Leasing Has Not Lost Its Sizzle

by: Christopher Menkin

All this negativity and talk about the coming FASB changes is making Norman Vincent Peale turn over in his grave. The pending FASB Rules will be good for economy, and for leasing, too. It will bring more transparency to investors, creditors, and honesty. It will give decision makers and credit grantors more information, including those who investment in stock or a new company. The talk reminds me of the Y2K2 bug that if not corrected it would ruin the entire computer industry: the world will stop, satellites will launch missiles, clocks will stop. What a bunch of hype!

The majority of leases written in 2009 were capital leases, over 91%, according to the Equipment Leasing and Finance Foundation. This is not going to diminish.

Perhaps with a real operating lease more companies will be able to move more equipment with real operating leases where the equipment is returned at the end of the term or "re-leased" back or to others. There may be a boom, in fact, for ATEL Capital, Icon Capital, P&L Capital, as many others in this marketplace. It will not be a bust.

It may be a boom for these companies.

Leasing is not consumer financing. The rate is not in the contract. The rate is what every good salesperson knows how to get around as the top ten reasons to lease have not, nor will they change very much as a top salesman knows how to close a deal with them. Banks buying portfolios or lending lines of credit are not based on tax consequences.

The main target on why a business should lease will not change.

"It is the use of equipment, not ownership."

Leasing still has the sizzle in moving a piece of equipment from the showroom floor to the business location:

1. Saves Cash - no money "down."
2. Usually longer term available, resulting in, lower monthly payment.
3. Fast and convenient - less hassle for long term "borrowing".
4. Doesn't affect bank lines of credit for accounts receivable/working capital/Inventory.
5. Provides cost-cutting or profit making equipment to be installed immediately.
6. May increase the firm's ability to acquire funds.
7. Doesn't dilute ownership by requiring new investors or raising capital.
8. Establishes a new line of credit for future growth
9. Improves bottom line due to less cash outlay
10. Improves credit ratings for suppliers/customers

And you can’t beat leasing for vehicle financing!

As the economy continues to recover, although not as fast as we all want it to expand, it will create more competition and therefore more leasing companies, more funding sources, and more sales.

In Darwin’s Theory of Evolution, it is the fittest who survive.

Disclosure: No position