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 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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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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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.

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Mar 14, 2011 by admin.

Mark Caulfield

Marketing Director

I recently attended the NAFEM Show in Orlando. The show features over 500 companies exhibiting food and beverage equipment solutions for the food service industry. The WHAT’S HOT! WHAT’S COOL! new product gallery featured the latest products that tangibly improve operations in areas such as labor savings, sanitation, green, food safety and life cycle costs. The products were displayed in one of six groupings:

• Primary Cooking
• Food Prep and Warewashing
• Refrigeration and Ice
• Smallwares, Tabletop and Serving
• Display, Transportation and Storage
• Technology

Each product displayed in WHAT’S HOT! WHAT’S COOL! is either a new concept or existing product update available for sale after February 8, 2009 (the last NAFEM Show) and demonstrates at least two of the following value propositions to the food service operator:

• Aesthetic impact
• Cost reduction
• New foodservice application
• Other additional benefits

Most of the companies and reps I spoke with were happy to have a good equipment lease financing company to work with. One who understands the needs of the food service and restaurant industry, and can assist with making deals happen; while treating their valuable customers with outstanding customer service.

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Jan 28, 2011 by admin.

Allan Levine

Chief Operating Officer

Every business wants to have a competitive lease rate. Factors that affect your lease rate include:

• Credit quality
• Size of the transaction
• Asset quality, category, and remarket ability
• How long the business has been established
• Financial health of the business

Some equipment leasing firms have different asset preferences, some prefer small leases, some only do multi-million dollar leases, with their own funding and capital structures which dictate pricing and terms. We tell clients, as a general rule, they should expect the best pricing when they are established businesses, are profitable, and have positive cash flows with clean balance sheets and income statements.

Speak to a trusted and experienced lease financing advisor. One who will guide you through the leasing process; discuss different options that are available, the economic advantages you can hope to achieve, and how to do a true benefits assessment for lease financing.

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Jan 17, 2011 by admin.

Nancy Pistorio, CLP

Executive Vice President

When acquiring new or replacement assets for your company, leasing can be a great resource for preserving cash flow. Compared with a bank loan or paying cash, lease financing offers more flexibility and options.

You want to carefully consider the type of lease that best suits your needs. This can be achieved by asking yourself one key question: Is your focus on owning the asset or using the asset?

If you want to focus on using the asset, and it has a long economic life, then look at what is known as an operating lease. This gives you maximum flexibility, and usually has the best cash flow analysis because the lessor retains ownership of the equipment. At the end of the lease, your options can include: returning the asset, buying it for an agreed upon fair market value, or simply extending the lease.

If you know you definitely want to own the asset at lease end, consider a $1 buyout lease. Dollar buyout leases are essentially the same as “full pay-out” loans. You will own the asset at the end of the original term.

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