What is a Fair Market Lease?

by Benefits of Leasing

Not All Equipment Leases are the Same

A lease may seem like a straightforward term, meaning you make payments on business equipment for a set amount of time and once the leasing term ends, the equipment may be returned to the lessor. In the simplest terms, a lease is a rental agreement in which you pay for the use of equipment for a set amount of time. The two most common leases are fair market value (FMV) leases and capital leases. However, like many financial aspects, there are decisions a business owner must make regarding the type of lease that best suits their financial position, type of business, and type of equipment.

Based on the conversations our team has every day with business owners, we can help shed some light on the benefits of both leases and help you determine which one is best for your situation and goals, both long and short term.  Today we will address a Fair Market Value Lease.

What is a Fair Market Value (FMV) Lease?

A FMV lease derives its name from the lessee’s option to purchase at fair market value the equipment at the end of the leasing agreement. The price is determined at the end of the lease. FMV leases also are referred to as operating and true leases – operating because the lease payments are recorded as an operating expense and true because they work like a basic rental agreement.

What are the Benefits of Fair Market Value Leases?

  1. Monthly lease payments offer an opportunity to add equipment to your business that you might not be able to afford otherwise, which in turn could make your company more efficient and profitable.
  2. FMV leases keep equipment off the books as an asset or a liability since it is never purchased and the lease payment is a deductible operating expense. Since it’s not an asset, the equipment doesn’t increase your company’s value. And because it’s not a liability, it doesn’t increase your debt. Depending on your future business plans, both of these situations could work in your favor.
  3. Generally, FMV leases have lower monthly payments for shorter terms. They are often a viable way to get equipment needed for a short amount of time or for a specific project without taking on debt or the hassle of selling it once the project is over.
  4. FMV leases give you the luxury of time to assess the equipment’s performance and usefulness to your operations. If it doesn’t help you meet your goals, you return it at the end of the lease. If it does, you can purchase it at fair market value once the lease expires.

For Which Types of Businesses are Fair Market Value Leases Ideal?

FMV leases can act as insulation against obsolescence. They are ideal for business owners in the technology sector or another industry in which technology quickly evolves. Rather than investing in equipment that will need to be replaced soon after new technology hits the market, a fair market lease for such equipment lets you return it at the end of the lease. Then, you can enter into a new FMV lease for the latest equipment. Since FMV leases tend to be shorter, your business will never be operating with outdated equipment, unless you decide it sufficiently serves your needs.

Talking with your accountant and Global Financial & Leasing Services can help point you in the right direction of a lease that fits your goals and financial situation.

 

Global Financial & Leasing Services, a Veteran-Owned Leading Equipment Financing Provider

by Company News

Once a Leader, Always a Leader. We Know No Other Way.

Prior to founding Global Financial & Leasing Services and before earning a reputation in the industry as a successful leasing executive while starting other equipment financing companies, Jim “JD” Jenks served in the U.S. Army and is a Vietnam veteran. Jim not only served his country in the 45th surgical hospital, also he earned the Bronze Star Medal, which is awarded for heroic or meritorious achievement or service. Character and leadership – both are instilled in Jim, and both run deep in Global Financial & Leasing Services. Also, both run deep in our client’s businesses.

In 2009 during the Great Recession, he created Global Financial as a financing provider for small- to mid-sized businesses and professionals with credit blemishes that shut them out of traditional credit markets. Access to financing was needed in the tightening credit industry. Numbers on paper shouldn’t be the only factor taken into consideration when it comes to deciding whether a company can finance the equipment needed for business. Jim stepped up and did what was necessary, always has.

As a private veteran-owned business, Global Financial can take character into account along with financial performance and credit scores. As far as Jim and his team are concerned, serving our country speaks to an applicant’s character. It’s a business philosophy that resonates in the marketplace, considering Global Financial is one of the largest veteran-owned companies in the Phoenix, AZ area.

Jim and his team believe in making a difference. He is actively involved in S.E.E.4 Vets and the U.S. Department of Veterans Affairs. Whether it’s in business or in the community, Global Financial & Leasing Services leads. Jim and his team know no other way. If you have a business that needs equipment and a financing provider who values your character as much as your credit score, contact us today.

Save Cash When Leasing Equipment

by Benefits of Leasing

More reasons to consider leasing

Leasing equipment protects your cash flow. Leasing equipment has a lower upfront cost, which is incredibly appealing if you have fewer available capital funds than operating funds. Also, leasing gives you time to pass the cost of your lease payment on to customers through your pricing structure.

It provides a cushion from the negative effects of obsolescence. Technology advances so rapidly that equipment you purchase today stands a good chance of being obsolete in a few years if you’re lucky – months if you’re not. Replacing outdated lower-cost technology like phones and computers is difficult enough to stomach. Updating equipment that you invested tens or hundreds of thousands of dollars in is like a kick in the stomach.

With a lease agreement, you’re paying monthly for equipment that meets your immediate needs. When the time comes to update your technology, often lease agreements include options for trading in leased equipment for new technology. This is so common that even cellular providers are now leasing smartphones for a monthly fee with an upgrade guarantee, meaning customers never buy and own their phones, but they can always trade up as soon as new models are released.

Trading in leased equipment is far easier than trying to sell that equipment. Others in your industry want the latest technology and are not willing to take on the cost of obsolete equipment. More often than not, outdated equipment ends up collecting dust and taking up valuable space in storage. Or worse, it is kept in use and negatively effects productivity and profit.

The leasing company takes care of the down payment upfront. Purchasing a piece of equipment can require a hefty down payment, similar to the down payment homebuyers are required to put down when buying a house. Leasing equipment eliminates that down payment because the leasing company pays the down payment and rolls it into the monthly lease payments.

Bottom line. Why drain your cash reserves to buy equipment when you could allocate that money toward growing your business and being more competitive in the marketplace? Leasing equipment allows you to retain cash and acquire the revenue-generating equipment your business needs.

Since 2009, we’ve helped decision makers in health/medical, construction, restaurant, machinery/manufacturing, printing, and logging/forestry industries lease or finance the purchases critical to their business. Let’s talk about how we can help your business succeed.

Should a Company Lease or Buy Equipment?

by Benefits of Leasing

What smart business owners understand about leasing equipment vs. buying equipment

A smart business owner would never hire a dynamic, new sales associate and pay him or her three years’ salary in advance. No. Instead, a smart business owner ties compensation to the revenue the sales associate generates for the company. Even though many business owners consider their employees their company’s most important “asset,” they pay a salary for their productivity as it generates sales, and not a minute before.

Regardless of the industry you’re in, this same mindset should apply to how you add business equipment. Just like you’d never waste resources hiring a non-essential employee, it’s a waste of money to invest in equipment unless you can answer, “Yes,” to two questions:

  1. Is it essential to providing your service or product?
  2. Will it generate revenue?

Once you’ve determined that a piece of equipment will help grow your business, the next decision is how to pay for it. The two most obvious choices are to either buy it or lease it. In the majority of cases, smart business owners lease equipment. That way the payments are made over time and are funded by the revenue the equipment generates.

The formula for determining whether leasing a piece of equipment is a smart move is simple:

The revenue generated by the equipment is > or = to the lease payment.

If it is, then leasing makes sense for a number of reasons.

Contact us for more information on how you can make leasing work for your business.

Top 10 Equipment Acquisition Trends for 2017

by Industry News

$1.5 Trillion to be Spent Predicts ELF

Despite signs of Bad Moon rising, the Equipment Leasing and Finance Association predict optimism and spending by U.S. businesses, nonprofit and government agencies over $1.5 trillion in capital goods or fixed business investment. They predict “Businesses will find positive momentum for equipment investment as the changing economic and regulatory environment contributes to improved business conditions.”

The Demise of “Personal” Banking

by Industry News

Not that long ago, small businesses had personal relationships with their local banks.

But that was before the financial crisis of 2007-08 and the global economic collapse, followed by the consolidation of many institutions into fewer and fewer banks.

Today’s banks, more often than not, are national or multi-national entities that don’t see enough profit margin in giving out small business loans.

The number of loans issued by 10 of the largest banks in the U.S. has decreased 38 percent to $44.7 billion in 2014, the Wall Street Journal reports . This is compared to 2006, when it was at its peak at $72.5 billion, which was one year before the financial crisis.

A working paper published by the Harvard Business School, written by Karen Gordon Mills and Brayden McCarthy titled, “The State of Small Business Lending: Credit Access during the Recovery and How Technology May Change the Game ” (PDF) goes into great detail about why there is a credit shortage in the small business sector and the impact it is having on the largest private workforce employer in the U.S.

This has led the authors to ask “Is there a credit gap in small business lending?”

According to the Federal Deposit Insurance Corp., as reported on the WSJ, loans to large companies has increased by 37 percent from 2008 to 2015. During the same period, banks of all sizes went from holding $711 billion in small business loans to $598 billion. This clearly answers the question the Harvard paper asks.

By  contrast, the Biz2Credit Small Business Lending Index for October 2015 revealed large banks with $10 billion or more in assets have actually increased loans to small businesses. In the report, Biz2Credit CEO Rohit Arora explains, “As interest rates start going up, we expect further increase in the Big Banks appetite for small business loans. Big Banks are also warming up to buy more loans from the marketplace lenders.”

But what is important to remember here is the low overall approval rate for small business loans, which was at 49 percent for October of 2015 at big banks, the Biz2Credit index reminds us. So even though loan approvals are increasing at big banks, small businesses are still hearing “no” more than half the time.

The need for loans by small businesses along with the reluctance of large banks to give them has increased the market share of non-bank lenders from 10 to 26 percent. But some of the rates for these loans are quite high when compared to traditional loans.

The Wall Street Journal  article has an example of a restaurant owner in Los Angeles who was charged rates above 80 percent by two online lenders for a $25,000 loan. He was forced to choose this alternative after he was turned down by the bank he had been doing business with for several years.

The large banks don’t see the benefit of making these small loans, because it takes just about the same amount of effort to originate small and large loans. For small businesses, it now means getting a credit card from the large banks with the amount needed. And considering how much the non-bank lenders charge, the 12.85 percent average real banks charge for credit cards make more sense.

So why have large banks lowered their loan approval rates when it comes to small businesses? The answer is increased regulation put in place after the financial crisis, decline in community banking and lower profit margins on smaller loans.

Jay DesMarteau, head of small business banking at TD Bank, told the Wall Street Journal, “We all struggle to make money on the lending side. It’s a lot of work to try and find these little companies, underwrite them and manage the book.”

As for the banks, they are working together with not for profit lenders to provide credit to small firms. So if you are a small business looking for a loan, ask the big banks if they have such arrangements before you go and apply with a non-bank lender online that could charge you 80 plus percent.

It is important to point out not all alternative lenders charge the rates highlighted by the Wall Street Journal report. So shopper be ware and take your time, because there are many alternative lenders out there.

Article Source:  Small Business Trends (Please visit this site for PDFs and other referenced documents.)

64% of Small Business Owners Still Recovering from Great Recession

by Industry News

Seven years after the “Great Recession,” two-thirds (64%) of small business owners report their businesses are still in the process of recovering, according to Bank of America’s spring 2015 Small Business Owner Report. The report, based on a semi-annual survey of 1,000 small business owners across the country, says that only one in five (21%) small businesses state they have completely recovered from the recession.

However, despite these lingering impacts from the Great Recession, small business owners are still confident about the future growth of their businesses: 63% believe revenue will increase in the next 12 months (versus 62% last fall), and 66% plan to grow their business in the next five years.

“Small business owners are optimistic about the future and are working extremely hard to achieve success,” said Robb Hilson, Bank of America Small Business executive. “As they have focused on recovery, many business owners have embraced a mindset of self-sacrifice. They are prioritizing their employees and customers above all else and it is often at the expense of their own personal or financial well-being.”

Source – Bank of America’s Spring 2015 Small Business Owner Report.

 

Successful Financing Take-Out of Printing Presses

by Company News

Global Financial Finances Take-Out of Two Large Printing Presses

MAC Financial was getting out of the press financing and was looking for a company to take out the financing on a family owned printing company that experienced past financial blemishes. Banks and other lenders fled from this account, but Global Financial stepped up to the plate. Deal was approved, negotiated, documented, and closed.

Vendor’s Sales Target Exceeded

by Company News

Global Financial Assists Vendor in Exceeding Sales Target!

Global Financial was called upon on September 25th to assist with a $420K transaction that another lender had for over two weeks promising an approval only to come back with a 13th hour decline. Global approved the transaction in <3 hours, thanks to a very accommodating customer, and sent documents to customer on 26th. Customer came back on the Monday, 29th with requested changes. After a discussion, changes were minimized, and change letter prepared. Signed documents received on the 30th and PO was issued to vendor.