The first consultant approached 10 different leasing companies. The story was the same at each company. They required personal guarantees, strong operating histories and enough cash or equity to make the lease a no risk proposition.
Today another consultant sent me a message to say that they’d contacted five separate leasing companies. In each case the leasing companies wanted personal guarantees from the owner.
Previously as many as 95% of all leasing applications appeared to gather an almost automatic approval (albeit some at very high interest rates). In today’s economy that percent appears closer to 50% and the companies getting leasing almost always would have qualified for traditional bank financing.
Isn’t the concept of leasing supposed to be that:
- it’s easier and
- less stringent
than a much more formal bank loan?
Traditionally companies pursued leasing to avoid the hassle of personally guaranteeing bank notes or pledging collateral. All this financing was considered “off balance sheet” and while leasing often carried a 5 to 10% premium over a traditional loan it offered financing to those who otherwise might not qualify for a traditional loan.
Now that leasing companies are increasingly demanding similar guarantees as banks – what’s the incentive to lease?