Sales Make it Happen

"Term of Use"

by Terry Winders, CLP

Selling an equipment lease requires a good knowledge of the leasing product and its implications for, or effect on, the lessee. This includes all the income tax, legal, and accounting requirements, not to mention the differences from State to State on assessed taxes and legal differences.

For many reasons a lease is not a loan, however, the ignorance of the customer base, and the eagerness of leasing companies to offer what the customer asks for, has created a leasing market that covers many types of non-leases as well as true leases. So on many occasions the lessee is not offered a lease that fits the circumstances better but, just what the Lessee is familiar with, and has requested. Selling the correct type of lease takes a professional salesperson and not just an order taker.

Many of our leases are truly disguised conditional sales contracts (installment loans). Due to the complexity of leasing and the lack of knowledge by the average agent for the Internal Revenue Service, and the average bankruptcy Judge, so many unqualified leases slip through that we are lulled into a thought process that these type leases are acceptable. The time is drawing to a close when leasing firms can rely on these type leases and they will find themselves out in the cold. The rule makers and the qualifications for leasing are under siege and we need to view how leasing is different from loans and begin presenting the differences and the effect of a real lease instead of just comparing the similarities such as: rate, term, and purchase options.

A correct lease is one that accomplishes placing the equipments "use" and the expense for that use into the proper period of "time." One of the benefits of the computer age and the type of software offered today is that business can analyze their needs much sharper than before. Studies of equipment use, and expenses such as insurance, labor for maintenance, spare parts, and down time have suggested shorter terms of equipment use. The old thought process of using it until it drops has given way to using it until it becomes a heavy maintenance problem or is technically outdated and then moving on to new equipment. Leasing became popular for many reasons but lost in the list was the most important reason, to match the "expense" to the term of "use".

Installment commercial loans and sales contracts are done on a 36, 48, or 60-month basis. Straight line depreciation of the equipment cost for accounting purposes depends on the equipment's average useful life, possibly five years, six years, or longer and Federal Income Tax depreciation is according to The Modified Accelerated Recovery System. None of these terms are in tandem. If equipment is traded early, the tax and accounting effects are not good, and, in addition, the cash required to make the loan payments usually exceeds the expense for interest and depreciation. Most financial managers and business owners want to coordinate these expense terms to improve business management. Leasing on the other hand does bring all of these expenses and terms into tandem "if" the term of lease matches the anticipated term of equipment " use ".

We also need to explain how a lease can protect profits by placing the expense next to revenue in months of high revenue and avoiding payments in periods of low revenue. Irregular payments are acceptable for all of the rules if they match the use and revenue generation of the equipment.

If you discuss the lessee's needs and present more than one option and sell the one that matches the use and explain the differences between leasing and lending then you may be on the path of becoming a professional lease salesperson.

Mr. Terry Winders has been a a teacher, consultant, expert witness for the leasing industry for thirty years and can be reached at leaseconsulting@msn.com or 502-327-8666