye. In order for your customers to stay on top of their game and ahead of the competition, you need to offer them flexibility to manage their business income efficiently and profitably. A properly tailored lease program gives your customer the benefit of having the equipment they need while being flexible enough to meet their cash flow needs. This enables you to build that relationship for long term sales by being sensitive to their needs as a small business. A customer whose business is growing is bound to face the dilemma of limited cash flow and the need to add equipment. Leasing provides a real cash-flow advantage in that it puts equipment in the customer’s hands without a major capital investment. This of course increases your sales and creates good-will with your customer.
The decision to own an asset in today’s business climate should depend on whether that asset will appreciate or depreciate in value. Cash and bank lines of credit are best used for appreciating assets, while leasing is the best tool for depreciating assets. This allows for reduced costs because your customer only pays for the portion of the equipment’s economic life that is used and delays the decision to own the asset until the end of the lease term when its true value is known instead of just assumed. When newer or better technology becomes available, your customer can return the equipment and request an upgrade thereby giving you an additional sales opportunity.
Three basic types of capital leases:
1. Fair Market Value (True Lease)
Offers the most options both during and at the end of the lease and is beneficial to customers desiring both a small security deposit and a relatively low monthly payment. At the lease-end, the lessee has the option to extend the term of the lease, return the equipment or buy it at its fair market value.
2. $1.00 Buy-Out
Recommended when customers are fairly certain they wish to buy the equipment. Monthly payments are greater than an FMV. At the end of the lease term, equipment is simply purchased for $1.00.
3. 10% Security Deposit Plan
If your customer can afford a security deposit of 10% of the equipment price, this plan offers the lowest monthly payment. At lease end, the deposit can be applied to the purchase price of the equipment; the lease can be extended, or the equipment can be returned, and the deposit refunded.
Use your leasing company as your financing department
Equipment dealers should not concern themselves with financing but instead concentrate on selling the features and benefits of their equipment. You have been trained to do this since you have been in the business and you do it well…keep doing what you are doing!
One of the benefits of using a leasing company is that you are not a financing specialist nor should you be. Have you ever bought a car and have your salesman work out the payments? No, you buy the car and then the finance manager takes care of your monthly payments. Equipment leasing is no different. Dealers will often close a sale and have their leasing company call their customer to finalize all the paper work. Remember, you can use a leasing company to help you sell more equipment.
FAQ’s About Leasing
What is the process for leasing equipment?
The Leasing Company reviews the credit information supplied on the lease application. Upon approval, the lease agreement is prepared by you, the equipment dealer, or the leasing company. Upon equipment delivery, the leasing company pays the dealer and begins billing the lessee (customer).
Is a down payment required?
A security deposit, usually equal to one or two months’ lease payment, is generally needed. This differs from a down payment in that the amount is typically much smaller and it is a true deposit which can be applied to the purchase price of the equipment at lease-end or returned if there are no other payments due.
How are lease payments determined?
The monthly payment is based on the term of the lease, cost of the equipment, and the type of leasing plan the customer chooses. The initial term of a lease typically runs from 12 to 60 months.
What factors are used to determine credit worthiness?
Type of business, length of time in business, financial condition, references from financial institutions, and D&B, (Dun & Bradstreet) or other credit bureau ratings.
Can the lease be canceled?
Usually, no. But the equipment can be traded-in for new leased equipment before the expiration of the initial term.
Can equipment be purchased at the end of the lease?
Yes. The lessee has the option of continuing to lease, purchasing the equipment, or returning it to the leasing company.
Leasing is an equipment financing option that is sometimes overlooked by business owners. It provides an excellent combination of cash flow flexibility, potential tax benefits, and protection against technological obsolescence. What’s important is that you work with a financing specialist who will help you determine the lease financing structure that’s best for your customers’ business.
The bottom line is that leasing allows your customer to pay for equipment as it is used. A customer doesn’t pay their employees, their mortgage or utility bills in advance, why pay for equipment that way? Leasing provides a balance between expenses and revenues, allowing your customer to pay only for the portion of the economic life that it uses.
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