Properly executed, equipment leasing is the most cost-effective approach to financing capital expenditures. However, misleading term sheets, one-sided rental agreements, and time-consuming liability management can exasperate the lessee and undermine financial objectives. At Blue Sky Capital, we help you overcome those challenges to establish equipment finance as an essential part of your funding strategy.
5 Tips to Save Money on Your Lease Contracts (& Eliminate Hidden Costs)
Practical Tips to Save Money on Your Equipment Finance Contracts
- Find the right Partner
Selecting the right Partner is the cornerstone of an adequate equipment finance & leasing strategy. The landscape is filled with diverse lessors, including banks, captives (leasing arm of a manufacturer), and specialty finance/independents. Deal parameters such as asset type, credit profile, and structure (end-of-lease options) determine which category of lessor provides the best fit. Note companies pay a premium when a Lessor extends outside their normal deal box. - Competitive bid the project
Equipment finance rates vary widely from one lessor to the next, so it is essential to solicit bids from multiple sources to ensure you are receiving market pricing. To run an effective competitive bid, companies should secure at least three quotes from targeted lessors and then leverage their position with the best offer. - Scrutinize the term sheet
An equipment leasing proposal can be an indecipherable document full of industry jargon like “lease rate factor,” so ask questions. Don’t execute a term sheet until you understand all aspects of the proposal, and remember that the monthly rental is only part of the overall lease economics. Ask for a sample amortization schedule if you are unsure of the amount and timing of the cash flows. - Align the lease term with the equipment’s intended use
First, decide how long you intend to use the equipment, then request an equipment finance lease proposal to match that term. Leasing is an effective strategy to reduce the total cost of ownership (TCO), but only if you understand the optimal economic life of that asset where the benefits of replacing assets outweigh escalating maintenance costs and productivity loss. Compressed product life cycles accelerate technical obsolescence, so plan ahead. - Interim Rent
Finally, interim rent remains a yield enhancement mechanism embedded in most agreements. The period between the acceptance date when the lease starts accruing rent and the base term is defined as the first day of the following calendar month (or worse yet, quarter!) when the base term commences. It will undercut any success you achieved in negotiating a competitive lease rate! Thus, in an equipment finance lease contract, strive to modify to an “interim interest” concept or, better yet, sign the certificate of acceptance on the first of the month. Success rates are higher with a broader view of the equipment finance lease landscape – and hard data to back you up.
Schedule Our Services!
Blue Sky Capital Strategies, LLC provides commercial equipment leasing and advisory services. Our business is helping clients and companies to develop and manage their equipment leasing plans. We are committed to showing our clients that leasing can help them grow their business, protect their assets, and save money. We incorporate the best practices to walk with our clients in every step of the leasing process. At Blue Sky, we are always happy to help you find the best equipment leasing plan for your needs.
Schedule a meeting today at https://bsyl.ink/james-046e6d or reach out to James Burn for more information at james.burns@bluskycapital.com.