Posts Tagged ‘equipment leasing’
Equipment Financing Activity Higher in Q1 of 2011
March 25th, 2011
According to a recent study by a Washington based equipment leasing and finance association, equipment leasing activity in on the rise in 2011 on a couple of fronts
Here’s the link to the full article… http://www.bizjournals.com/washington/news/2011/03/23/leasing-activity-on-the-rise.html
As with any information derived from an association that potentially benefits from positive reports, I will take the findings with a grain of salt.
The report basically tells us that 1) more businesses are applying for equipment financing and 2) more lenders are approving deals than at this time last year.
On both fronts, this could indicate that things are turning around in the general economy and that lenders are starting to get back to issuing loans and leases.
The last two years have been very difficult to say the least for small businesses and equipment financing companies.
For small business, many of the equipment leasing and financing sources disappeared from the landscape due to some combination of portfolio default and funding supply constraints.
For the financing companies, there was not a ton of applications to sift from, and from the ones they did receive, the underwriters were being very picky about who they wanted to take on.
But through the first quarter of 2011, things appear to be moving in the right direction, at least according to this report.
If you’d like to get assistance with equipment leasing and financing requirements in including purchase and debt financing, contact the business financing specialist.
Business FinancingDifferent Levels of Small Business Equipment Financing
April 11th, 2010
There are basically four levels of small business equipment financing where the financing required is no greater than $250,000.
The first level is obviously provided by traditional banks through both loan and leasing programs. In Canada, the chartered banks will make equipment loans via the small business loan program insured by the Federal government for total acquisition costs of no greater than $250,000.
These loans get financed at around 5.5% at the present time, or roughly prime plus 3%. Because this is considered very low interest rate borrowing, even though the debt is partially insured by the government, there is a fair bit of qualifying required. And even for those that do qualify, the amount of financing provided tends to range from 65% to 75% of the equipment acquisition and placement costs.
Some of the banks also have a leasing division that works outside of their commercial loan programs and administered at a head office level. While banks can provide equipment leases for smaller ticket amounts more common with small business, these programs are more focused on larger ticket amounts where the objective is to use low cost, high ratio lease financing to attract new commercial clients to the bank.
The second level of equipment financing is still through institutional lenders and is typically between 6% to 10% interest range. These are term loans that have similar qualifying requirements as the first level, but are more designed for larger value loans that don’t quite fit into the bank qualifications. These types of programs will also consider one off transactions in most cases.
The third level is equipment leasing from leasing companies where most financing requests considered are no greater than $150,000. The best interest rates from this group range in the 9% to 14% range and while higher than traditional bank loans, can provide financing amounts in excess of 100% of the equipment, delivery, and installation costs for strong financial and credit profiles. So for many small businesses, the higher costs of financing is a trade off for greater equipment financing and leasing leverage.
There is a second tier in this type of financing where weaker financing profiles will be considered in rate ranges from 15% to 20%. The leasing decisions tend to be very subjective on the part of the leasing companies which can make it very difficult to predict which of these companies will be interested in any particular deal.
The fourth level of equipment financing and leasing is pure asset based lenders that are strictly focused on the liquidation value of the equipment and tend to provide equipment leasing rates in the 18% to 25% financing range.
While there are a number of financing sources in the small business equipment financing and leasing space, the individual lender criteria can change constantly, especially with companies that hold smaller portfolios that can easily be impacted by changes in rate or even slight increases in arrears accounts.
And being able to qualify for lower cost financing can be a very point in time event whereby at certain points in time, a business scenario can qualify for lower financing rates and at other times, the exact same scenario will not.
If you have an equipment financing or leasing requirement for small or large ticket items, please give me a call so I can quickly assess your requirements and provide relevant options for your consideration.
Click Here To Speak With Business Finance Specialist, Brent Finlay
Business FinancingEquipment Leasing Can Save Cash | Small Business Cash flow Management
December 17th, 2009
If You Have Good Credit, There Are Several Ways Equipment Leasing Can Save Cash
As 2009 draws to a close, cash flow management is still a high priority for most small businesses these days due to the ongoing impact of the current recessionary forces.
In order to preserve cash and get more purchasing power, here are some small business cash flow management tips to consider if you’re not already doing them.
Equipment Leasing. Now a days you can get equipment leases for just about anything over $1,000 in value. If you have good credit, you can secure some pretty attractive leasing rates and if you’re buying something that offers a manufacturer sponsored program, the financing costs can be extremely low.
You still have to crunch the numbers to see what comparable products are worth from other suppliers as its a common strategy to give you a great financing package and then jack up the price to offset what the seller is subsidizing on the equipment financing side. But in a recession, where sales are down, you may be surprised at the opportunities that exist for both a great purchase price and a great financing package. In some cases, it may even be cheaper than just paying in cash.
Ultimately, there is going to be a net cost for financing, likely, but if you’re taxable, there is a tax deduction to be had and when the interest rates at all time lows like they are right now, a small cost of financing that allows you to maximize your available cash is definitely something to consider.
Equipment leases offer other cash advantages as well, especially for businesses with good to great credit. In most cases, you will be able to buy assets for no money down except for one or two lease payments paid in advance. This high degree of leverage again conserves on valuable cash flow.
I’m not going to get into the operating versus capital lease discussion other than to say that an operating lease needs to provide some significant benefit to you because it will cost more per dollar financed than a capital lease. With a capital lease, you basically agree to purchase the asset at the end of the lease from the lease company and you agree to do this at the time the lease is entered into. Capital leases tend to provide you with the lowest cost financing options as there is no back end risk to the leasing company.
Additionally, regardless of your credit rating, equipment leasing defers the related sales tax associated with the purchase meaning that you only pay sales taxes on your lease payments when they come due versus having to pay 100% of the sales taxes at the time the asset was purchased in a cash transaction.
And if you get the chance to get a great deal by making a cash purchase, get the deal done, then go to an equipment leasing company, sell them the asset and take back a lease (sale and lease back).
Equipment financing companies will allow you to do this up to 6 months after purchase and they will even consider private sale transactions.
This way, if you have the available cash, you can negotiate hard and get the best deal without having to try and arrange financing at the same time. If you’re concerned about being able to qualify for credit after the fact, you can go and get pre-qualified for an equipment lease for the amount of money you’re looking to spend and the type of asset you want to acquire.
Equipment leasing can be a very effective cash flow saving strategy. To get the best use of this tool, make sure that you always crunch the numbers to determine the best approach to maximize both the cash flow savings and purchasing discounts.
Business FinancingEquipment Leasing And Financing Products | Recessionary Impacts
November 27th, 2009
How have Equipment Leasing And Financing Sources Been Impacted By The Recession?
As we move towards the end of the year, equipment leasing and financing companies are still dealing with the financial impacts of the current recession.
Like any type of lender, a leasing company requires a source of capital which is made up of a composition of equity that is debt leveraged to the max to achieve the largest potential money supply at the lowest possible cost.
In 2009, the cost of capital for many lease companies went up as many of their related funding sources added greater risk premiums into their cost of borrowing for leasing products. Add to this the increased number of business failures and resulting lease facility losses from delinquent accounts and the result has been less lease companies with more conservative lending policies and higher rates.
The more conservative lending policies are largely driven by two things. First, the unpredictable nature of recessionary impacts makes it harder for lenders and financiers to assess the credit worthiness of any particular applicant. So current approvals are targeted to low to medium debt leveraged companies who have some ability to withstand and manage through any reductions or anomalies in their respective cash flow.
Second, equipment leasing can be largely based on the ability of the lessor to predictably be able to liquidate an asset if necessary in terms of the the time it takes, the costs incurred, and the net proceeds they can expect to receive. During recessionary periods where business failures occur, the market can see significant increases in supply for used equipment. This can result in lender or lessor losses as forced liquidation values drop.
While these financing conditions exist for all types of lenders, equipment finance companies as a whole are significantly impacted due to their smaller relative size which does not provide them with a large margin of error.
For the business owners, the noticeable changes when seeking equipment financing are that overall rates for leasing products are higher than they were a year ago. All things being equal, an approved equipment loan tends to come at a cheaper cost of financing than a comparable equipment lease. This typically is only relevant for “A” credit deals, as there aren’t many equipment loan products available for lower credit applications.
For lease financing, The “A” credit risk lenders are looking for A+ deals, the B Lenders are looking for A to A- deals, and the C Lenders are looking for B deals.
There is credit to be had, but it can be hard to locate if your application is a mid to higher level risk. And the rules change constantly as lease companies monitor their portfolios and their liquidation pathways in the market.
While lending policies and rates have loosened up a bit over the last few months, expect equipment leasing options to continue with higher rates and tighter terms for the foreseeable future.
Business Financing