For the last several months I have noticed a sharp uptick in business equipment leasing. I attribute the trend to several factors. First many business owners who previously would have gone to their banker to get financing for equipment have been turned away. Many commercial banks are simply not making business loans right now. Second, leasing doesn’t necessarily have to cost more than traditional debt financing (and can cost less), and lastly, leasing equipment for most businesses is a painless easy way to obtain financing for a piece of equipment.
You might ask the question, “If banks are not lending money in today’s economy, why are commercial leasing companies writing leases?” Part of the answer is that banks are highly regulated institutions that must follow a very strict conservative process for making loans to small businesses.
The second part of the answer is most banks are not experts at making loans on specialized equipment and would have a hard time liquidating the asset if the loan failed.
The last part of the answer is banks tend to rank avoiding financial risk much higher than generating a return for their shareholders. Commercial leasing companies have to consider their risk or they will go out of business, but they can better quantify their financial risk of writing an equipment lease than can a bank. Equipment leasing companies do one thing, lease equipment, so they must be good at writing leases that are competitive for the customer leasing the equipment, while still earning a strong net margin in the process.
The kinds of equipment that seem to be most popular to lease in today’s economy are commercial delivery vehicles, light industrial equipment for machine shops and other manufacturing operations, and equipment in excess of $50,000. Lately I have even seen companies lease enterprise software that will increase the efficiency of their operation.
Right now, I am handling lease transactions for equipment being acquired by companies that would ordinarily pay cash for a piece of equipment. They are leasing because they want to hold on to their cash.
How do you find a leasing company where you can get the best rate possible?
One option is to use a leasing broker. A good leasing broker will know the best place to take your lease transaction to. Often leasing companies will have niche industries they like. Leasing brokers often know where to look for the best overall deal for you.
Another option is to ask the business you are acquiring the piece of equipment from. If they are in the business of selling new and used machine tools for example, they will most likely have a relationship set up with a broker or direct lessor.
Lastly, there are several business equipment broker organizations in the
If you have questions about leases in general or your specific circumstances, please feel free to write me directly or use the telephone number shown below.