Brad Bayless Authors Article for Newsline (NEFA)

January 17, 2013

All’s Fair That Ends Fair
In This Economy Fair Market Value Leases May Offer the Best Value

With the current state of our post-recession economy and expected growth from companies in 2013 as we pull out of the doldrums into more optimistic times, I am bullish on operating or fair market value (FMV) leases as the most prudent option for equipment leasing today. In this ever-evolving business environment, FMV leases give business owners and CFO’s maximum flexibility and often lower monthly payments while reducing the risk for the technology to become outdated or obsolete. In today’s business climate, these are critical factors to facilitating emerging growth. According to a recent survey of small to middle-market business owners by Forbes Insights and CIT, more than four out of five executives said their companies made at least one capital goods purchase of significant cost within the last year. And the same number said they will make an additional acquisition within the next six to 18 months. More than one-third reported that the business need was “too strong” to delay the equipment purchase.

Rise of the Fair Market Value Lease

Those sentiments related to making essential equipment purchases have been echoed by our own clients, my colleagues in the industry and the small to mid-sized businesses we meet with regularly. I’ve been in the equipment leasing industry for most of my 30-year career and I have never seen a landscape more ripe for FMV leases than today. I believe wholeheartedly that companies today are evaluating the next steps in terms of technology platforms and overall improvements to enhance their operations and manage growth. With that kind of momentum in the business marketplace, flexibility is a must and undoubtedly one of the cornerstones of a true operating lease. The five big keys to FMV leases in today’s economic climate include:

• Less Risk: The lessor owns the equipment as well as the risk associated with ownership
• Keeps Equipment Up to Date: Lessees can return equipment at end of lease, especially valuable for technology related equipment, can refresh with no penalty, and are only paying for the useful life of the equipment.
• Tax Benefits: Advantages can vary
• Flexibility: Payment plans range from variable to fixed, seasonal to deferred with a variety of options for the lessee.
• Less Restrictive than Bank Financing: With today’s technology landscape changing too quickly for anyone without a crystal ball to know exactly what to do, operating leases truly offer the flexibility to be able to respond to the changes in technology when it comes to leasing the necessary equipment. Companies who may opt for a fair market value lease can adapt to market changes without the unwieldy burden of being tied to any specific equipment or software brand, supplier or platform. They also offer a distinct advantage at tax time.

Picking a Payment Plan

Once a lessee has settled on operating lease, evaluating the various payment plan options is the next step. A company’s accounting, budgetary requirements and cash flow management may require a customized structure, but typical FMV payment plans include:

• Fixed Plan: Offers consistent monthly or quarterly payments
• Seasonal Lease Plan: A seasonal leasing plan works best for businesses with cyclical or seasonal changes in cash flow due to the operating schedule or other factors affecting cash flow
• Deferred or Skipped Payment Plan: This plan allows a customer to begin payment of the lease typically 30, 60 or 90 days after taking possession of the equipment according to the agreement.

Additional payment plans may include: bundled financing for equipment, installation, and training or conversion and upgrade leases.

Overcoming Obsolescence

Making sure customers have every advantage available in the marketplace is the key to providing the best service and delivering real value to create long-term relationships. Our advice to clients today is: invest in the necessary resources to grow your business without over-leveraging and, if possible, keep cash readily available for your operational needs. We can heighten the overall value of our industry by serving as advisors—offering a variety of financing options, explaining the important qualities associated with each one and helping clients accommodate new growth by having the proper systems in place. By offering the option of an FMV lease during the consultation process, a business owner or CFO may seize the opportunity to stay current on technology trends and deliver the most up-to-date equipment and software to their employees to increase productivity and stay ahead of the competition. And with an FMV lease, a company will only be responsible for the useful life of the equipment and have the ability to refresh as needed—ending the cycle of outdated technology and moving toward greater efficiency, while taking the strain off their balance sheet.

Read the entire Newsline publication featuring Brad’s article here.

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