What Do Lessors Look For in a Lessee
Picking the right lessor is key, but who say’s they’ll want you too?
Just as you may be looking for a lessor to help fund your asset procurement, lessors are also looking for potential customers in businesses they can work with.
It is important to realise that lessors are reviewing your company just as much as you are questioning if they are the right choice for you. We’ve seen which lessors you should be wary to avoid, so here are some of the features that lessors will look at before they make the decision to sign a deal with a lessee.
Company Credit and Reputation
A lessor wants to make sure that the company they are signing a deal with is financially stable. The basis of a lease relies on the lessee’s ability to repay the money to the lessor to make it worth their while. Naturally, they need to question what the chances of them getting their money back will be, so it is likely that they will pinpoint the potential problems that may cause issues for them later on and then decide if they willing to take the risks (if any). Without a strong credit, companies that do not have a specialist leasing expertise may struggle to negotiate competitive leasing agreements. Lessors fund assets purely for the benefit of the lease and most have little use for them themselves so it is important that they can trust that the lessee is not going to leave them high and dry, with assets they’ve spent money on, but have no use for.
Prospective lessors will also be interested in your current exposure. A well-established history with a lessor may be a benefit, but could also limit the amount of investment they are willing to risk. Numerous leases and other forms of funding means more debt and there is only so many I.O.Us a leasing company is able to accept. This doesn’t mean that they aren’t interested, it just may be a bad time to agree yet another lease schedule. Similarly, it goes without saying that if there is an existing relationship between you and a lessor, there is no doubt that they will have formed an opinion of how willing they are to work with you again – once bitten, twice as shy.
Word of mouth remains one of the most powerful influences in business. Praise and referrals from a trusted source can boost sales, but bad press can halt even the most well established market leaders. Even just being associated with a company that is in the negative spotlight can be enough to tar your business with the same condemned brush. It is perfectly reasonable, therefore, for a lessor to check the reputation of a prospective lessee. Lessors will be wary of being considered guilty by association if they work with a company that has received bad press, particularly with “cooking the books” and operating lease reporting drawing a great deal of auditor attention to lease compliance. On the contrary, public praise and recent accomplishments will really help your business stand out as a client a lessor would love to work with, even if just for the bragging rights.
Lessors will also be intrigued by your business’s potential to expand your lease portfolio. A company that relies on numerous assets in various departments will be very appealing to a lessor as there is the possibility to expand and develop the leasing relationship. Similarly, businesses with multiple partner companies and subsidiaries also suggest the potential for growth and development of their services – you can imagine the pound signs flashing in their eyes when a global business wants to lease.Most large companies have a set of internal processes and systems in place that they must use within their lease portfolios as well as the general lease accounting standard they follow. However, depending on the flexibility a company is willing to accept, these internal measures can have an effect on who a lessor can work with. If your business processes are not compatible with a potential lessor’s and neither is willing to adapt, then it would be unlikely that an agreement would be met.
Other political, ethical and social factors can also have a large impact on the type of assets a lessor is likely to be able to lease and which companies they can work with. Specialist lessors who work in a specific industry may need to be isolated from your asset funding considerations. Just as you wouldn’t expect a lessor that specialises in catering equipment to lease medical equipment to a pharmaceutical company, a lessor whose ethos is to be energy conscious is unlikely to help fund a company’s procurement for a gas guzzling tanker truck. It is important that you do some research into the lessors you are approaching, or else risk looking like a fool when you ask a lessor to challenge their principles.
It is key to remember that you need to sell yourself to the lessor as much as you expect them to try and convince you to choose them – they have every right to turn you away. Some of these factors cannot be changed in in the short-term, but by knowing what issues may bring up red flags, you place yourself in a much stronger position to negotiate not only initiating leasing, but terms and conditions within your lease schedule. The leasing experts at Innervision have been dealing with lessors for years, and our funding manager is well equipped to help make sure you find the right lessor for your asset funding requirements.
For more information and to organise a call on how Innervision can help manage your lease portfolio and lessor relationships…
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