When designing a lease for your client, there are a variety of criteria to consider: Time in business, personal and business credit history, equipment being financed, and your client’s preferences regarding financing—just to name a few. The five questions below will help you better recognize the best lease option for your customer. Not only will this save time, but it may also increase your chances of making the sale.
1. What year was your client’s business established?
Generally speaking, the longer a company has been in business the more competitive the monthly payment will be. Businesses over two years old generally have a larger pool of lease programs to choose from. Unfortunately, this means that startup companies may be limited in their options. This doesn’t mean your client who owns a startup won’t be able to lease; they just may be required to fork over a down payment.
It’s important to learn this information early as this is one of the key things that leasing companies look for. The newer the business, the less credit history there is to show financial responsibility. Stay on the lookout for firms who often deal with startup businesses, because that will be one less obstacle to overcome.
2. How is your client’s business credit history?
Strong corporate pay history is an important aspect for leasing companies when deciding if your client will receive 100% financing. However, a multitude of factors are considered each time a lease is designed. Poor corporate credit doesn’t necessarily mean financing is out the window, so stay positive. All that this means is there may be more hurdles for you to jump over.
Now, there are financing companies that will shut the door when the see your client has only been in business a few short months or has a history of late payments, but don’t let that sour taste in your mouth stop you from researching other companies. For example, Beacon Funding looks at a client’s entire picture, not just their business’s credit score.
3. How is your client’s personal credit?
A client’s personal credit can be a good indicator of what can be expected from them as a business owner. For startups, an owner’s personal pay history is a strong indicator of what the corporation’s pay practices will be. For example, if your client has a history of always paying things on time, then a leasing company may feel more confident working with them. On the other hand, personal pay blemishes, bankruptcy, judgments, and/or liens may have an impact on your business’ perceived credit risk.
This is the best time to talk to your client about their financial past. Make sure they know that all of this information will be obtained soon enough. If you already know your client has a bumpy financial past then you can focus on finding more lenient leasing companies who look at more than just numbers.
4. What kind of equipment is your client leasing?
The terms of the lease are designed to match the useful life of the equipment. For example, a new piece of equipment could have a lease term in excess of five years due to the life span of the piece of equipment. This length of lease allows your client’s monthly payment to be minimal. That being said, a used piece of equipment may have a limited life cycle which would require a much shorter lease term.
Keep your client’s expectations in check. Don’t let them believe they can have a low monthly payment on a used piece of equipment when you know that won’t be the case. Get all the information on the asset they’re looking at so you know what to expect and can help them later on down the road.
5. What factor is most important to your client when selecting a financing option?
There are many different ways your client may respond to this question, and their answers help us determine the appropriate lease structure.
Lowest monthly payment – Cash flow may be extremely important to your client. It’s possible that they have busier months than others, such as seasonal industries like landscaping. If this sounds like your client, then you should mention a Buy Now / Pay Later program, which will allow the new equipment to begin producing revenue before any payments are required by your client.
Reasonably priced lease – Perhaps your client can only think about the big picture and nothing else. The total overall cost is most important, so recommend a short-term lease. If the credit is clean, some of the following programs may appeal to additional concerns the company may have:
- When long-term ownership of the asset is the goal. Lessee who makes 24-60 monthly payments then has the option to purchase the asset for as low as $1 or up to 10% of the original equipment cost. Capital leases, like bank loans, are evident on the lessees’ balance sheet.
- When use, not ownership, of the equipment is important. Operating leases are off-balance sheet transactions. Cash flow is typically enhanced through lower monthly lease payments. Operating leases typically have fair-market-value buyouts in which ownership is negotiated at the end of the lease. You are able to write off 100% of each monthly lease payment, which may be extremely beneficial for your client.
Tax savings – IRS Section 179 allows businesses to write off up to $25,000 in leased equipment at the moment, but in the past that number has skyrocketed at the end of the year. This is a huge benefit to a business come tax time. Alternatively, your client may be able to write off their entire monthly payment throughout the term of the lease as mentioned before.
Fastest payoff – This type of client is not interested in special terms and conditions; they just want the shortest lease term possible. Make sure your client understands that with a shorter lease the monthly payment will be much higher, so that may strongly affect their cash flow.
Knowing more about your client's needs and finances not only puts you at a sales advantage, but also helps your client get the right lease for their situation. No one wants to be forced into a contract they don’t agree with just because that’s the only option. Many leasing companies have created multiple types of leases for that exact reason. When a customer realizes that a company wants to help and not take advantage of them, they are more likely to buy and be a repeat customer. Never underestimate the importance of knowing what your clients want.