Commercial Equipment Leasing
Commercial Equipment Leasing products can cover many different types of asset types that are utilized by going concern businesses.
A commercial equipment lease, or business equipment lease can finance asset purchases of as low as $1,000 in some cases to several million dollars in cost.
The key difference between consumer equipment leasing and leases for commercial equipment is the variety of assets that are considered for financing.
Every industry has its own equipment usage needs and the related cost need to be financed by some combination of cash, loans, or leases. For commercial leasing to be available for an asset type, the asset needs to have both significant sales in the market on an annual and ongoing basis as well as a resale and/or disposal market for used equipment.
If these conditions exist, then its very likely that a commercial leasing source will be available to business owners that wish to acquire the product.
Commercial equipment lease programs tend to be very focused on a particular slice of the market. Some companies will only consider equipment financing applications of less than $150,000 while still others will concentrate on larger sized equipment financing requirements.
Some leasing companies can be very focused on certain types of equipment while other companies can be very broad based in terms of what they will consider financing.
One thing that is for certain is the more volume and variety of an equipment type sold into the market, the more commercial equipment financing options will be available.
Commercial equipment leasing can also range in cost from bank prime plus effective lending rates to lending rates climbing into the high teens. Higher rates relate to higher risk and lenders that are prepared to provide equipment leases that are higher risk in nature typically will have a strong liquidation pathway for the equipment. What this effectively means is that the leasing company has very in depth knowledge of the equipment resale market and understands exactly how to dispose of the equipment that is financed and what is the likely sale value they can receive under a forced liquidation scenario.
The higher risk lenders tend to be vertically integrated with equipment resellers and auction services that provide the means for disposing of equipment in the event that a lessee defaults on the lease and a collection action needs to be undertaken.
While low risk commercial equipment leasing companies have the same concerns when it comes to managing risk, their focus is more on the financial strength of the overall business and the business owners.
Equipment leases under $25,000 are approved in a similar fashion to consumer financing whereby the decision to approve a lease application is largely based on credit history and stated income. As the the amount of lease financing requested increases, the more information will be required to support an approval. Once applications get into the hundreds of thousands of dollars, multiple years of accountant prepared financial statements will be required along with accounts payable and accounts receivable ledgers, customer contracts, supplier contracts, business plans, cash flow projections, and anything else that would support the case for financing.
And like consumer lease financing, business equipment leasing can cover off 100% of the asset cost, making it a highly leveraged and cash flow friendly form of financing.