Technical Papers Blog

How to Choose a Lessor

How to Choose a Lessor

3/20/2017

Many companies are exploring leasing as a complement to existing finance sources. About 80% of
businesses in the United States utilize equipment leasing or financing to fund their operations,
according to the Equipment Leasing and Finance Association (ELFA).

If you are considering leasing new equipment, be sure to consider four key factors before choosing
your leasing partner and finalizing the program:

 

1) KNOW YOUR LESSOR

Like many industries, the equipment leasing industry is comprised of thousands of competitors – and
no two companies or contracts are the same. The lessor’s business practices and track record are
often more important to the economics than the monthly payment.

The difference between lessors often manifests itself at the end of the lease, when the lessee may
return or purchase the equipment. Be sure to check references and talk with customers who have
completed the end-of-lease process with the lessor you are considering. This small safety check at the
beginning of the lease can help avoid pitfalls and unpleasant surprises at lease-end.
 

2) BEWARE OF SIMPLIFIED PROPOSALS

Some less reputable lessors disclose only a rate or a monthly payment in their proposal. Unless the
proposal specifically addresses all economic factors in the lease, it may not provide sufficient
information to evaluate the total cost of the lease. Be sure to get all of the required information before
accepting a proposal.

A complete proposal should answer all of the following questions, including:
 
  • Does the lease require a deposit? If so, will it be applied to the lease payments?
  • Are there any hidden costs specified in the final paperwork that are not included in the proposal?
  • Are there any additional payments due before the lease begins?
  • How is the lease rate factor indexed? How could it fluctuate before funding?
  • What are the end-of-lease options? What flexibility is available?
  • How much advance notice must the lessee give to exercise end-of-lease options?
  • How is the purchase price determined at lease-end?
 

3. LEASE APPROPRIATE EQUIPMENT

Leasing is often most appropriate for assets that are likely to be refreshed on a regular basis. Leasing
IT equipment has become increasingly popular in recent years as organizations recognize the benefits
of regular technology upgrades. Since IT equipment is a rapidly depreciating asset, and the costs of
maintaining old equipment is high, leasing enables companies to preserve cash. Leasing also ensures
that a company’s employees have the best tools for maximum productivity. Finally, since there are
established secondary markets for IT equipment, determining fair value at lease-end is straightforward
in a properly structured lease.
 

4. TAKE ADVANTAGE OF ADDITIONAL SERVICES

Some leasing companies simply provide capital. Others provide comprehensive asset management
solutions. This difference may become increasingly important as companies must accomplish more with less.

Some lessors provide project management services to coordinate multiple equipment suppliers on
complex projects. Some lessors provide technology trade-in programs to help lessees manage their
asset lifecycle strategy. Some leasing companies offer apps with the ability to track equipment, leases and
payments online, including the option to make electronic payments and securely store lease
information.

A leasing partner should take the time to understand your organization’s accounting considerations,
budgetary needs, and acquisition process. With this information, a customized service package can be
crafted to optimize your equipment finance program.

A properly structured leasing program can be a beneficial financial strategy. But, it’s important to look
before you leap. Before finalizing any equipment leasing arrangement, you should feel confident that
your leasing partner has your long-term interests in mind. Choose a leasing company that will take the
time to understand your business, your financial strategy, and your equipment refresh needs.


ABOUT FIRST AMERICAN EQUIPMENT FINANCE

First American Equipment Finance is an experienced lessor specializing in the healthcare, insurance,
education, and legal industries. First American provides simple, innovative financing solutions for complex projects. First American specializes in combining products and services from multiple vendors and service providers into a single equipment lease. First American has a long-standing reputation for professionalism and exceptional service among sophisticated borrowers throughout the U.S.
 
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