Leasing equipment: How to get a lease

The equipment leasing industry is very competitive and it is one of the fastest growing niches in financial services. Customers with good credit and financially viable businesses are highly sought after. A small business owner may even be in a position to request creative financing options such as seasonal payments.

To obtain a lease, begin by writing a "request for bids" letter. Attorney Richard Contino, managing partner of the business development and advice law firm Contino & Partners in New York, says business owners can also use lease brokers -- also known as lease underwriters -- to find a deal. Brokers work for a fee, generally paid by the lessor. Fees average 8 percent of the leased equipment's cost.

"One of the lease broker's major assets is his knowledge of the leasing industry," he says. "Because he is continually in the market, he will know where to find competitive, cooperative and realistic equity participants."

There are several ways to approach leasing and plenty of professional resources to help make the best choices. Small business owners may:

• Select the equipment themselves and then seek financing.
• Select the equipment with the help of a vendor or manufacturer that also offers financing (such as Dell or Gateway in the computer industry).
• Work with an "equipment consultant" who will help configure an office or practice, and recommend a lessor. This is a popular option for doctors and other professionals who want little to do with setting up an office. Equipment consultants generally specialize in one industry and can be found in the yellow pages under that specific industry.
• Work with an "equipment value-added reseller." They are particularly advantageous when a small business owner requires equipment from a variety of different suppliers. They can also help an owner find a lessor to consolidate all of the equipment purchases into a single lease -- which generally results in a single, lower overall payment.

The route a small business owner chooses to procure equipment and leasing depends upon how extensive his equipment needs are and how much of his time and resources he wants to devote to the project. The more complex the arrangement, the more advantageous it is to use an outside resource, such as a consultant or value-added reseller.

Banks offer a couple of more flexible options than leasing companies. For instance, if the business owner knows what type of equipment he needs, he can negotiate a price directly with the vendor. Then the bank will purchase the equipment and arrange the lease payments with the lessee. In a case where the owner hasn't yet determined his equipment needs, he can first approach the bank and get a pre-approved line of credit, and then go out and shop for equipment. As a general rule, most bank leases require that the equipment be purchased at the end of the lease for either a nominal fee or at market value.

No matter which type of lender a small business owner uses, the rest of the process is simple: Once the equipment has been selected and the lease negotiated, the business owner formally accepts delivery and ensures the equipment meets all specifications. The lessor pays for the equipment, and the owner begins to make lease payments.