Equipment lease financing has become the financing vehicle of choice for many business owners in several countries.
Gone are the days when traditional equipment loans were the primary lending choice. Equipment loans are provided in large numbers, but they tend to be reserved for the best lending profiles of the most patient of business owners.
There are a number of reasons for the exponential growth of equipment leasing which is expected to continue into the foreseeable future.
First, because there is such a large and diverse spectrum of equipment being sold every day, the opportunity exists for lender (or lessor) specialization by asset type, credit rating, industry, geography, and so on. Through specialization, more equipment leasing companies can exist in the market without excessive competition developing. This creates more credit availability and more choice to borrowers.
Second, more specialized leasing companies leads to more streamlined application processes. Lessors that are familiar with certain asset types and the related industries that utilize them process and generate approvals or declines faster than traditional lenders.
Third, lease companies can manage risk more effectively not only through ownership of the underlying assets being leased, but through built up relationships and investments in companies that can accurately valuate the equipment resale market and quickly liquidate inventory as required.
Fourth, equipment lease financing tends to provide some of the highest leverage of any type of business financing available today. In many cases, 100% financing is achievable for companies with decent credit and once a lessee has a strong reputation with a leasing company, higher leverage becomes easier to obtain as well.
Fifth, during a business life cycle, a business entity can go through start up, new business status, growth, distress, decline, and so on. Each of these states can result in different credit profiles that can make it more difficult to acquire financing. With lease financing, the degree of specialization that exists covers off most of these business stages in most industries, providing financing options when and where its required. Higher risk situations will carry higher costs of financing and tighter terms of repayment, but that’s going to expected. The key is knowing that regardless of the stage of development or bump in the road, there is likely going to be a source of credit to draw from for equipment financing.
Sixth, after frustration with a traditional banking process that can take too long and can be difficult to predict, business owners that turn to equipment lease financing many times do not go back to their historical banking sources for equipment loans.