How to Select a Leasing Company
The simple answer is that you should select a leasing company with the same care with which you select your bank. This means consulting your trusted financial advisors (banker, accountant, investor, board member, etc.), interviewing the leasing companies that appear to offer what you need, and only then making a decision. Sadly, that is rarely how it works.
Unfortunately, more often than not, the decision is made based on which leasing agent most recently brought the doughnuts, FAXed a pre-approval letter or just called asking for the business. This would not be a problem if leasing companies were as monolithic as banks and were regulated. They are neither. Consequently customers are often misled and lose both time and money. A classic example is the 2007 FBI operation by the name of Operation Lease Fleece (yes, that was the real name) resulting in 29 indictments for fraud and almost as many guilty pleas and convictions. Most of the guilty operated out of Southern California and many are still in business. In a separate case, Capital Equipment Leasing was retained (Richard Walker personally) to testify as the expert witness on behalf of the US Attorney's Office against an individual running a leasing company that had retained over $2,000,000 in up front fees and never produced a lease.
A rule of thumb that has kept many of our clients out of trouble is simply to NEVER respond to any direct solicitation. The sole exception would be a referral from someone you know and trust.
Another decision is whether to select a direct lessor or a broker. A direct lessor has a single set of credit criteria upon which it will either accept or reject your request. If rejected, you must identify another lender and start the process over. This process continues until you are successful, you give up or you modify your request to meet the objections you have received.
In contrast, a broker will take your credit information, consult with its various funders whose credit criteria match your history, prepare a package that presents your request in the most favorable light, and send it to the funder best suited to grant an approval on your terms. If, by chance, the first funder rejects the request, a good broker will determine the reason, and, if necessary, modify the package and find another qualified funder. This process can only be done by working with a qualified broker who has ample funding sources and who will take the time (and thus save yours) to find the most appropriate funder. The process continues until an acceptable approval is received.
Having an experienced broker that knows the market and will manage any lease request from start to finish is particularly attractive to equipment vendors who do not want to hire an extra body just to manage client leasing. The broker will handle the leasing minutiae that would otherwise distract the sales manager, CFO or entrepreneur from their primary focus.
In essence, the broker becomes your agent to obtain the requested financing. Because most of the broker's time is spent on the front end of the transaction, the broker will often request a refundable commitment fee to assure that the customer is prepared to proceed once an approval is received.
A common fallacy about brokers is that they add another layer of expense to the approval process. In fact, they merely substitute for the salesman at the direct funder and thus add no additional cost. Moreover, by saving the customer's time seeking a funder and by introducing better funders to the customer, a good broker actually saves money for his client.