Equipment leasing companies all too often find themselves in a quandary when they seek funding sources to finance their leases or expand their businesses. Although these companies often have the same reasons as other companies for needing cash, they may not fit comfortably into the traditional commercial loan parameters their banks have established.
In fact, most financial institutions tend to view loans to equipment leasing companies as a potentially riskier niche market — one they may be unwilling or unable to enter. Local banks may not be able to provide the capital such firms require at a rate they can afford. And even if banks are willing and able to offer equipment lease financing, the approval process for loans may be prohibitively long. That means equipment leasing companies may need to look elsewhere for the financing they require.
They may also have an increasingly smaller number of lenders from which to choose. Mergers and acquisitions, changing business demands and general shifts in business strategies all affect the number of companies that finance leases. In addition, increased market liquidity and competitive pressures have pushed interest rates on lease loans below some institutions’ comfort levels, reducing an already limited list of interested lenders.
Industry changes also affect how equipment leasing companies operate. In many cases, they are essentially brokers that work with little capital of their own. While there is financing available for such firms, some financial institutions may prefer to lend money to full-service leasing companies that match their risk parameters and are willing to invest a portion of their own funds into leases.
For equipment leasing firms, a good first step to finding reliable, affordable and prompt financing is to seek referrals. Many reputable banks that finance leases on a national basis are members of the Equipment Leasing Association, which can supply a list of potential lenders. Prospective borrowers can pare that list by asking others in the industry for recommendations and then opening discussions with the lenders rated most highly in the field.
Just as lenders prefer stable, reputable borrowers, equipment leasing companies should look for reputable lenders who have been in business for a long time. If a bank can provide options such as bridge loans, equity loans or working-capital lines of credit in addition to financing individual lease transactions, the benefits to both sides increase substantially.
While pricing must always be a prime consideration in obtaining financing, equipment leasing companies also rely on speed to survive. When large companies solicit proposals from two or three equipment leasing firms, the one that answers first may make the best impression, which goes a long way toward getting the job.
That pressure for quick action is passed along to lenders, often making loans for equipment leasing firms more time-sensitive than typical commercial loans.
In recent years, most banks have been working to speed their approval processes for all commercial transactions, but banks with histories of quick turnarounds have an advantage in the equipment leasing market. They already understand how to lay the groundwork with the necessary legal and administrative paperwork, they communicate clearly what documentation will be required and indicate equally clearly what timeframes will be involved.
The result is the smooth, efficient service equipment leasing companies require.
Banks with extensive experience in these types of loans also can structure transactions for larger amounts more quickly. When financing requirements exceed their own capabilities, they can streamline the process of assembling syndicated transactions for approved customers.
Finally, banks with established reputations in equipment leasing financing can anticipate and adapt to changes in the market while continuing to offer their customers a high level of service. While pricing and turnaround time are important in selecting a lender, the relationship after the transaction is completed must enter into a company’s decision-making process, as well.
An objective for both the bank and the leasing company is to develop a satisfying, long-term relationship. The bank needs the leasing company to provide new lease loan business, while the leasing company needs a reliable funding partner for its continued growth.
Banks that visit their customers’ sites to get a fuller understanding of each client’s operations, that are available for advice even when a transaction isn’t imminent and that are familiar not only with banking trends but also with equipment leasing trends provide true value-added service. For equipment leasing companies that need more than cash, that’s a distinct advantage.
Dennis Roesslein is vice president of lease banking at MB Financial Bank. Reach him at (847) 653-1906 or www.mbfinancial.com.
