Tips for Choosing the Right Leasing Partner
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.
Vehicle Leasing: How did we get here?
Apr 15, 2011 by admin.
Allan Levine
Chief Operating Officer
This is going to be a general chronicle of the last 40 years in the vehicle leasing business. That is, how much can I fit into a long page? Here ya go… If one was the average independent in 1971, you saw a few large Lessors who were not your competition, but were evolving in the marketplace. Some auto dealers were thinking about being in the business, but generally, never mustered up the guts. In short, independents were doing small fleets, consumer leases, with and without maintenance, and pickup and delivery for service appointments for their best customers. One could have a 1,000 units out, with a combination of closed- and open- end leases, and make a good living. Maybe you even had insurance in the package. This kept up for a number of years feeding off the investment tax credit. For those too young to remember, it was a 10% tax credit right off the top and you never had to give it back. That tax credit migrated into a 6% credit with the IRS establishing rules about having to be a debt guarantor and having at risk provisions.
In October 1974, there was the first of the gas shortages and Lessors saw, in a day, their large gas guzzlers lose a chunk of value. If one had staying power (cash/credit lines), you could hold the vehicles and discourage your Lessees from turning in their units. The values rebounded quickly and, as we all know, the US buyer/Lessee came back to the large vehicle market rapidly. Oh, our love of the gas guzzlers! In the U.S. we have short memories when it comes to bad economics, and wishful thinking often seems to overrule prudent decision making that should be based on facts or reality. As an aside, the first time I have seen the U.S. credit issuers stick to their guns is in the current housing mess we are still living through. That one will not go away so fast. Moving on, the migration to smaller, fuel-efficient cars was still a ways off and our robust economy only suffered short-term setbacks in isolated business sectors.
In the late 70’s and 80’s, leasing companies began to get larger with mergers and acquisitions setting the tone. There was plenty of new business growth which kept the leasing market expanding. The consumer lessor market changed a bit away from the mom and pop lessor operator as manufacturers figured out leasing was a way to move product, especially with inflated residuals, and cheap money. However, in 1981, interest rates went through the roof, business stalled a bit, and many dropped out. We saw the larger companies competing for the smaller fleets and gobbling up good sized independents or their customers.
In the early 90’s, one saw competition get a bit scary as manufacturers and larger independents were aggressively beating up the smaller Lessors. As an FYI, I figured out the equipment leasing business and added equipment leases to make up for the 20% I lost in the auto side to larger companies. After all, if one had a good model, the 90’s were good times for the survivors of the 80’s. So the 90’s saw the little guys fading, the large independents doing well, and the public companies making progressive noise. Fatalities occurred, but overall, a good time was there for the survivors. In the 90’s, funds were available with plenty of business for all. That is, whether you were a manufacturer, an independent, or a public company in this period, you were, for the most part, doing fine.
In short, with a good credit history, banks were readily loaning money to the smaller Lessors at rates where one could compete and make a good living. The big guys securitized or floated their own paper. The industry was truly mature with manufacturers moving product with excellent lease pricing, confidence in residuals, and a public willing, for many, to view having the use of a vehicle as an option to owning. Smaller independents found growth as business and the economy grew while the public companies battled each other and the large independents. The smaller Lessors enhanced their niche with loyal customers willing to pay a bit more for handholding. Money was priced so all could stay in the game. Many began to get in the owner/operator truck leasing business. That turned out to be a death sentence for many bank leasing companies and funding sources in the 2008 economic collapse. There were many credit decision makers thinking nothing would go wrong and there would be no end in sight to the profitability upside. Plenty went wrong. Manufacturers took hits on inflated residuals and independents took hits on wrong credit decisions based on wishful thinking rather than prudent judgment; and companies we all thought were pillars of the industry closed or shrank dramatically.
To those who want to say we did fine, that’s OK. Let us remember whether you were a vehicle or equipment leasing company, both industries suffered attrition. Most survivors saw shrinking volumes, shrinking margins, and shrinking portfolios.
So here we are. If you had cash, were not very leveraged, had the proper bad debt reserves, and never got carried away with dreams vs. good business planning, you are still here. You lived to fight another day and maybe picked up a lesson or two along the way. Do not take shots at me. Remember this is a snap shot. It applies to the industry as a whole and does not account for the absolute best or absolute worst. What it does is make you think about how you survived. If you failed, you probably are not reading this. And if you survived all this, you likely had a good loyal client base, made good credit decisions, and a portfolio of mostly finance or closed-end leases with realistic residuals. If you stretched your credit decisions and took risks, you saw many of your clients fold in the 2008 – 2009 debacle. For the record, we are not exactly finished. Whether you are large or small, your real test is how you now grow your company over the next few years. Keep your head down and stay within your model. Regardless of company size, you need a business plan and a profitability model that will make you successful. GOOD LUCK.
