Jan 09, 2012 by admin.

The Equipment Leasing and Finance Association (ELFA) revealed its Top Ten Equipment Acquisition Trends for 2012. Growth, uncertainty and numerous benefits underlie many of the trends that businesses acquiring equipment this year can expect.

Every year U.S. businesses, nonprofits and government agencies spend in excess of $1.2 trillion in capital goods or fixed business investment (including software), financing more than half of those assets, these trends impact a significant portion of the U.S. economy.

1. New equipment acquisition will gradually, but steadily improve. The equipment finance industry is forecasting nine percent growth in investment in equipment and software for 2012, indicating that equipment acquisition by businesses in many industry sectors will increase this year.

2. Replacement needs will continue to drive new equipment acquisitions. Aging of equipment and replacement needs will be the main drivers of new equipment acquisition, as businesses await stronger signs of economic improvement before expanding their equipment investment.

3. Uncertainty over proposed changes to lease accounting might have businesses playing a waiting game. The resolution of proposed changes to lease accounting standards by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) later this year will have businesses waiting to find out how their balance sheets, earnings and other financials will be affected. Meanwhile, industry advocacy will continue to mitigate the negative impacts of lease accounting changes on U.S. businesses and the economy. The good news is that the primary reasons to lease equipment will remain intact, from maintaining cash flow, to preserving capital, to obtaining flexible financial solutions, to avoiding obsolescence.

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Jan 03, 2012 by admin.

The proposed lease accounting rules by FASB/IASB should not have a significant impact on healthcare industry lessees. Most of the lease transactions are generally for high-tech equipment such as CT scanners and MRIs with good residuals and favorable tax benefits so the resent values (capitalized amounts) are significantly less than cost. For doctor and dentist equipment lease financings the liberal tax write offs under section 179 favors CSA or dollar out transactions.

Hospitals tend to use FMV leases to acquire equipment and capitalized amounts should be low enough to keep lease offerings in demand.  The traditional reasons for leasing (raising capital, low financing cost, fixed rates, level payments, tax benefits, managing equipment life cycles, transfer of residual risk, convenience ) will continue to exist. The off-balance sheet accounting reason for leasing will be released but not eliminated as long as the amount capitalized is less than the cost of the equipment. Dollar out leases will be treated the same as under current GAAP capital lease accounting- the lease will be capitalized at 100% of the asset’s price.

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Dec 22, 2011 by admin.

November was a good month for commercial vehicle lease financing transactions. We refinanced 22 recently purchased heavy duty pick-up trucks for a Texas oil refinery services company. We also financed 18 new vehicles for a share ride company for $240,000 and 9 new vehicles for a drivers education school for $125,000.

A lot of businesses are upgrading their vehicles due to the new 2012 models that are out.  Being a smaller firm allowed us to be creative and flexible in helping clients with their financing needs. There is substantial pent up demand and we expect 2012 to be our best year yet

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Dec 09, 2011 by admin.

If you are planning to purchase medical equipment for your practice or hospital you may want to consider some of the advantages of leasing medical equipment. There are good reasons why 8 out of 10 U.S. businesses lease some or all of the equipment needed to run their operations. Most medical equipment needs to be replaced in 3 to 5 years. By leasing medical equipment you can avoid technological obsolescence. If you structure the lease term to the useful life of the equipment, you can match  your payment obligations to the period the equipment will generate revenues versus paying for the equipment upfront and mismatching the lump sum payment for the equipment with the revenue stream produced by the equipment.  This will help you protect against the rate of high technology medical equipment depreciation.

There are also potential tax savings depending on the lease structure chosen. In an operating lease, the payment may be expensed rather than capitalized and depreciated like you would have with a traditional loan. The lease payments, unlike the loan payments can be expensed in the period they are paid as a general operating cost. This may result in a lower after -tax cost for the credit, which results in a lower tax liability when compared with depreciating the equipment cost and expensing the interest portion of the loan payment. Of course always check with your accountant or tax advisor.

Remember to match your lease term with your warranty coverage. For example, if you are purchasing a new MRI scanner and it includes 36  months of warranty coverage you can purchase the additional 12 months of coverage and roll it into the lease. This way you have control over your expenses for the use of the asset thoughout the lease term.

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Oct 27, 2011 by admin.

Mark J. Caulfield, Marketing Director

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Sep 01, 2011 by admin.

Nancy Pistorio, Executive Vice President  

The economic challenges over the past three years have been so drastic that historic business models, regardless of industry, have changed dramatically. Not long ago it was the order of business for many leasing companies operating in the small ticket arena and lending to private firms, to simply credit score everything with most of the emphasis placed on the personal credit scores of the businesses’ owners. This formula appeared to allow for high volume and efficiency while keeping default rates at acceptable levels within a funder’s portfolio. For leasing firms willing to take more risk, it was not unusual to further secure some transactions with a lien on the business owner’s personal real estate.

In the recent economic downturn, neither of these avenues of extending credit has held up well. As a matter of fact, for some, the traditional approach used to extend credit turned out to be a recipe for disaster As delinquency and default rates soared, portfolios were in shambles and additional collateral positions were essentially worthless. In addition, the economic slowdown exposed many large, pyramid-type fraud schemes which had gone undetected for years. A large number of leasing firms were put out of business. For the leasing firms and banks who survived, many were forced to scale back dramatically or exit the small ticket leasing arena altogether.

As confidence in the economy has gradually begun to return and delinquency rates have subsided, lenders are anxious to replenish their portfolios but seemingly only with “A” quality credits. This has posed extreme challenges to small and medium-sized businesses seeking financing to start, continue, or even grow operations. Unless they are long established with excellent credit, many traditional avenues of financing are still not available to them. For the lenders, the market of “A” credits buying new or replacement equipment is sharply down causing a lack of volume for those trying to rebuild portfolios. The oldest and strongest business borrowers are still proceeding cautiously when it comes to acquiring new equipment or vehicles. This lack of volume is having the effect of driving rates down to extreme lows. One might argue, while it is good for those businesses who qualify, it is unrealistic “pricing versus risk” for the lenders and likely not prudent in the long run.

Where does this leave us? With bumpy news on the economic front including continued poor housing and unemployment numbers, things remain sluggish on the demand side for many lenders and, with the lack of real estate equity and other personal assets, there is still not enough available credit for the less-than-perfect borrower.

Many small and medium-sized businesses today find their bank borrowing capacity has been reduced or quickly “maxed-out.” With greatly reduced or negative home equity positions, lines of credit and credit cards are not the financing option they once were for smaller businesses either. Some have turned to private lenders, but at a high cost. Rates can be as expensive as twenty to thirty percent or more. This is often a last resort for a business and generally not appealing.

For the independent lessor competing for volume in the small ticket space, today’s circumstances can provide solid and profitable business opportunities if approached in a practical manner.

Things to consider in one’s business model would include the following:

Adjusting scoring models with certain parameters that will call for an actual analyst’s review, rather than produce an automatic decline, can result in additional approvals. Once the full picture is adequately analyzed, the transaction may pose an acceptable “risk versus reward” for the lessor.

Approaching vendors previously thought to be out of reach for the smaller independent can produce unexpected positive results. Vendors are now more receptive to working with more than just the traditional high-volume “program” lessors. Today’s vendors, also suffering from lower demand for their products, require funding for a wide array of credit quality customers. With fewer sales, each approval or decline is more meaningful. They need lenders who will find creative ways to approve more transactions. The cheapest price is not necessarily today’s top consideration in driving a vendor’s choice of a financing partner.

A willingness to finance unconventional, but necessary, business equipment can uncover new opportunities for growth with solid firms. Examples include school buses to private transportation companies, taxi cab medallions, and helicopters that provide weather and traffic updates in major metropolitan areas. With a bit of creative thinking, there is no limit to the types of business “equipment” or vehicles that may suit a company’s lending parameters and appetite.

Ramping up marketing and networking activities is also critical in this environment. While they were in a fight for survival mode, many leasing and financing firms had scaled back these activities. Businesses may not realize the independent lessor is still out there. Letting the business community know you are actively engaged in lending and looking for additional business is crucial.

A return to some prudent structuring enhancements can also improve a lessor’s position in a transaction potentially leading to an approval that, at first look, might have been a decline. Enhancements such as placing liens on paid-off corporate vehicles, a pledge of the cash surrender value of life insurance, or additional security deposits to be held for a period of time can all help to provide that little extra that may be needed in some circumstances.

Equipment financing today is not a business for the faint of heart, those inexperienced in the industry, or not well-schooled in the art of credit analysis. The pool of competitors active in the small business lending market has diminished significantly. However, those independents remaining will prosper in this current climate by revamping business models, bolstering sales efforts, and redirecting business focus to new and previously overlooked areas of opportunity.

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Aug 06, 2011 by admin.

Nancy Pistorio, EVP

The Way In

Back on the mainland after two years in Puerto Rico, I looked at a map and calculated which city, within a four-hour radius of my Pensylvania hometown, would allow my savings to last the longest, so I chose Baltimore.

Twenty-five years later I am a principal and partner at Madison Capital. I started as an administrative assistant. My educational background was in business administration and my strengths are in finance, so I did much of the back office and operators work and I learned originations. Things just grew from there.

Keys to Success

I’m a firm believer in attendance, and showing up. I also believe in persistence, if I start something, I finish it.  I was the first woman president of EAEL, a predecessor to the National Equipment Finance Association, and I have served ELFA, the Equipment and Leasing Finance Association, in several capacities.

As independent lessors, we can adapt more quickly than most large operators. We help firms that don’t yet qualify for bank credit, but have potential. We limit exposure to half a million dollars per lessee on the equipment side, and go into the seven figure range for our commercial-vehicle fleet clients.

Challenges

Today’s largest small-ticket challenge is managing an appropriate level of risk while processing a high volume of small transactions with limited underwriting time and/or information. You can have the same parameters in two different transactions but miss some nuances if you rely completely on technology. So we try and balance it, relying on technology for speed, but keeping our own people involved so we can make exceptions or take a closer look wherever we think it’s necessary. A second challenge is pricing pressure from bank lenders and high-volume vender captives focused on rebuilding their lease portfolios. There is a lot of competition for the customers who are slowly returning to a capital equipment acquisition mode. To build volume, some competitors lower their pricing. Madison Capital remains committed to making prudent pricing decisions and maintaining an appropriate risk  versus reward balance.

Insights

We try to provide fabulous customer service, and it really builds loyalty. Even if the pricing is slightly higher, there are many businesses that value a greater level of personal service and, for example, not having to deal with the frustrations of talking to customer service represenatatives in another country. In our vehicle-leasing division, we’ll even purchase cars for clients and get incentive money back from the manufacturers for them. We’re a boutique shop, small enough to provide a high level of service, but large enough to take care of all the details.

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Jul 14, 2011 by admin.

Allan Levine, COO

In this article, we will theorize about depreciation and pricing. There will be no mention about maintenance or other variable costs.

The components of a lease finance structure are, in many ways, simple. In short, most companies (customers) have their favorite or preferred type of lease structure and the client and salesperson (s) work together on specific terms for the fleet. Depreciation, interest, and a service fee (profit) are the pricing components. Or, many leasing companies have a cost of funds and want a number of basis points over this cost. An example would be borrowing at 4% and charging the lessee 8%, thus making a 400 basis point gross profit monthly on the lease structure.

So, let’s look at a few examples of vehicle lease financing formats. The largest lease financing companies primarily offer open ended, finance lease, or TRAC type leases and work closely with their clients to determine a desired term. For example, depending on mileage, a fleet manager may want a 50-month structure. Therefore, the vehicle depreciates 2% per month. To the monthly depreciation is added an interest component, and then a service fee (profit), and we then have the monthly payment. 

It looks like this:Vehicle cost: $20,000

Depreciation (2% per month): $400

Interest cost at 4% avg. per month: $34.92 (avg. over term-in arrears)

Service fee: $28 per month

Total payment, plus taxes, tag, etc: $462.92 total per month

If one has a large fleet, the manager and leasing company’s sales professional decide on one or more depreciation schedules (50, 40, 45 months, etc.) and the pricing is very straightforward. In this structure and if the unit is kept the full term of months, there will always be a gain on sale (works for many). Or, if terminated by a mileage limit (company vehicle policy), sales losses and gains can be controlled and fixed costs are predictable. That was a few sentences full. Also, many large lessors and their clients may do declining payments where after each 12 months, the payment reduces as interest costs are absorbed as incurred.

Ex: Year one with above pricing scenario: $487 for months 1-12 Year two with with above scenario:$471 for months 12-24 And so on for the third and months 37-50

In this scenario, an amortization schedule virtually mirrors income earned to the leasing company on a cash basis and at anytime the lessee knows the balance owed. Also, many leasing companies provide amortization schedules with each lease even in a fixed price open-ended lease type scenario.

No, I did not forget TRAC leases. In short, a terminal rental adjustment clause lease, if documented properly, is really an open-ended or finance lease type. At lease end, the client participates in the gain, if any, and makes up any loss from the sale of the unit in relation to the prestated contractual residual. In short, it has the same result as most finance leases. If certain TRAC terms and provisions are met, there are tax implications, not discussed in this article, that inure to both lessor and lessee. 

Next , many smaller leasing companies use straight pricing for their finance- open-ended, or TRAC leases. The contract has a monthly price and a term. Normally, there is a termination provision with a formula in the event of early termination. For example, a lease will have:

A type-open ended or finance lease, etc. State a payment and term. A termination provision with a formula. A residual value. Plus all the legalese of any normal lease contract.

When a vehicle is sold in an early termination scenario, there will be a gain or loss. Without an amortization schedule for the lessee, there is more uncertainty for the lessee, there is more uncertainty for the lessee in the final accounting.

Smaller leasing companies tend not to use interest fluctuating leases or even service fee structured leases. There is normally a payment and a residual. Also, smaller companies can be a bit more hands on and work with their clients to do whatever is needed for maintaining a relationship. The fun begins with manufacturers’ leases that are virtually all closed end, or called a net lease or walk away lease. When the economy is booming, the manufacturers use high residuals to get lower payments and move units. It is a strategy that appears to be outside the profitability model (in many cases), but it does move units. Generally, manufacturer leases are for lower mileage drivers and are great deals for consumers wanting to lease a vehicle. With a 60 to 65% residual used to calculate depreciation for a three-year-old car, truck, or SUV (and that is based on list price, and not cost), payments become very appealing to the consumer who wants a high-end or lower priced vehicle. The lease provisions are based generally on mileage to 10k, 12k, or 15k, with options to buy excess mileage in advance or pay for overage in the end (that can get costly). For the individual needing a family car or biz car, there are usually some great choices out there. For a company needing numerous cars, this platform would not be smart (my opinion). Having 100 cars come back and having a manufacturer nickel and dime repairs for a closed end lease, for business units, could be sticky… and costly.Manufacturers move product through consumer leasing and wind up having fine used cars to sell at auction or to their dealer network. Manufacturers’ pricing can be erratic as inventories build or decline as sales are either up or down.On the commercial side, whether a large or small leasing company, one can structure all types of scenarios. There can be seasonal billings, declining payments, annual payments (have some of those), or any of the above mentioned structures and more.The mid-size and smaller leasing companies tend to write both open and closed type leases. For example, a company could have 15 salesmen’s cars and two closed end leases for the execs. Flexibility keeps the smaller and medium companies competitive. A few dollars per month per unit saving is less significant to a small company’s owner or CFO who may be handling the company’s fleet of less than 100 units.It is probably time to interject some thoughts on depreciation. After 39 years of tracking vehicle sales prices as a percent recouped on the purchase price (not on the list price), I have some thoughts.Below are guides that I use for tweaking closed and open end leases. It is just a guide and has to be adjusted for those and makes and models that have higher resale values. Also, there is an adjustment for the time of year, whether beginning of model year, holidays, and spring.   

Residual values- American Autos

·         Multiply vehicle costs times %   ·         Use as a guide         MPY is miles per year

Many smaller lessor companies work with their lessees and use logic based on historic resale values of specific units, mileage driven, used car environment (although can be fleeting), and the customer’s desired goals. To interject, I have had large clients who want me to push the residual envelope on lease end values. They operate under the drive now, pay later. And work off my money. Many customers love to get a check at lease end of their leases, and many like to get as close to even as possible. This is more in the medium to smaller lessor/lessee environment.

We are not in an easy business. Whether picking monthly depreciation percents for full payout leases, making customers happy with open-end future resale values, or calculating closed end values for units four years down the road, we need a crystal ball. Well, since we do not have that, we have to rely on experience, industry tools, and a wealth of information to make us doctors of used cars. And, we need to be economists as well and predict what vehicles will be hot in three, four or five years.

Many have said goodbye to the industry, as their residual choices were wrong. I have seen 5,000 SUV’s come back in a high-priced gas environment and the manufacturer lost $20,000,000. In the old days, that was OK, but not now. And, until a customer pays you from an open-ended lease loss, it is just a receivable. Coming to get the money is harder than giving money back. Plan wisely.

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Apr 19, 2011 by admin.

Nancy Pistorio, CLP

Executive Vice President

Allan Levine

Chief Operating Officer

Madison Capital believes the relationship with our clients is one of our most valuable assets. It is one of the reasons for our success and growth for the past 35 years. Unfortunately, some finance firms view their customers as a one time transaction. They will offer a low lease rate or finance rate and then try to charge you with miscellaneous fees and aggressive terms to compensate for the low rate.

Some examples of these fees and terms include:

• $500 simple documentation fee
• Automatic renewal clause
• Late fees up to 10% for payments received only 1 or 2 days late
• No grace period for late payments
• Inflated End of Term Market Valuations or Residuals

Thoroughly read your lease contract in order to be aware of all fees and terms up front. Another important criteria for choosing the right leasing partner is their flexibility. Does the firm financing for a wide range of items such as art work, furniture, software, fitness equipment, etc? This flexibility can allow you to easily add and finance additional items with your leasing partner. If you are a new company, will your firm accept non-traditional collateral such as the cash value in a life insurance policy or the pledge of a stock portfolio to enhance your credit worthiness?

If you are leasing a vehicle for your business be sure you are working with a leasing partner who will provide an appropriate structure for your needs. Perhaps you drive more than the typically allowed 12,000 or 15,000 miles a year and want a lease to match the amount of miles you drive. Madison can tailor a lease that matches your company’s driving habits.

Perhaps your business is seasonal and you want lease payments to match your cash flow. No problem. We can structure a lease with lower payments for when your business is slower, and larger payments when business is in high gear.

Experienced equipment vendors and lessees know they should consider more than just a leasing company’s rates when selecting a lease/finance partner. Remember, unrealistically low lease rates do not always include high level service, satisfaction, and transparency.

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