Leasing: The Next Generation

At the launch of its annual sales meeting, a senior executive of an international company remarked that if the payment obligation had a hell or high water payment obligation, his company would try to finance it.

With Congress making tax-oriented leasing more and more difficult to undertake, leasing companies must look for additional sources of business in order to continue to grow their portfolios and justify their existences. Although the general leasing market is growing, the rate of increase may not be sufficient to justify the number of companies currently in the market. Leasing companies must look toward the next adjacent markets in order to continue to expand and prosper. This article will focus on a number of potential adjacent markets that, while not specifically equipment financing, may be structurally similar to a lease transaction.

The hallmark of a lease transaction is a hell or high water periodic payment obligation from an obligor to a financier on a periodic basis. The payment obligation is often secured against an asset, upon which the leasing company could realize in the event that the obligor fails to make payments. With the expansion of high technology, and with the need to grow markets generally, leasing companies have been financing transactions with increasing amounts of nontraditional assets, with such assets having little or no liquidation value. A classic example of this is software financing where the finance company's security is intellectual property, which, by its very nature, cannot be resold. Further, in many equipment and software financing transactions, it is not uncommon for services and other soft costs to be financed. Increasingly, the lease transaction is nothing more than a promissory note from an obligor secured by little or no asset value. Leasing companies typically are willing to enter into these transactions owing to the stream of payments that the obligor is willing to make as well as the covenant of the obligor.

Although tax-oriented leasing has not existed for a significant number of years in Canada, leasing companies have grown. Newcourt Credit Group Inc. (now CIT), which was one of Canada's success stories, experienced its most significant growth not through structuring tax-oriented leases, but by finding innovative products to finance and utilizing nontraditional, for Canada, distribution channels.

While the Canadian leasing environment is far from a model growth story, it can be looked to as an example of a successful industry that is driven by special tax rules. The challenge for the United States is to shift gears and look for similar opportunities.

Outsourcing Contracts

An outsourcing contract is typified by a user of specific services entering into a relationship with a third party whereby the third party delivers the services for a periodic fixed or variable payment, depending on actual use. The services that are outsourced can range from the use of software through specific service providers to a fully integrated call-centre complex located anywhere in the world. In more sophisticated outsourcing agreements, the outsourcing company purchases both the equipment and the services on behalf of a particular user and then provides this user with those services that the user relied on internally within its organization prior to the contract being entered into.

Typically, the first outsourcing contracts were with respect to IT departments where all or part of the IT function was provided by a third party for a specific monthly payment based on the services that a company previously had in-house. The advantage to the company is that it can determine what its monthly expense would be for a particular aspect of its business without having to retain particular expertise in that area. EDS and IBM are two classic examples of companies that have grown by providing these solutions to their customers.

For companies whose core competency was not IT, the ability to rely on a third-party provider allowed management to focus its attention not on its infrastructure but on delivering its specific products and services to its clients. Increasingly, more and more aspects of enterprises are being outsourced, from the human resources function to management itself. Tom Peters, who helped revolutionize management, customer service and the world of work, recently claimed that the hallmark of enterprises in the 21st century will be the outsourcing of most of their infrastructure so that the enterprises, themselves, may exist on a virtual basis. While this may be some years away, there is little doubt that outsourcing is an increasing trend in western economies.

The issue that most outsourcing companies face is that the expansion of their businesses is limited by their financial capacity. If an outsourcing company takes on four or five new and major clients, it may have to incur significant capital expenditures to fulfill its obligations. Clearly, while a company is in expansion mode, its financial covenants may not be strong enough to allow for traditional financing. This provides for a competitive advantage to existing, well-established outsourcing companies and may have a monopolistic or ogopolistic impact.

Leasing companies may be able to finance outsourcing companies if the contract between the outsourcing company and its client can be structured appropriately. In a typical contract, the client is purchasing services, and its payments and rights to withhold payment may be based on the provision of those services by the outsourcing company. However, there are many examples where the contract can be bifurcated to strip out that part of the payment that reflects the capital costs incurred by the outsourcing company in providing the base services. A client understands that in order to provide services, the outsourcing company must incur capital costs, which costs have a financial component (whether it is by raising debt through traditional sources or utilizing working capital). If the outsourcing company were to persuade its client that the cost of the services provided would be reduced if the client were to make part of its periodic payment hell or high water, then the outsourcing company could raise capital at what may be a significantly lower cost than would otherwise be the case. Some of these savings could then be passed on to the client in terms of reduced cost. A classic win-win solution.

A client's main objection to making part of its periodic payment hell or high water is twofold: 1) What if the outsourcing company were to become insolvent? and 2) What if the services are not provided (a) either up to promised levels, or (b) at all? Both issues can partly be resolved by structuring.

If the equipment used by the outsourcing company is actually owned by either the client or a leasing company, the client would still have the use of the equipment, which could be provided to a replacement outsourcing company in the event that either of the above-noted events occurs. From the client's perspective, this may be a preferable situation as it gives it more ability to change providers with less disruption to its operations. A new outsourcing company would have to acquire equipment to provide the services. If the equipment already exists, the ability to introduce a new provider should occur more rapidly. Clearly, for this solution to work, the equipment utilized in providing the services must be generic.

By way of example, assume the outsourced services are the office copying and mail functions for a large organization. To provide this function, if a client engaged a specific outsourcing company that used Xerox machines as opposed to more specific Pitney Bowes machines, and then the outsourcing company was in default of the contract due to either its insolvency or lack of services, the client could find another provider who could utilize the existing equipment. While there may be specific advantages of one machine over another, and each provider likely has a preferred platform to work from, it would not be an undue hardship to request the new provider to utilize the existing equipment until other arrangements could be made. If the outsourcing company owns the equipment and becomes insolvent, the trustee would have a right to remove the equipment, causing significant disruption to the operation of the client. Further, the trustee may be able to hold the client hostage, as the equipment would likely have a greater in-place value than liquidation value. This would be the case particularly if the equipment had specific client information stored on it. Accordingly, the client owning the equipment (or, more properly, leasing the equipment) would be a preferred solution. If the client has a weak credit history while the outsourcing company has a strong one, structures could even be developed that would have the outsourcing company guaranteeing the obligations of the challenged client.

It must be emphasized that the above example is not true for all outsourcing solutions. It is more likely for large complex projects. In many cases, every new client added by an outsourcing company does not require further equipment acquisition. The target market would be outsourcing companies that are required to incur significant capital expenditures utilizing, for the most part, generic equipment. IT and communications outsourcing (as opposed to software outsourcing, which will be discussed later), is one such area. The provision of office services, such as mailroom, photocopy, and courier services, is another example. Point-of-sale systems for large, multinational chains are a further example. The leasing company must identify its targets and develop relationships with these companies ' much like it has in the classic vendor program. The process will take many quarters to establish and may have significant costs associated with the first transaction, but, once established, the revenue generated may be significant. If Tom Peters is correct, this is a market that cannot be ignored.

Energy Contracts

Much like outsourcing, energy contracts also provide for a steady stream of payments, based on the provisions of equipment. In the early 90s, retrofit contracts were very popular and often financed by leasing companies that could either obtain a guarantee as to the savings from a reliable energy-management company or could structure their contracts such that the payment by the user of the energy would pay, regardless of whether the savings from the retrofit worked. The leasing company would enter into a hell or high water lease with the user who, in turn, could make a claim against the retrofit or energy-management company if the energy savings failed to materialize. As energy prices declined, the energy-management business suffered. This is now reversing itself, and growth should resume.

During the last number of years, energy-management companies have gone a step further than simply retrofitting old equipment. Sophisticated companies now look for cogenerational opportunities that will not only potentially save on energy costs by re-circulating potential energy sources, but ones that will also allow the former energy user to sell power to the electricity grid. Often, the best candidates for cogenerational opportunities are large manufacturing plants that utilize a great deal of energy in their manufacturing process, such as steel mills or car plants. However, recent proposals have focused on much smaller ventures, such as the heat being generated by large restaurants.

There have been significant technological improvements in the equipment utilized. Recent proposals from some engineering firms indicate that the savings generated from the cogenerational opportunity would result in actual cash savings by the client even after the cost of capital was imputed.

While these proposals are still in their infancy, it may be an appropriate time for finance companies to invest in understanding these projects so that they can show an expertise in a potentially lucrative area.

The legal structure could range from a simple equipment lease (if the covenants of the end user would support the advance without reliance on the underlying equipment, which is likely to have little liquidity value) to a vendor-program agreement with either a strong engineering company or manufacturer of the cogenerational equipment. In fact, joint ventures can be arranged in making proposals to high users of energy where the finance company may be able to not only share in the finance proceeds, but also in the percent of energy proceeds on the sale of energy to the grid.

Clearly, the risks to the leasing company and its economic and credit determination must be modified from that of a traditional hard goods analysis. The underlying assets will have little value on a liquidation basis. However, much like software, the equipment would be a critical use, which if removed may cause the user not to be able to continue its operations. Needless to say, the arrangements with the engineering or equipment vendor can be quite creative, ranging from standard, ultimate net-loss pools to complex guarantees.

Public-Private Partnerships (P3)

P3 is a growing industry in Europe and, particularly, in England where the experience has proven to be a success in helping the government provide services to the public at controllable costs. With the advent of the United States running large fiscal deficits in the future, the need to create more efficient public delivery solutions will also be required.

In essence, a P3 structure is like outsourcing. A private company enters into a contract with a government entity to provide certain services that would otherwise be provided by the government. Once completed, the P3 venture has a long-term government contract. The contract will result in the payment of a set amount over time on a periodic basis, based on specific, measurable criteria being met by the private entity. The projects undertaken by the P3 guise can range from the very large (the building of a toll highway) to the relatively small (the running of a library).

Owing to their size and complexity, P3 projects used to reside strictly in the structured-finance division of banks. As the projects are now moving more downstream in size and as the experience of government entities with the contracts is becoming more positive, there should be an opportunity for more participation by mid-market finance companies. In essence, the structure is not new nor is the risk unquantifiable. The finance company must become comfortable that the service threshold typical of a P3 contract can be maintained by the provider, and that the provider is not overly specialized such that a third party could not be retained to provide the services if the provider were to become insolvent. Further, the contract must allow the finance company to be able to cure a default on behalf of the provider. This is no different than a full-service truck lease or a building contract. The only real difference is that the time frames are longer and the receivables are generally much stronger.

Clearly, a P3 contract is much more legal intensive than a traditional lease. The underlying government contract must be subject to stringent due diligence to ensure that the cure periods are long enough to provide for an alternative service provider if the governmental entity tries to cancel the contract. While early P3 contracts tended to be one-sided, the more recent agreements tend to have a good balance. Government entities need to be able to cancel contracts in the event of service failure, and providers need to have strong enough guarantees to be considered attractive to financing sources. In fact, in some P3 contracts, governments have allowed a portion of the payment to be made regardless of the tie to services. The government fully understood that it was unrealistic to believe that a service provider could afford the infrastructure to develop a particular type of service and, as such, it agreed to have the infrastructure portion stripped away from the service aspect. This type of arrangement makes it much easier for a finance company to accept and tends to keep the cost of capital to a minimum. Often, however, the finance company may agree to team with alternative service providers if the first one is no longer solvent.

Application Service Provider (ASP)

ASP is a software-delivery concept popularized in the mid-90s, but it never really expanded as was initially anticipated. With changes to the technology market, the ASP model is getting a new look for much the same reasons as outsourcing is a growing trend ' users of certain non-core software may prefer to use an Internet-based solution rather than own and maintain the program in-house. The recent success of San Francisco-based Salesforce.com, which hosts and manages its software for its customers, is a classic example of how an ASP model can be used by a software company to expand its reach into its corporate customers.

In essence, an ASP contract is a license to use software over time tied into a maintenance contract. The license may be structured as a term contract with a hell or high water provision with respect to payment. The obvious concern is that if the software is not provided to various service clients, the client may refuse to make payments. The finance company must do its due diligence on the ASP to determine whether it will be able to meet its obligations and have a recourse arrangement with the ASP. Further, if the ASP finance model allows users to reduce its usage (known as “dropping seats”) on a regular basis, the finance company model may not work. Clearly, this is not a model that will work for a startup entity, but may have potential for a technology entity that is using an ASP model for only part of its revenue source or is developing the model as an addition to a license model. If the service component can be stripped from the software delivery, then this model could apply to a startup entity. Further, the finance company may wish to have a holdback in the services in order to compensate for the risk. Careful documentation needs to be used.

Toward the Future

The above four examples merely touch the surface as to the various opportunities that leasing companies must consider in order to expand their operations. While no one area will prove the single model, it will help companies to expand and continue to prosper as more traditional lines of business become more competitive or face a natural decline.

Leasing companies must continue to be innovative and forward looking. They must seize new markets utilizing their traditional skills of structuring and understanding credit to enter markets that are in their infancy. Investment is required as well as a realistic payback period. The failure to invest, however, may make the entity an also ran. If there is a stream of payments, leasing companies must find a way of financing it in order to achieve growth.

At the launch of its annual sales meeting, a senior executive of an international company remarked that if the payment obligation had a hell or high water payment obligation, his company would try to finance it.

With Congress making tax-oriented leasing more and more difficult to undertake, leasing companies must look for additional sources of business in order to continue to grow their portfolios and justify their existences. Although the general leasing market is growing, the rate of increase may not be sufficient to justify the number of companies currently in the market. Leasing companies must look toward the next adjacent markets in order to continue to expand and prosper. This article will focus on a number of potential adjacent markets that, while not specifically equipment financing, may be structurally similar to a lease transaction.

The hallmark of a lease transaction is a hell or high water periodic payment obligation from an obligor to a financier on a periodic basis. The payment obligation is often secured against an asset, upon which the leasing company could realize in the event that the obligor fails to make payments. With the expansion of high technology, and with the need to grow markets generally, leasing companies have been financing transactions with increasing amounts of nontraditional assets, with such assets having little or no liquidation value. A classic example of this is software financing where the finance company's security is intellectual property, which, by its very nature, cannot be resold. Further, in many equipment and software financing transactions, it is not uncommon for services and other soft costs to be financed. Increasingly, the lease transaction is nothing more than a promissory note from an obligor secured by little or no asset value. Leasing companies typically are willing to enter into these transactions owing to the stream of payments that the obligor is willing to make as well as the covenant of the obligor.

Although tax-oriented leasing has not existed for a significant number of years in Canada, leasing companies have grown. Newcourt Credit Group Inc. (now CIT), which was one of Canada's success stories, experienced its most significant growth not through structuring tax-oriented leases, but by finding innovative products to finance and utilizing nontraditional, for Canada, distribution channels.

While the Canadian leasing environment is far from a model growth story, it can be looked to as an example of a successful industry that is driven by special tax rules. The challenge for the United States is to shift gears and look for similar opportunities.

Outsourcing Contracts

An outsourcing contract is typified by a user of specific services entering into a relationship with a third party whereby the third party delivers the services for a periodic fixed or variable payment, depending on actual use. The services that are outsourced can range from the use of software through specific service providers to a fully integrated call-centre complex located anywhere in the world. In more sophisticated outsourcing agreements, the outsourcing company purchases both the equipment and the services on behalf of a particular user and then provides this user with those services that the user relied on internally within its organization prior to the contract being entered into.

Typically, the first outsourcing contracts were with respect to IT departments where all or part of the IT function was provided by a third party for a specific monthly payment based on the services that a company previously had in-house. The advantage to the company is that it can determine what its monthly expense would be for a particular aspect of its business without having to retain particular expertise in that area. EDS and IBM are two classic examples of companies that have grown by providing these solutions to their customers.

For companies whose core competency was not IT, the ability to rely on a third-party provider allowed management to focus its attention not on its infrastructure but on delivering its specific products and services to its clients. Increasingly, more and more aspects of enterprises are being outsourced, from the human resources function to management itself. Tom Peters, who helped revolutionize management, customer service and the world of work, recently claimed that the hallmark of enterprises in the 21st century will be the outsourcing of most of their infrastructure so that the enterprises, themselves, may exist on a virtual basis. While this may be some years away, there is little doubt that outsourcing is an increasing trend in western economies.

The issue that most outsourcing companies face is that the expansion of their businesses is limited by their financial capacity. If an outsourcing company takes on four or five new and major clients, it may have to incur significant capital expenditures to fulfill its obligations. Clearly, while a company is in expansion mode, its financial covenants may not be strong enough to allow for traditional financing. This provides for a competitive advantage to existing, well-established outsourcing companies and may have a monopolistic or ogopolistic impact.

Leasing companies may be able to finance outsourcing companies if the contract between the outsourcing company and its client can be structured appropriately. In a typical contract, the client is purchasing services, and its payments and rights to withhold payment may be based on the provision of those services by the outsourcing company. However, there are many examples where the contract can be bifurcated to strip out that part of the payment that reflects the capital costs incurred by the outsourcing company in providing the base services. A client understands that in order to provide services, the outsourcing company must incur capital costs, which costs have a financial component (whether it is by raising debt through traditional sources or utilizing working capital). If the outsourcing company were to persuade its client that the cost of the services provided would be reduced if the client were to make part of its periodic payment hell or high water, then the outsourcing company could raise capital at what may be a significantly lower cost than would otherwise be the case. Some of these savings could then be passed on to the client in terms of reduced cost. A classic win-win solution.

A client's main objection to making part of its periodic payment hell or high water is twofold: 1) What if the outsourcing company were to become insolvent? and 2) What if the services are not provided (a) either up to promised levels, or (b) at all? Both issues can partly be resolved by structuring.

If the equipment used by the outsourcing company is actually owned by either the client or a leasing company, the client would still have the use of the equipment, which could be provided to a replacement outsourcing company in the event that either of the above-noted events occurs. From the client's perspective, this may be a preferable situation as it gives it more ability to change providers with less disruption to its operations. A new outsourcing company would have to acquire equipment to provide the services. If the equipment already exists, the ability to introduce a new provider should occur more rapidly. Clearly, for this solution to work, the equipment utilized in providing the services must be generic.

By way of example, assume the outsourced services are the office copying and mail functions for a large organization. To provide this function, if a client engaged a specific outsourcing company that used Xerox machines as opposed to more specific Pitney Bowes machines, and then the outsourcing company was in default of the contract due to either its insolvency or lack of services, the client could find another provider who could utilize the existing equipment. While there may be specific advantages of one machine over another, and each provider likely has a preferred platform to work from, it would not be an undue hardship to request the new provider to utilize the existing equipment until other arrangements could be made. If the outsourcing company owns the equipment and becomes insolvent, the trustee would have a right to remove the equipment, causing significant disruption to the operation of the client. Further, the trustee may be able to hold the client hostage, as the equipment would likely have a greater in-place value than liquidation value. This would be the case particularly if the equipment had specific client information stored on it. Accordingly, the client owning the equipment (or, more properly, leasing the equipment) would be a preferred solution. If the client has a weak credit history while the outsourcing company has a strong one, structures could even be developed that would have the outsourcing company guaranteeing the obligations of the challenged client.

It must be emphasized that the above example is not true for all outsourcing solutions. It is more likely for large complex projects. In many cases, every new client added by an outsourcing company does not require further equipment acquisition. The target market would be outsourcing companies that are required to incur significant capital expenditures utilizing, for the most part, generic equipment. IT and communications outsourcing (as opposed to software outsourcing, which will be discussed later), is one such area. The provision of office services, such as mailroom, photocopy, and courier services, is another example. Point-of-sale systems for large, multinational chains are a further example. The leasing company must identify its targets and develop relationships with these companies ' much like it has in the classic vendor program. The process will take many quarters to establish and may have significant costs associated with the first transaction, but, once established, the revenue generated may be significant. If Tom Peters is correct, this is a market that cannot be ignored.

Energy Contracts

Much like outsourcing, energy contracts also provide for a steady stream of payments, based on the provisions of equipment. In the early 90s, retrofit contracts were very popular and often financed by leasing companies that could either obtain a guarantee as to the savings from a reliable energy-management company or could structure their contracts such that the payment by the user of the energy would pay, regardless of whether the savings from the retrofit worked. The leasing company would enter into a hell or high water lease with the user who, in turn, could make a claim against the retrofit or energy-management company if the energy savings failed to materialize. As energy prices declined, the energy-management business suffered. This is now reversing itself, and growth should resume.

During the last number of years, energy-management companies have gone a step further than simply retrofitting old equipment. Sophisticated companies now look for cogenerational opportunities that will not only potentially save on energy costs by re-circulating potential energy sources, but ones that will also allow the former energy user to sell power to the electricity grid. Often, the best candidates for cogenerational opportunities are large manufacturing plants that utilize a great deal of energy in their manufacturing process, such as steel mills or car plants. However, recent proposals have focused on much smaller ventures, such as the heat being generated by large restaurants.

There have been significant technological improvements in the equipment utilized. Recent proposals from some engineering firms indicate that the savings generated from the cogenerational opportunity would result in actual cash savings by the client even after the cost of capital was imputed.

While these proposals are still in their infancy, it may be an appropriate time for finance companies to invest in understanding these projects so that they can show an expertise in a potentially lucrative area.

The legal structure could range from a simple equipment lease (if the covenants of the end user would support the advance without reliance on the underlying equipment, which is likely to have little liquidity value) to a vendor-program agreement with either a strong engineering company or manufacturer of the cogenerational equipment. In fact, joint ventures can be arranged in making proposals to high users of energy where the finance company may be able to not only share in the finance proceeds, but also in the percent of energy proceeds on the sale of energy to the grid.

Clearly, the risks to the leasing company and its economic and credit determination must be modified from that of a traditional hard goods analysis. The underlying assets will have little value on a liquidation basis. However, much like software, the equipment would be a critical use, which if removed may cause the user not to be able to continue its operations. Needless to say, the arrangements with the engineering or equipment vendor can be quite creative, ranging from standard, ultimate net-loss pools to complex guarantees.

Public-Private Partnerships (P3)

P3 is a growing industry in Europe and, particularly, in England where the experience has proven to be a success in helping the government provide services to the public at controllable costs. With the advent of the United States running large fiscal deficits in the future, the need to create more efficient public delivery solutions will also be required.

In essence, a P3 structure is like outsourcing. A private company enters into a contract with a government entity to provide certain services that would otherwise be provided by the government. Once completed, the P3 venture has a long-term government contract. The contract will result in the payment of a set amount over time on a periodic basis, based on specific, measurable criteria being met by the private entity. The projects undertaken by the P3 guise can range from the very large (the building of a toll highway) to the relatively small (the running of a library).

Owing to their size and complexity, P3 projects used to reside strictly in the structured-finance division of banks. As the projects are now moving more downstream in size and as the experience of government entities with the contracts is becoming more positive, there should be an opportunity for more participation by mid-market finance companies. In essence, the structure is not new nor is the risk unquantifiable. The finance company must become comfortable that the service threshold typical of a P3 contract can be maintained by the provider, and that the provider is not overly specialized such that a third party could not be retained to provide the services if the provider were to become insolvent. Further, the contract must allow the finance company to be able to cure a default on behalf of the provider. This is no different than a full-service truck lease or a building contract. The only real difference is that the time frames are longer and the receivables are generally much stronger.

Clearly, a P3 contract is much more legal intensive than a traditional lease. The underlying government contract must be subject to stringent due diligence to ensure that the cure periods are long enough to provide for an alternative service provider if the governmental entity tries to cancel the contract. While early P3 contracts tended to be one-sided, the more recent agreements tend to have a good balance. Government entities need to be able to cancel contracts in the event of service failure, and providers need to have strong enough guarantees to be considered attractive to financing sources. In fact, in some P3 contracts, governments have allowed a portion of the payment to be made regardless of the tie to services. The government fully understood that it was unrealistic to believe that a service provider could afford the infrastructure to develop a particular type of service and, as such, it agreed to have the infrastructure portion stripped away from the service aspect. This type of arrangement makes it much easier for a finance company to accept and tends to keep the cost of capital to a minimum. Often, however, the finance company may agree to team with alternative service providers if the first one is no longer solvent.

Application Service Provider (ASP)

ASP is a software-delivery concept popularized in the mid-90s, but it never really expanded as was initially anticipated. With changes to the technology market, the ASP model is getting a new look for much the same reasons as outsourcing is a growing trend ' users of certain non-core software may prefer to use an Internet-based solution rather than own and maintain the program in-house. The recent success of San Francisco-based Salesforce.com, which hosts and manages its software for its customers, is a classic example of how an ASP model can be used by a software company to expand its reach into its corporate customers.

In essence, an ASP contract is a license to use software over time tied into a maintenance contract. The license may be structured as a term contract with a hell or high water provision with respect to payment. The obvious concern is that if the software is not provided to various service clients, the client may refuse to make payments. The finance company must do its due diligence on the ASP to determine whether it will be able to meet its obligations and have a recourse arrangement with the ASP. Further, if the ASP finance model allows users to reduce its usage (known as “dropping seats”) on a regular basis, the finance company model may not work. Clearly, this is not a model that will work for a startup entity, but may have potential for a technology entity that is using an ASP model for only part of its revenue source or is developing the model as an addition to a license model. If the service component can be stripped from the software delivery, then this model could apply to a startup entity. Further, the finance company may wish to have a holdback in the services in order to compensate for the risk. Careful documentation needs to be used.

Toward the Future

The above four examples merely touch the surface as to the various opportunities that leasing companies must consider in order to expand their operations. While no one area will prove the single model, it will help companies to expand and continue to prosper as more traditional lines of business become more competitive or face a natural decline.

Leasing companies must continue to be innovative and forward looking. They must seize new markets utilizing their traditional skills of structuring and understanding credit to enter markets that are in their infancy. Investment is required as well as a realistic payback period. The failure to invest, however, may make the entity an also ran. If there is a stream of payments, leasing companies must find a way of financing it in order to achieve growth.