Lately, we’ve been getting a lot of requests for lease lines so I thought they warranted some discussion on the blog.
What They Are
A lease line, or an equipment lease line of credit is not unlike other lines of credit you are familiar with in that the Client takes down a piece of equipment and draws from the line as they need it. Unlike Operating lines or Home Equity lines, they are NOT revolving though so once the line is used the Client has to reapply and get reapproved to add to the line.
What Clients Like About Them
Flexibility: Client only uses the line as they need it, plus if they apply early enough, they can use the line to pay advances/deposits to their vendors.
Vendor Agnostic: Many clients after being in business for a couple years have some established vendors that like working with and who they trust to get them the equipment they need. Great cause a lease line can incorporate those vendors as well as others the Client may or may not have worked with before.
Multi-Equipment Types funded: This is a biggie as the trend in Equipment Leasing is to go strictly to a vendor finance program and get the financing from the vendor. This is less successful in the multi equipment area as most Clients don’t want 3 separate leases for phone systems, IT and other tech equipment when 1 lease for all will do the job.
Custom Structures: Need to expense this equipment? Depreciate It? Either way custom structures for maximum tax efficiency can be easily created with a lease line whereas most vendor programs are strictly 36-60 months with a $1 buyout at the end qualifying as a Capital Lease only
Rates and Payments Known Well In Advance: There’s a high level of predictability with a lease line as a rate and payment factor are approved in advance so for each new piece of equipment added, the Client knows exactly how much their payment will increase. This helps create predictable cash flows and cash flow projections. CFOs and Controllers love this.
Equipment lease lines are not a good fit for every business as the Client has to get appproved for the entire amount upfront but its a good fit for lots of situations.
Southern Lending Solutions