Leasing is a growing trend in the marketplace. We lease automobiles, railroad cars, aircraft, buildings, machinery. Almost anything including franchises can be leased today.

While we think of it as the modern way of financing, it is really a very old way of doing business.  In the ancient city of Ur around 2010 BC clay tablets showed us that priests leased agricultural tools to farmers, who rented their land. Egyptians, Greeks, and Romans leased their property. Ancient Phoenicians even leased ships for trading to local merchants.

The first recorded leasing in the United States occurred in the 1770’s with the leasing of horses and buggies to liverymen and stables.

In the 1870’s the tremendous expansion of railroads required huge amounts of new money. Most banks were hesitant to put money into such a risky business. Railroads in those days were dangerous, with many accidents and loss of life. The railroad tycoons needed to find new ways to generate money.  Investment groups were formed and with pooled funds they would purchase railroad cars and lease them to the railroad companies.

In the 1920’s Merchants and manufacturers looking for new ways to sell their merchandise created installment plans which allowed consumers and retail merchants the ability to increase sales with payments over time.

During the depression in the 1930’s, leasing was put on hold due to the lack of liquidity in the marketplace. This lasted until WWII when again large amounts of capital were needed to finance the war. With little money available in the public sector, manufacturers leased equipment from the government. The United States Government even leased war materials during the war to our Allies with “Lend Lease Agreements “.

After the war IBM and Xerox broke new ground by making it more attractive to lease their equipment rather then sell it to their customers. The success of these two companies along with government encouragement with favorable tax write offs, spurred the growth of leasing.

Today, you can lease almost anything you can think of under the sun, there are hundreds of companies though-out the world specializing in various aspects of leasing.  Among the largest are U.S. Leasing Corp. and General Electric credit Corp.

One of the fastest growing segments of the leasing industry is in the franchise area, It is probably one of the easiest ways to get into the franchise business. Instead of coming up with a large amount of money or taking out a loan, it allows you to keep your cash in the bank for working capital. You have a better lock on your finances with a fixed monthly payment and as a bonus the payments may be fully tax deductible.

A further advantage is that when your equipment needs upgrading or becomes obsolete you may have the ability to trade it in for more up to date equipment.

Leasing also improves your credit standing with banks and lending institutions by giving them an on going credit history.

There are five basic types of leases for you to consider.

CAPITAL LEASE
If you intend to keep or trade in your equipment at the end of your lease, this would be the type of plan to consider. It allows you to buy the equipment at the end of your lease for a nominal sum or a dollar.

OPERATIONAL LEASE
This type of lease is structured to allow you to purchase the equipment for the fair market value at the end of the leasing term.

BALLOON PAYMENT
Companies that will not be generating any appreciable revenue for the first few months of operation look for this type of lease. It is structured so that the initial payments are nominal and then increase as the revenue begins to occur.

SEASONAL LEASING
The is a n excellent plan for seasonal franchises. The lease is design for nominal payments in the low income months and higher payments during the remainder of the year.

STEP UP AND STEP DOWN LEASING
Lease payments are structured to match cash flow requirements. They can start low and step up during a later years or start high and step down minimizing finance charges.

VENTURE LEASING
This type of lease can provide 100% financing. You will need venture capital backing, cash or marketable securities for this type of leasing.

There are many options to explore in leasing and by asking the following questions of any leasing company you will have a better foundation to negotiate a lease that is beneficial to your business plan.

• Will this be a long term or short term use of the equipment?
• What are the advantages and disadvantages for me to lease?
• Have I thoroughly checked out the background of my leasing company?
• What is my total payment? Are there any hidden costs in the lease or at the end of the leasing period.?
• Will I own the equipment at the end of the lease? If not what will it cost me to purchase the equipment?
• Are there any costs for early termination or change in the lease terms?
• What happens if the equipment is damaged, destroyed or becomes obsolete?
• Are there any maintenance, Tax or insurance costs?
• Can I upgrade or add on to the equipment?
• Are there options I need to consider at the end of the lease?

Your final step will be, of course, to find a leasing company.  As you may suspect there are thousands of companies in the leasing business today. Your franchisor will be able to advise you about companies that they work with on a regular basis. You can also go to the internet or contact us for the name of our leasing partner.