Let the Lease Broker Do the Work

Direct funders are just one of the many entities to offer a direct source for lease financing or a loan. The advantage to working directly with a funding source is that you now have ultimate control over the entire process. The disadvantage is that you must now become the resident lease expert(s) for your company. Often it is difficult for a non-expert to compare transactions because of the different terminology as well as the methodology itself.

When working with direct funders, we often assume that they are also the source of the money. While this may be true in some cases, most direct funders 'buy' money at a discounted rate from banks and other funding sources, in order to cover a multitude of transactions. Typically, you do not see the workings or the machinations of how the funding process has worked and, not being in the industry, are not familiar with the complicated processes involved in funding a project from the funder's internal office perspective. In fact, some funders have entire divisions dedicated to 'syndication' transactions. These are transactions that are accepted on an in-house basis, but are earmarked for transfer and assignment to another funder.

What You Do Not See

The actual 'buyer' on a project may be a completely different entity. This may be disclosed at the onset, but more than likely it is not. The identity of this buyer (funder) may never be realized by you unless and until the contract is assigned. A standard lease agreement typically allows your funder to 'sell' the contract to another entity. Since no one can predict mergers, acquisitions and the progressive state of the funder's business, this is a clause that cannot be removed. Whenever you enter into a lease agreement (or loan agreement or any other agreement with a bank or lessor), there is always a chance that the contract will go to another entity: one that you have not chosen to work with.

What a Broker Does

A misconception in most industries that utilize lease financing as a tool to acquire equipment is that working with a lease broker or consultant is more expensive than working directly with the lessor. This could not be further from the truth! If properly connected and positioned, a broker secures a discounted rate that is below that rate which is offered on a direct basis. The funder does not pay salary, benefits, etc. that it does pay to its direct employees, so the broker poses no overhead for the funder. Brokers compete with direct lenders so the incentive is to be as competitive as possible.

The most important thing that a lease broker can do for you is lend you their expertise in the lease process, from finding a money source to administration of your lease. The relationship can also extend to solving problems and dealing with issues, whether unexpected or having to do with end-of-term. A good lease broker has been in the business a while and recognizes the nuances, advantages, the similarities and differences between funding sources. While you may recognize a lender's name from advertising and print, that lender may not be appropriate for your company's needs. Working with a lease broker gives you a choice of working with a variety of sources. This can be difficult for an individual in your firm to do because of a very large pool of decisions and options available.

Lease brokers have relationships with several funding sources and can point you in the right direction so you are not spending an inordinate amount of time shopping in a very, very large marketplace for the source that will fit your needs. If you choose to allow them to be your representative in the lease placement process, they can streamline the credit process to the point where you put together one comprehensive package, then sit back and wait for the proposals to roll in. Some will offer a full range of consulting services such as preparing requests for proposals as well as evaluating the responses.

Unlike a lease source, you will be working with the same person throughout the lease process, from credit to lease placement to administration of the lease itself. He or she will keep comprehensive records of your transaction and you will be able to ask questions about your lease without having to suffer the bane of a nameless, faceless customer service department, even years after your project has been completed.

Sure, there are unscrupulous brokers out there just as there are less-than-honest employees of direct lenders. Monetary benefit can be added to virtually any transaction to the singular benefit of the lender and/or its agents. Think about it, though. Once you are duped or gouged on a transaction, how many of these funders are you likely to ever do business again?

Conclusion

Unless you are using brokers as consultants to evaluate existing proposals, contracts, issues, etc., you are probably not paying them anything for their services. Why not take full advantage of their expertise? The bottom line is that they are (or should be) trying to get the best possible 'deal' for you. As such, it may seem like you are gathering a lot of information. Keep in mind that from a credit perspective less equals more. The more information you can provide, the more you can help your lease broker do a good job for you.

Sonia von Matt Stoddard is the founder of Stoddard & Associates, a Los Angeles-based firm of independent equipment lease consultants and brokers. Stoddard can be reached at 310-390-2009. E-mail: [email protected].

Many firms take on the quest for a lease partner without first conducting a careful review at this very important starting point. Who you will work with on your lease project is critical and crucial to the success of your lease.

Direct Funders

Several funding sources actively pursue businesses on a direct basis. This means that a funder has at least one in-house individual, department, or division dedicated to finding business directly for their company from yours. Individuals doing direct business are typically salaried employees, with benefits, who are paid a commission (or commissions) on actual new contracts ' developed and funded deals resulting in 'booked' transactions for the funder.

Direct funders are just one of the many entities to offer a direct source for lease financing or a loan. The advantage to working directly with a funding source is that you now have ultimate control over the entire process. The disadvantage is that you must now become the resident lease expert(s) for your company. Often it is difficult for a non-expert to compare transactions because of the different terminology as well as the methodology itself.

When working with direct funders, we often assume that they are also the source of the money. While this may be true in some cases, most direct funders 'buy' money at a discounted rate from banks and other funding sources, in order to cover a multitude of transactions. Typically, you do not see the workings or the machinations of how the funding process has worked and, not being in the industry, are not familiar with the complicated processes involved in funding a project from the funder's internal office perspective. In fact, some funders have entire divisions dedicated to 'syndication' transactions. These are transactions that are accepted on an in-house basis, but are earmarked for transfer and assignment to another funder.

What You Do Not See

The actual 'buyer' on a project may be a completely different entity. This may be disclosed at the onset, but more than likely it is not. The identity of this buyer (funder) may never be realized by you unless and until the contract is assigned. A standard lease agreement typically allows your funder to 'sell' the contract to another entity. Since no one can predict mergers, acquisitions and the progressive state of the funder's business, this is a clause that cannot be removed. Whenever you enter into a lease agreement (or loan agreement or any other agreement with a bank or lessor), there is always a chance that the contract will go to another entity: one that you have not chosen to work with.

What a Broker Does

A misconception in most industries that utilize lease financing as a tool to acquire equipment is that working with a lease broker or consultant is more expensive than working directly with the lessor. This could not be further from the truth! If properly connected and positioned, a broker secures a discounted rate that is below that rate which is offered on a direct basis. The funder does not pay salary, benefits, etc. that it does pay to its direct employees, so the broker poses no overhead for the funder. Brokers compete with direct lenders so the incentive is to be as competitive as possible.

The most important thing that a lease broker can do for you is lend you their expertise in the lease process, from finding a money source to administration of your lease. The relationship can also extend to solving problems and dealing with issues, whether unexpected or having to do with end-of-term. A good lease broker has been in the business a while and recognizes the nuances, advantages, the similarities and differences between funding sources. While you may recognize a lender's name from advertising and print, that lender may not be appropriate for your company's needs. Working with a lease broker gives you a choice of working with a variety of sources. This can be difficult for an individual in your firm to do because of a very large pool of decisions and options available.

Lease brokers have relationships with several funding sources and can point you in the right direction so you are not spending an inordinate amount of time shopping in a very, very large marketplace for the source that will fit your needs. If you choose to allow them to be your representative in the lease placement process, they can streamline the credit process to the point where you put together one comprehensive package, then sit back and wait for the proposals to roll in. Some will offer a full range of consulting services such as preparing requests for proposals as well as evaluating the responses.

Unlike a lease source, you will be working with the same person throughout the lease process, from credit to lease placement to administration of the lease itself. He or she will keep comprehensive records of your transaction and you will be able to ask questions about your lease without having to suffer the bane of a nameless, faceless customer service department, even years after your project has been completed.

Sure, there are unscrupulous brokers out there just as there are less-than-honest employees of direct lenders. Monetary benefit can be added to virtually any transaction to the singular benefit of the lender and/or its agents. Think about it, though. Once you are duped or gouged on a transaction, how many of these funders are you likely to ever do business again?

Conclusion

Unless you are using brokers as consultants to evaluate existing proposals, contracts, issues, etc., you are probably not paying them anything for their services. Why not take full advantage of their expertise? The bottom line is that they are (or should be) trying to get the best possible 'deal' for you. As such, it may seem like you are gathering a lot of information. Keep in mind that from a credit perspective less equals more. The more information you can provide, the more you can help your lease broker do a good job for you.

Sonia von Matt Stoddard is the founder of Stoddard & Associates, a Los Angeles-based firm of independent equipment lease consultants and brokers. Stoddard can be reached at 310-390-2009. E-mail: [email protected].