--Mark A. DeSorbo
To lease or not to lease is no longer the question, according to a report from the Equipment Leasing Association (ela--Arlington, VA).
Business in the equipment-leasing industry, the report indicates, jumped 69% between the first quarters of 1997 and 1998. During that same period, the ela`s performance indicators report (pir) also revealed an 18% increase in portfolio sizes of the 20 equipment-leasing companies surveyed.
The report indicated that new-business volume refers to the value of new leases that were added to the portfolios of equipment-leasing companies. Portfolio size refers to the total value of their outstanding leases. The pir also tracks the leasing industry`s performance in four other key areas: average losses, credit approval ratio, total employees, and delinquencies.
"Eight out of 10 companies lease some or all of their equipment. Of the total amount of equipment acquired in the United States, approximately 30% is done through leasing," says Suzanne Jackson, vice president of communication for ela. "The industry has had a very good year. Many people are seeing the value of leasing. There is also a lot of merger, acquisition, and new-business activity contributing to the boom."
Last January, conxus Communications Inc. (Greenville, SC), which offers wireless voice pagers and services in 10 major cities, opted to lease administrative equipment such as office furniture and computers through Charter Financial Inc. (New York City). Brian Kocher, vice president of finance for conxus, says the company began offering its pagers and services last November, and because they are fresh out of the start-up stage, getting a loan to purchase office equipment isn`t an option. "We`ve raised a lot of private equity, but we do not have a history of earnings and revenue growth," he says. "A bank has a certain lending profile, and if you don`t fit, they can`t give a credit extension. It`s like a person trying to buy a car without having a full-time job."
One of the benefits of leasing, he adds, is the flexibility of leasing companies. "A leasing company can look at collateral value and growth potential. The other advantage is the growth of the leasing industry, which is becoming competitive," Kocher says. "Traditionally, lease rates were like credit-card rates, but with the competition, it is much more advantageous for the lessee," he adds.
Leasing companies are also building expertise to help customers make educated investments. Just ask Frank Dame, vice president of sales and marketing for gte Leasing Corp. (Tampa, FL). The communications and data arena of leasing, he says, is flourishing because of the ever-changing technology. It is advancing so rapidly that Dame believes digital voice communications will soon replace analog. "The advancement of fiber-optic cabling, asymmetric digital subscriber line, and data and wireless communications equipment will create more requirements, causing people to upgrade their equipment more frequently."
With leasing, he explains, the lessee can plan for technological updates by selecting a term for the lease. "It`s a good time to lease. It gives you the ability to return that equipment and go on to the next level. If the equipment is still in vogue, you can continue to lease it. You have no investment, and the lease payment may qualify as an off-balance-sheet operating expense instead of a capital expense," Dame says.
In addition, he says, leasing allows you to shift the technology risks to the lessor. "Plus, it gives you the flexibility to upgrade and add on to your original equipment. It helps you to avoid re-marketing obsolete equipment," he adds.
Staying ahead of the rush of new technology, however, is a task the lessor must bear. "The lessors who are astute with the secondary market and understand its product lifecycles have a good opportunity," Dame says. "Others, who are not quite as knowledgeable, need to become aware."