If you are currently looking for an affordable way to acquire the inventory you require to run your business without having to rely on capital leases or to request expensive bank loans, you might need to consider direct financing. Direct financing highly differs from capital and operating leases and some people refer to it as direct lease. So, what is it?
Direct Financing is a lease arrangement involving a non-dealer or a non-manufacturer and a customer in which the lessor acquires the equipment for leasing purposes and generates profits through interest payments. That happens with an intention that the company leasing the equipment will own it at the end of the lease. However, in the meantime, the company leases the equipment out to an unspecified third party. After the lease period is over, the company owns the equipment and can continue leasing it to other people.
Companies in the business of leasing software or equipment who have inadequate inventory can rely on direct lease method. Even though you might need to provide collaterals or a form of assurances, you will benefit at the end.
Why people opt for direct financing
The modern economy is unstable and direct financing can be a viable alternative for companies that offer unique services to their clients. Some businesses cannot hold onto larger supplies hoping that they will get a client to lease to. With direct financing, you will lease-purchase the equipment you need at the exact time you need it. What’s more, there will be no need of investing a large amount of money upfront.
An example of businesses that would enter into direct financing includes computer-consulting firms. If your company specializes in particular computer brands, software or networking hardware and want to provide their clients with updated items but you do not have enough money to maintain decent inventories, you might benefit from direct financing.
By leasing the equipment you need from outside firms through direct financing leases, you will get the equipment you require at more affordable prices. In turn, you will lease them to your clients at an amount that will cover your lease payment and a profit. You will also establish income streams that will guarantee your future payments.
Some considerations to make
When entering into leasing agreements through a leasing company, you must give some assurances. Some leasing companies will require you to provide your credit report. The companies interpret higher credit score as ability to make the agreed monthly lease payments. If you have already damaged your credit score, then the lessor will require additional documentation. That is the primary way of protecting themselves and reducing the risks associated with business. It does not indicate that they do not trust you.
You will be responsible for the entire purchase price through direct financing. However, you should keep in mind that the lessor might repossess the equipment if you fail to repay the entire amount. In fact, the client has no obligation to the leasing company. Their work is to make the payment to you. You have to draft an agreement with the client and use it to generate more money. You should use the generated cash to make payments and profits.
Furthermore, you can negotiate the equipment maintenance separately with the lessor and pass the benefits to your clients. After the lessor transfers the equipment to your company, you will have to do the maintenance. You will not pay any additional amount after the transfer.
BSB Leasing has numerous benefits in this realm as a provider of direct financing services. However, the most outstanding is that they allow companies to accumulate more inventories without having to lay out large amounts of money up front. With direct financing, companies are able to generate more money from their clients to help them finance the equipment they leased to them. Such companies enjoy tax benefits including depression deduction. When done right, all the parties involved in the agreement benefit immensely.