Why Establishing End-of-Lease Remarketing Will Add Profits to Customer Product Financing
In pricing the rents in a lease transaction, a lessor’s objective is to have sufficient lease term rents that will return its entire equipment equity investment, repay any equipment loans it has used to finance any of the equipment cost, and provide a solid profit.? Then any end-of-lease equipment sale or re-lease (residual) earnings are simply windfall profits. In other words, setting the lessee lease rents using a zero-equipment residual value assumption. In small ticket equipment transactions (under $250,000 in equipment cost) this is often possible, and still provides competitive market lease rents. In larger equipment transactions (particularly multi-million-dollar transactions) this is often difficult, but, in any event, even in multimillion dollar lease transactions, very often end-of-lease remarketing values will typically exceed any “residual” needed to be assumed in pricing the lease rents.
Equipment vendors typically turn customer financing over to traditional leasing companies and banks, which means they enter into customer leasing arrangements that seldom, if ever, provide them with any product remarketing opportunities. For smart players, cutting the right financing deal ?can give a vendor a customer financing opportunities that returns profit and controls to their business, including product remarketing options.
Captive Financing: An Easy Approach
Strategy: Rather than incur the expense and operational needs of a full time internal in-house (captive) leasing operation, partner with a savvy leasing entity, engaging, as needed, third-party services. This approach can be a relatively simple undertaking and can deliver startling new profit opportunities. These include earning revenue from actual customer lease financing arrangements, while ensuring those valuable end-of-lease remarketing provisions are in place.
To learn more about captive financing and profitable end-of-lease product remarketing options, email [email protected]