From landing an investment to grow a business, to hiring new staff or whether to attract more clients, financial decisions are everywhere for business owners. Acquiring equipment should be considered just as highly as other financial decisions. It’s essential to map out and be aware of how equipment fits into companies.
Today, equipment has become an essential element to everyday business functionality. Leasing companies also know this which is why equipment can be very expensive. It’s especially difficult for new start-up companies.
Naturally, financial advisors would encourage leasing offers to businesses in those situations. Leasing equipment offers affordable options and allows businesses to spread huge equipment costs over several months. But one thing advisors forget at times is many financing companies are open to negotiation.
The tough part is figuring out how to do it.
Knowledge is everything in negotiations and there is a lot of information businesses can gather before sitting at the negotiation table. Information such as the following is helpful:
There are several costs associated to that and when companies choose to buy to own, those costs need to be absorbed. With leasing, these are all baked into the monthly pricing so companies should still look into whether there are costs associated to this and how much.
When a figure is presented, businesses will need to consider whether that is affordable for them or not. In this situation, it helps to have an experienced accountant and tax consultant to ensure business owners get the most out of a negotiation and lease.
Budget considerations are few in number but still need to be considered as these considerations go beyond the monthly payments. For example, businesses should consider whether they are signing for a capital lease or not. After all, those leases offer businesses a requirement to pay a deposit.
There is also the intention after the lease is up. Some business owners may want to own the equipment afterwards. This can be brought forth to the negotiations and would require owners to have a residual amount or buy-out figure ready in the lease.
Another consideration is the interest rate and APR. These are figures that can be negotiated depending on how long the business has been operating. For newer companies, it’ll be harder to negotiate these rates since they’re newer and present higher risks. Regardless, it helps to come into negotiations with lower interest rates in mind along with strong reasons for why the business is lower risk.
Finally, businesses should consider situations of early termination. Most leases can’t be cancelled. As such, businesses will be hit with a penalty fee if they quit earlier. If the business believes they may quit early, mention this at the start of the lease and agree to the termination amount in advance.
From an accounting perspective, leases are a big bone for companies. Operating leases, for example, are reported as expenses on the balance sheet and not a depreciating asset. What this means for the business is the following:
Working closely with a tax practitioner, companies can get a large portion of costs and interest written off.
A credit score is everything for a business. Even if a business has no credit score or a bad one, getting financing is still available, though certainly tougher. In the cases of leasing, bad scores mean higher payment rates.
In cases with no score for the business, lessors will turn to the credit score of the business owner.
Regardless, the process involves less paperwork and is more straightforward. Especially since there are several financing options. For start-ups, it’s helpful since owners will have no credit score to start.
For businesses with strong credit scores, this is a bargaining chip as it’s a clear tell to lessors that the business has less risk as it’s not likely to default on payments. This allows businesses to negotiate lower rates. Furthermore, companies could negotiate benefits in the lease as well. For example, insurance or maintenance costs could be included in the monthly payments or administrative fees could be lowered.
On top of all the research done thus far, businesses should be doing their due diligence on the leasing company itself. It’s essential to find a lessor that’s reliable, transparent, and communicative. Businesses should also look at companies who are personable as well.
The ideal financing company is one that invests in the businesses they deal with while staying on top of trends and market movements. A financing company should also be able to provide tailor-made leasing rates.
Shopping around for these will provide businesses with an idea of what those businesses are like and what they offer. It’s all about getting more information to make the best decision.
Before agreeing to any lease, businesses must consider the terms of the contract. Each element should be considered heavily and how it ties into what’s happening in the world and the industry.
For example, while the pandemic was unexpected, it did disrupt multiple businesses, especially in the cases of cancellation clauses. Thousands of businesses had to suddenly evolve and shift about to remain competitive while also being stuck with those financial obligations. While future businesses don’t have to deal with this situation at present, it’s worth considering potential scenarios should a business no longer be able to afford the leasing rate.
Another note to consider is with operating leases. It’s prudent for businesses to negotiate renewal options at the start and consider other possibilities. Some businesses may need upgrades to the equipment or might need to re-lease the same equipment. The key is for businesses to consider reasonable costs and to not pay more than what is necessary.
Even armed with information isn’t enough if businesses aren’t able to negotiate properly. For starters, it helps to have an attorney and an accountant (or tax consultant) present during the process. Beyond that, consider the basic rules of negotiation:
A leasing company in many circumstances does want business and is open to negotiation as a result. With that in mind, businesses can freely shop around and consider what is the best arrangement for them. Remember to always do research as well. The more businesses are prepared at the negotiation table, the better deal they can get.
Get started leasing or financing the equipment you need. Contact Yellowhead Equipment Finance today to get started. We’ll help you identify your eligibility, work with you to understand your options, and work with appropriate lenders to get the best solutions for your financing needs.