Thursday, 18 February 2016

Minimum term rental agreements

This morning I had a call from one of our funding partners, during which, amongst other things, our account manager asked for my opinion on minimum term rental agreements.

I told him that I couldn't honestly think of a single instance where they would be more suitable for a client than a fixed term agreement and that, to be brutally honest, I considered them a disgraceful practice by the finance industry.

Lease agreements are either for a fixed term, such as 24, 36, 48 months, or are for a minimum, "primary" term.

As a broker (and a neutral third party), at the end of a fixed term agreement, we are able to pass title of that equipment to our customer, the agreement then ends, the client owns the equipment and everybody is happy.

Under a minimum term agreement, the funder should write to the client 3 months before the end of the term, advising them of their options and stating that if they don't hear back from the client, that the agreement will trip into the secondary period and that the client will continue to make monthly payments until they notify the funder.

Of course, many companies never receive that letter (strange that!), and they are often completely unaware that they are they continuing to make payments for something for no good reason.

I have come across many instances of this (thankfully, none of which were agreements that we had set up), the worst of which was where a client was still paying, 5 years on, for an agreement that should have finished after 24 months.   This client had paid over £20,000 more than they needed to.

Of course most brokers and finance companies won't tell you of these horror stories.  Why ?   Because they share each and every secondary rental that the client continues to make.

At the Boss Corporation, we fund almost entirely on fixed term agreements and on the odd occasion where a funder does only offer a minimum term agreement, we make absolutely sure to explain this to the client and diary forward to remind the client to terminate the agreement. We do not have a single client currently paying secondary rentals and I am very proud of that fact.

I believe that more should be done to protect companies from these types of agreement and that new rules should be introduced, making it necessary for the client to sign something at the end of the primary period, acknowledging that they are entering a secondary period of rental and that they understand the other options available to them.

As I said at the start of this blog, I believe these agreements are completely unsuitable for almost all clients and they only favour funders and brokers in the finance industry.

I bet our account manager had wished he'd never asked....

Friday, 19 April 2013

"Banks aren't lending..." Really ?!

We are constantlly being told in the press and on social media that the banks aren't lending to SME's.

Yet again this is scare mongering by the press and it's having a direct effect on business confidence.  I'm not saying that banks are approving every proposal, but, with the right guidance on where to look, plenty of funding is available.

In his book "Anyone can do it", Dragon's Den investor Duncan Bannatyne tells us " I got a particularly good deal from BNP, as a broker I'd used had told me they were desperate to get into the UK commercial market.  I might have preferred not to pay a broker's fee, but it worked out cheaper to pay for his knowledge and I've often found that specialist expertise can be worth the relatively small investment it requires"

Not only can we help businesses secure the funding they need, but in most cases, we don't even charge a fee!

Monday, 25 February 2013

10 points to consider before signing a finance agreement

We have often seen clients coming back to us for funding, having tempted by offers from other companies, which aren't quite all they seem.

Therefore, we have put together a list of 10 basic tips that should always be considered:-

1. When comparing quotes from different lenders, always ensure the payment profile is the same, ie. number of payments paid upfront, as this affects the rate greatly.

2. Always keep a record of when the first and last payments are due to be made.

3. If the agreement is a finance lease, write to the funder / broker one month before the end of the agreement confirming your end of term wishes.

4. With any finance agreement, always ask the lender to confirm the end of term title fees in writing before you sign the agreement. Make sure there are no other "Residual" or "Balloon" payments due by you.

5. When comparing rates, compare the total amount of interest payable. Different lenders have different methods to calculate their published rates.

6. Due to the considerable tax benefits, leasing can work out cheaper than paying cash.

7. Always ensure the schedule of equipment matches that of the equipment you are buying.

8. Brokers can save you time and money as they have access to a number of lenders and often can obtain better rates than single customers.

9. Leasing makes it easier to keep pace with technology - Most Leases have built in upgrade paths meaning you are able to keep up with technology, without always increasing your monthly payments.

10. Finally, if a supplier is offering an interest free deal, yet you still want to pay cash, ask for the discount to be given to you instead of the finance company.

Leasing ?! No thanks !

This is often what we hear when first discussing financing options with a potential new client.

The words "Equipment Leasing" to some means simply rental and never actually owning the asset. Some Finance Directors still think of that Photocopier Lease they took out all those years ago, which they continued paying for years after the primary period, or when they did try to terminate the agreement, a huge balloon payment bill landed on their desk.

To others, a bank loan is by far the cheapest way of funding the equipment and "you know where you stand with a bank loan". Of course the most common response is "we always pay cash".

Therefore it will probably surprise you to know that industry statistics show that 89% of Times Top 100 Companies are leasing all or at least some of their IT and other business equipment. But why? These companies are large, blue chip companies, with plenty of "cash", why would they want to lease their equipment?! Tax, tax, TAX! By leasing the equipment, as opposed to paying cash or using HP, you are allowed to offset 100% of the rentals, both capital and interest, against your taxable profits. This is why leasing usually offers the cheapest net cost of any form of finance, often cheaper even than paying cash.

Yet many companies are still doing all they can to avoid the dreaded lease, simply because they don't really understand it. Why? The finance industry itself is largely to blame. Many salespeople from lenders are comfortable with traditional HP or Loans and will try to fit the customer to this type of agreement, as opposed to tailoring an agreement to suit the client.

In addition to this, many clients are still being put off leasing, by funders who continue with their "minimum term" contracts and are only too happy to collect the secondary period rentals when the client forgets to terminate the agreement, or else simply doesn't understand the options available to them.

So, next time you're about to sign that bank loan agreement, step back for a moment, consider it's variable rates, large annual fees, inflexible terms and restrictive covenants. Ask your accountant or independent advisor about the costs and terms associated with leasing, conduct an absolute comparison factoring in all the costs,as this may well be a better option for you.

Vendor Equipment Financing Tips

Many equipment vendors have now realised that by positioning a finance option to their clients, they are not only making the product easier to sell, but more importantly, it becomes easier to buy.

Here are some further tips that will assist in the process of increasing equipment sales:-

* Include a monthly payment option with every proposal sent out to clients. Don't wait until the client has turned down the capital expenditure.

* Show the client how by paying for the system as they use it, they will see an immediate return on investment.

* Relate the monthly finance amount to monthly savings. Show how the equipment actually pays for itself.

* Reduce the cost to the lowest common denominator. Show the customer what the cost is per user per day.

* Avoid getting involved in a technical leasing discussion. You are there to sell the product. Call your finance partner whilst on site and they will be able to arrange something to fit the customer's needs. This flexibility may be the final piece of the jigsaw to make the sale.

* Use the credit application form as a signed order. When they sign this form, in their mind they have bought the equipment.

* If you're a reseller offering the exact same product as your competitor, use another finance option to further differentiate yourselves from them.

* Work with a broker rather than a funder directly, they are able to offer the same rates, yet considerably more flexible options as they are not restricted to one underwriter.

You will never lose an order by offering clients a finance option, you are simply giving them another way of saying yes!

Monday, 14 February 2011

Why offer your clients a financing option ?

Some replies we often get from IT Vendors:

1. "All our clients are large, blue chip companies, who don't need finance" - Due to the considerable tax benefits associated with leasing (making it cheaper than paying cash), 89% of Times Top 100 companies are now leasing their IT Equipment.

2. "Our clients always pay cash" - Great, but do you actually see their cheque when it comes in? - Often they are using a finance company without you realising and the delay in you getting the order is actually due to the client trying to source the finance. Also, Do you get the cash the same day you deliver the equipment? Are you waiting 30 days or more for your money ? Do you have to handle payment and collection issues?

3. " There's no requirement for finance from our clients as they never ask us for financing" - That's because most companies still don't realize that you can finance software ! Their banks/finance companies will happily finance their cars and machinery, and maybe even their Hardware, but as most lenders won't consider funding software, many companies still don't realize that it can be done.

4. " We offer the manufacturers recommended finance scheme" - So you're a Reseller, selling the same products as your competitors and offering the same finance scheme? Wouldn't you like another way to differentiate your offering?

Aside from the obvious benefits to the client (including the tax benefit), you will benefit from:-

* Accelerated ROI - It's easy to demonstrate this through the client paying for the system on a pay as you use scenario

* Shorter Sales Cycle - By bypassing budgetary constraints and offering a monthly option, many FD's are able to sign this off without having to get board approval

* Increased Sales - By simply making the product more affordable, you will win more business and clients will be able to order more product from you

* Increased Profit - Clients are less likely to ask for discounts when offered a monthly payment rather than a large lump sum.

* Faster cash - You will be paid within 24 hours of the client installation