(Financial mentoring) The sense of using machine leasing when acquiring machinery for your enterprise
No commentsBy Arthur Clarkson
It is sensible to get several quotations for machine leasing. The easy tactic in the first instance is to ask for a price from the suggested finance firm. This should be a reasonable quote as the seller is well motivated to ensure that they’ll produce sales of their equipment. However, not each company will find that it gets the best price by this method. Shop around and obtain multiple costs from alternative firms.
If you are in the marketplace for machine leasing then it should not be troublesome to locate an appropriate finance provider. There are lease options on the market for nearly any equipment a firm may conceivably need ranging from plant through to machinery and vehicles. Though it may not be immediately obvious, the finance company offering the lease financing is in the majority of cases not the same business that’s selling you the asset. You will often get a referral from the supplier selling the asset to their chosen finance company.
Asset finance is a far-reaching term describing the varied methods that are employed to fund the acquisition of assets for a firm. In a few scenarios the assets are never actually legally owned by the company because the finance supplier retains ownership of the equipment. The key purpose from the company owners perspective is that they get the utilization of the asset in return for regular payments. In general what is significant to a company is that they will utilise an asset, no matter whether they actually own it or not, to allow their business to operate efficiently and produce greater levels of success.
One kind of asset finance is where a firm enters into an Operating Lease. In this case the equipment belongs to the lessor who effectively rents the equipment to the lessee over an contracted period (typically one to 5 years). At the end of the contracted period the lessor will either sell the asset in the second user market or lease it for a second time. This means that the lease payments can be kept low because the total asset worth does not need to be recovered by the finance company in the first period. At the end of the machine lease term the asset is either given back to the lessor or an additional lease agreement might be put in place.
In the scenario of a Finance Lease the equipment is owned by the finance company. But in this situation the lease repayments are calculated to include the total value of owning the equipment. An additional variation would be for a balloon payment to be included to hold recurring repayments low and a bigger final payment at the end of the term of the lease. When the asset is finally sold at the end of the period the business will normally be given a portion of the disposal price split with the finance provider as per a predetermined formula. A finance lease may additionally include the choice to extend the rental timescale when the term finished for what is known as a peppercorn fee. The peppercorn rent is a small ongoing payment relative to the scale of the original payments.
Like all areas of commercial purchasing you ought to plan to source several quotations when selecting a machine leasing firm. You usually will get a proposal straight from the equipment dealer if the situation is simple.
What Went Wrong with Small Business Lenders?
By Garrett36 Pierson36
The process of finding what went wrong with commercial lending and small business financing is designed to help business owners avoid serious future problems with their working capital loans and commercial mortgages. Especially if they need help finding realistic small business finance options, this is a critical issue for most commercial borrowers. Business owners should be prepared for the banks and bankers who caused the recent financial chaos to say that nothing has gone wrong with commercial lending and even if it did everything is back to normal. It is hard to imagine how anything could be further from the truth. If small business owners and commercial lenders choose to ignore the many mistakes made by business lenders, as noted in a popular phrase we may be doomed to repeat these mistakes.
For many of the most serious business finance mistakes made by lending institutions, greed is a common theme . An attempt to produce quick profits and higher-than-normal returns had unsurprisingly negative results. The bankers themselves seem to be the only ones surprised by the devastating losses that they produced. The largest small business lender in the United States (CIT Group) declared bankruptcy after two years of attempting to get someone else to pay for their mistakes. We are already seeing a record level of bank failures, and by most accounts many of the largest banks should have been allowed to fail but were instead supported by artificial government funding.
There were many instances in which banks failed to look at cash flow when making loans or buying securities such as those now referred to as toxic assets. A stated income business loan underwriting process was used for some small business finance programs in which commercial borrower tax returns were not even obtained. Lehman Brothers was one of the most aggressive commercial lenders using this approach, and they filed for bankruptcy last year due to this as well as other questionable financial practices.
Bankers obsessed with generating quick profits frequently lost sight of a basic investment principle that asset valuations can decrease quickly and do not always increase. Many commercial loans were made in which there was little or no equity by the business borrower. When buying the future toxic assets, banks themselves invested as little as three cents on the dollar. The erroneous assumption by banks was that any downward change in value would be limited to about three percent. In fact we have now seen many commercial real estate values decrease by 40 to 50 percent during the past two years. For banks which made the original commercial mortgage loans on such business properties, commercial real estate is proving to be the next toxic asset on their balance sheets. In contrast to the government bailouts to banks having toxic assets based on non-performing residential loans, it is unlikely that banks will receive similar financial assistance to cover commercial mortgage problems. Over the next three years it is currently projected that these growing commercial mortgage losses will pose serious problems for the ongoing survival of many business lenders. Despite ongoing concern and criticism about current reduced business lending activity, many commercial lenders have effectively stopped any meaningful small business financing.
An ongoing problem is illustrated by misleading lender statements about their small business financing activities. While many banks have reported that they are continuing normally with small business finance programs, by almost any standard the actual results indicate something very different. From a public relations viewpoint, it is clear that banks would rather not admit publicly that they are not lending normally. As a result of this particular issue alone, small business owners will need to be cautious and skeptical in their attempts to secure business financing.
There are some realistic and practical business financing solutions available to small business owners in spite of the questionable commercial banking practices illustrated above. The emphasis here is focusing on the problems rather than the solutions primarily because of the lingering notion by some that there are not significant current commercial lending problems. Most objective observers (which do not include politicians and lenders) are almost unanimous that the series of errors made by business lenders are likely to be long-lasting for business borrowers in their ongoing efforts to obtain small business financing.
Stephen Bush and AEX Commercial Financing Group specialize in business finance services and business loans. Steve provides small business financing options and working capital management advice.
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Saturday, November 28th, 2009 at 8:30 am and is filed under finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
