The U.S. Department of Commerce reports 80% of all businesses that finance equipment choose leasing to finance the new assets. Companies that choose to lease equipment usually follow one or two processes to select a leasing company. One option is to automatically use the leasing company introduced by the equipment vendor. The second option is to select a leasing company from the many leasing companies that telemarket and email the customer or those that participate in industry trade shows. Companies unrelated to the equipment vendor are known as independent leasing companies.
Another category of leasing options available is a leasing broker. However, it is often difficult to determine if an individual is a broker or an independent leasing company.
The best way to get a great equipment lease finance deal is to use a customer-driven process. Cutting edge companies that want to reduce their total lease expenses use a formal Lease Request for Proposal (RFP) tailored for their specific business needs.
Essential ingredients to include in the lease RFP:
1. Company history: Background such as number of employees, company structure and where the equipment will be located. Describe the company’s primary business function.
2. Equipment: List the equipment specifications that are essential and options you might consider. Prioritize the equipment features as either mandatory or optional. If the company has selected the equipment manufacturer, include this information in the RFP. Some leasing companies will provide more aggressive pricing for higher quality state-of-the-art equipment.
3. Seasonal payments: If you have seasonal fluctuations in your cash flow, consider requesting structured lease payments. Sometimes leasing companies can structure their proposals for higher payments when the customer’s cash flow is strong and lower payments when cash is tight. Some traditional banks and financial institutions are not comfortable with flexible payment plans. Leasing companies understand structured payments.
4. Trade-in: Is trade-in equipment available? Understand the used equipment market and the true value of your trade-in. If you have a trade-in, ask the leasing companies to advise you if equipment trade-in will change the lease proposal in any way.
5. Maintenance: Who will maintain the equipment? Will the equipment dealer supply maintenance or will you need an additional maintenance company to service the equipment? Many lease agreements require maintenance contracts on all assets in addition to the standard manufacturer’s warranty coverage. Leasing companies may request copies of the maintenance contracts for their records. If the customer cannot provide maintenance information to the leasing company at lease end, the leasing company may add end of lease fines.
6. Lease quotes: Always get lease quotes from at least three independent leasing sources in addition to the equipment vendor’s leasing sources. Independent leasing companies have no affiliation to the equipment supplier. Their only business is financing and leasing.
7. Bank quote: Contact your banker. Many banks have leasing divisions that provide excellent financing options.
8. Require bidders to submit their proposals with copies of all documentation required to execute the financing. This includes copies of all standard lease documents, equipment schedules, proof of insurance requirements, personal or corporate guarantees, upfront payment requirements and security deposit requirements. Failure to obtain all the documentation leads to surprises later. Always remember that lease contracts contain “gotchas” that increase the total financing costs.
Many details go into developing the RFP that is driven by your business needs and not the needs of the leasing company or equipment vendor. If companies are not experienced in tailoring lease RFPs or do not review and negotiate leases frequently, they might consider retaining the services of an independent lease review specialist. An independent lease specialist is not aligned with a leasing company or equipment manufacturer. The specialist assists companies in all phases of the lease selection, bidding and negotiation process, saving companies hundreds of thousands of dollars on every lease.
For more information on equipment leases and RFPs, visit LeaseSpeak.com.