America's small and medium sized businesses have been the backbone for our past economic recoveries. However, banks are currently under increased federal regulation and scrutiny and as a result they are becoming more hesitant to lend funds to these businesses. If businesses cannot get the funds they need to grow and expand it will only hamper the current economic recovery.
Community banks are still offering loans but businesses have to jump through a lot more hoops to get them. According to a recent Wall Street Journal article, community banks are requiring much more detailed infomation about a business and its operations before it will be considered for financing. In addition to standard financial information, a borrower is now required to report other information . . . for instance, if one of the (borrowers) customers is in financial trouble. The end result is that many business owners are unable to qualify for the loans they need.
Leasing companies can help to fill the void. Business owners can turn to leasing companies to secure the funds they need to grow their business. Along with a simpler application process, leasing provides the financial flexibility to free up cash and credit lines as well as gain important tax advantages.
Thursday, July 29, 2010
Thursday, March 12, 2009
Who is running the Detroit 3 Auto Makers?
Why are the Detroit 3 Auto Makers in trouble? The following is excerpted from the Wall Street Journal (dated 10-22-08) and it shows some of the problems they face.
Over the years they (Detroit 3) have accrued an almost incalculable amount of baggage of government intervention.
Why don’t the automakers limit themselves to paying competitive wages in line with what workers could earn elsewhere? Because, in the 1930s, Congress passed the Wagner Act with the nearly explicit purpose of imposing a labor monopoly on Detroit to keep wages at higher than competitive levels.
Why doesn’t Detroit rationalize its musty brand of lineups and dealer networks? Because, in the 1950s, legislatures across the country imposed franchising laws, including the Federal “dealer day-in-court clause,” to make such rationalization prohibitively expensive.
Why don’t the auto giants do as Whirlpool and other manufacturers have done, move their production to cheaper offshore locales? Because, in the 1970s, Congress enacted fuel economy rules to penalize homegrown automakers if they don’t build the lion’s share of their cars in high-wage, UAW-staffed domestic factories.
They are also faced with stringent requirements for Safety Standards and Emission Standards as well as Fuel Economy. No, Detroit’s troubles don’t arise because its executives are morons. The automakers have been around for a long time and they are bogged down with too much regulation.
The only thing wrong with corporate longevity are the legal encrustations that accumulate along the way.
Over the years they (Detroit 3) have accrued an almost incalculable amount of baggage of government intervention.
Why don’t the automakers limit themselves to paying competitive wages in line with what workers could earn elsewhere? Because, in the 1930s, Congress passed the Wagner Act with the nearly explicit purpose of imposing a labor monopoly on Detroit to keep wages at higher than competitive levels.
Why doesn’t Detroit rationalize its musty brand of lineups and dealer networks? Because, in the 1950s, legislatures across the country imposed franchising laws, including the Federal “dealer day-in-court clause,” to make such rationalization prohibitively expensive.
Why don’t the auto giants do as Whirlpool and other manufacturers have done, move their production to cheaper offshore locales? Because, in the 1970s, Congress enacted fuel economy rules to penalize homegrown automakers if they don’t build the lion’s share of their cars in high-wage, UAW-staffed domestic factories.
They are also faced with stringent requirements for Safety Standards and Emission Standards as well as Fuel Economy. No, Detroit’s troubles don’t arise because its executives are morons. The automakers have been around for a long time and they are bogged down with too much regulation.
The only thing wrong with corporate longevity are the legal encrustations that accumulate along the way.
Tuesday, December 30, 2008
GM & CHRYSLER RESCUED? MAYBE!
President Bush recently announced a rescue (Bailout) plan for General motors and Chrysler LLC. The two automakers will receive government loans. However, the loans come with some tough conditions. Both automakers must come up with a plan and show by March 31st 2009 that they are financially viable. That’s a big task in a very short timeframe.
Here are the Highlights of the Bush Deal:
- GM gets a $13.4 billion loan, Chrysler gets a $4 billion loan
- Government gets stock warrants for the loans
- GM & Chrysler must get concessions from creditors
- Automakers must prove they are financially viable by March 31st
- Government can review all transactions over $100 million
The plan defines financial viability as showing a “positive net present value.” That means the companies cash inflows exceed its outflows. This will require huge reductions in expense and this will be the greatest difficulty.
Other loan terms demand concessions from management and shareholders. They are as follows:
- Limits on executive compensation
- Bans on dividend payments until the loans are repaid
- Grants of stock warrants to shareholders
The loan agreements list other conditions that are referred to as “targets.” The “targets” are not mandatory but deviations from them must be explained in the viability plan. The “targets” are:
- The Detroit 3 workers accept pay and work rules comparable to those of import brand workers.
- That half of automaker payments to retiree health trusts be in stock
- That the Union Jobs Bank – Which allows laid-off workers to collect most of their pay – be abolished.
So there is some pressure on the Union (UAW) to give a little also. It seems to be in their best interest to comply. If the U.S. automakers go out of business the Union would also be out of business.
Saturday, December 27, 2008
SHORT HISTORY OF THE LEASING INDUSTRY
Contrary to what many people believe leasing has a long history. There are many records throughout history that make mention of this financial tool called leasing. The earliest records of leasing date back to sometime before 2000 B.C. In the ancient Sumerian city of UR, lease documents were found that were written on clay tablets. Those clay tablets recorded transactions of leases for agricultural tools, land, water rights and animals.
In approximately 400 B.C. the Persian Empire specialized in land leasing, but they also leased oxen and agricultural equipment. Other ancient civilizations, including the Greeks, Romans and Egyptians found leasing to be an attractive, affordable and viable method of financing equipment, land and livestock. The ancient Phoenicians were involved with ship charters which resembled a form of an equipment lease. Many of the same kind of negotiation issues that today’s lessors and lessees face were addressed in those ancient ship charters.
For centuries, the leasing of personal property was not recognized under English Common Law. The long term leasing of real property was allowed and in many cases was the only means available to acquire the use of land due to a very rigid system of land laws. However by 1284 there were changes in the laws and the leasing of personal property became permissible. In the early 1800s there were developments in the agricultural, manufacturing and transportation (railroad) industries which brought about new types of equipment. Many of these new types of equipment were suitable for lease financing.
As the demand for lease financing of equipment continued to grow in the United Kingdom, so too did the need for a similarly creative form of finance in the United States.
The first recorded leases of personal property in the US were in the 1700s. They provided for the leasing of horses, buggies and wagons by liverymen. As the types of, and need for equipment increased, so too did the use and development of leasing. The real growth in US leasing however, was caused by the railroad industry.
The first car rental business dates back to 1918. However, a Chicago car dealer named Zollie Frank offered long-term fleet leasing of automobiles in the early 1940s and is credited as the originator of the vehicle leasing industry. Today the vehicle leasing industry has annual lease revenues in excess of $50 billion.
Many equipment and vehicle manufacturers recognized the value of providing financing for their products throughout the development of the US leasing industry. Some manufacturers even went so far as to set up their own financing organizations. The manufacturers that chose not to, or who were unable to provide financing, were left with two options. First, let the customer independently seek financing or secondly, to work with an independent financial concern to set up some type of vendor financing program. Independent leasing companies were formed to provide this specific product of financing for manufacturers and dealers. Eventually independent leasing companies began providing leasing services directly to the lessee for other unrelated equipment.
Since the 1960s leasing has experienced much growth and has grown into a large and viable industry. In fact leasing has become the creative financing alternative of today. It is believed that this industry will continue to grow as more and more of the worlds equipment needs are met through this unique form of financing.
In approximately 400 B.C. the Persian Empire specialized in land leasing, but they also leased oxen and agricultural equipment. Other ancient civilizations, including the Greeks, Romans and Egyptians found leasing to be an attractive, affordable and viable method of financing equipment, land and livestock. The ancient Phoenicians were involved with ship charters which resembled a form of an equipment lease. Many of the same kind of negotiation issues that today’s lessors and lessees face were addressed in those ancient ship charters.
For centuries, the leasing of personal property was not recognized under English Common Law. The long term leasing of real property was allowed and in many cases was the only means available to acquire the use of land due to a very rigid system of land laws. However by 1284 there were changes in the laws and the leasing of personal property became permissible. In the early 1800s there were developments in the agricultural, manufacturing and transportation (railroad) industries which brought about new types of equipment. Many of these new types of equipment were suitable for lease financing.
As the demand for lease financing of equipment continued to grow in the United Kingdom, so too did the need for a similarly creative form of finance in the United States.
The first recorded leases of personal property in the US were in the 1700s. They provided for the leasing of horses, buggies and wagons by liverymen. As the types of, and need for equipment increased, so too did the use and development of leasing. The real growth in US leasing however, was caused by the railroad industry.
The first car rental business dates back to 1918. However, a Chicago car dealer named Zollie Frank offered long-term fleet leasing of automobiles in the early 1940s and is credited as the originator of the vehicle leasing industry. Today the vehicle leasing industry has annual lease revenues in excess of $50 billion.
Many equipment and vehicle manufacturers recognized the value of providing financing for their products throughout the development of the US leasing industry. Some manufacturers even went so far as to set up their own financing organizations. The manufacturers that chose not to, or who were unable to provide financing, were left with two options. First, let the customer independently seek financing or secondly, to work with an independent financial concern to set up some type of vendor financing program. Independent leasing companies were formed to provide this specific product of financing for manufacturers and dealers. Eventually independent leasing companies began providing leasing services directly to the lessee for other unrelated equipment.
Since the 1960s leasing has experienced much growth and has grown into a large and viable industry. In fact leasing has become the creative financing alternative of today. It is believed that this industry will continue to grow as more and more of the worlds equipment needs are met through this unique form of financing.
Tuesday, November 14, 2006
Lease that Equipment or Vehicle acquisition.
Have you ever considered leasing your Equipment or Vehicle acquisitions? It is something worth looking into. There are many advantages to leasing that are not available with traditional methods of financing. Following below are some of the lease advantages.
Leasing makes it possible to upgrade your Equipment or Motor Vehicles more frequently. The lease company can write the lease to coincide with your planned trading cycle. This means you can keep up with new improvements and new styles. It also means you will upgrade your image and not incur excessive expense in doing so.
Leasing allows you to keep your cash for other uses. Financial advisors will tell you, "Buy those items that appreciate and lease those that depreciate." The front cost for a lease is substantially less than buying, and payments are much lower than a comparable loan. No down payment and lower monthly payments mean you free up more of your cash.
A lease can be especially helpful at tax time because it can provide an added tax advantage. With the lease you no longer need to keep track of depreciation expense. With a properly structured lease you simply write off your monthly lease payment as a business expense. With a true tax lease, Uncle Sam could end up footing as much as a third of the cost of the equipment. Consult with your tax advisor for more specific information regarding your tax situation.
Leasing will simplify your record keeping when the equipment or vehicle is for business purposes. A properly structured lease remains off the balance sheet. This type of lease is referred to as an "Operating Lease" and you no longer need to track the asset value nor the indebtedness, if any. With the Operating Lease you do not report these items on your balance sheet. Another record keeping item that you eliminate is depreciation. You no longer need to keep track of complicated depreciation schedules. The only bookkeeping entry will be the monthly payment, which you enter in the rent category on your profit and loss statement. You may want to consult with your accountant for more information as to how the lease will affect your financial statement and your bottom line.
You can preserve your credit lines and borrowing ability. The lease is another method of financing your capital equipment needs. You keep your bank borrowing capacity available for emergency uses or for your peak operating cycle. The lease is tailored to fit your specific need while your bank credit remains available for other uses.
The many options available at lease end provide you with a great deal of flexibility. Leasing frees you from the hassle of selling or disposing of used equipment. At lease end you have the option to buy, trade, or walk away. In addition, many leases will allow you to extend the lease if you need the equipment for an additional period of time. For example, if you need the equipment for an additional two months, you simple request the lease company to continue billing you for the monthly payment for the additional time. If you need the equipment for a longer period, you may re-negotiate a new lease on the same equipment for another 12 to 24 months or more.
Your first option as mentioned above is the buy option. If you choose to buy the equipment at lease end you simply negotiate a buy out amount with the lease company. The lease company is not a retailer and would prefer not to have the equipment back at lease end. The simplest thing for the lease company is to sell the equipment to you, the lessee.
Your second option is to trade the equipment and upgrade. If you elect this option, you work with the equipment dealer much as you would with an automobile dealer when you trade in a car. The dealer contacts the lease company and negotiates a buy out. You work with the dealer to establish a trade in value.
The third option is the walk away option. If you exercise this option you must return the equipment to the location designated by the lease company. When exercising this option, the lease requires that you return the equipment in good repair with ordinary wear and tear accepted. There is no cost to you as long as there is no extraordinary wear and tear. You may want to consult with the lease company regarding this requirement.
As you can see the lease has many advantages. It can be more than a financing alternative; it can be a tailor made solution for your financing concerns. A properly structured lease can allow you to reduce your taxable income, use the equipment at the lowest possible cost and avoid the "tax gotchya" called the Alternative Minimum Tax.
Leasing makes it possible to upgrade your Equipment or Motor Vehicles more frequently. The lease company can write the lease to coincide with your planned trading cycle. This means you can keep up with new improvements and new styles. It also means you will upgrade your image and not incur excessive expense in doing so.
Leasing allows you to keep your cash for other uses. Financial advisors will tell you, "Buy those items that appreciate and lease those that depreciate." The front cost for a lease is substantially less than buying, and payments are much lower than a comparable loan. No down payment and lower monthly payments mean you free up more of your cash.
A lease can be especially helpful at tax time because it can provide an added tax advantage. With the lease you no longer need to keep track of depreciation expense. With a properly structured lease you simply write off your monthly lease payment as a business expense. With a true tax lease, Uncle Sam could end up footing as much as a third of the cost of the equipment. Consult with your tax advisor for more specific information regarding your tax situation.
Leasing will simplify your record keeping when the equipment or vehicle is for business purposes. A properly structured lease remains off the balance sheet. This type of lease is referred to as an "Operating Lease" and you no longer need to track the asset value nor the indebtedness, if any. With the Operating Lease you do not report these items on your balance sheet. Another record keeping item that you eliminate is depreciation. You no longer need to keep track of complicated depreciation schedules. The only bookkeeping entry will be the monthly payment, which you enter in the rent category on your profit and loss statement. You may want to consult with your accountant for more information as to how the lease will affect your financial statement and your bottom line.
You can preserve your credit lines and borrowing ability. The lease is another method of financing your capital equipment needs. You keep your bank borrowing capacity available for emergency uses or for your peak operating cycle. The lease is tailored to fit your specific need while your bank credit remains available for other uses.
The many options available at lease end provide you with a great deal of flexibility. Leasing frees you from the hassle of selling or disposing of used equipment. At lease end you have the option to buy, trade, or walk away. In addition, many leases will allow you to extend the lease if you need the equipment for an additional period of time. For example, if you need the equipment for an additional two months, you simple request the lease company to continue billing you for the monthly payment for the additional time. If you need the equipment for a longer period, you may re-negotiate a new lease on the same equipment for another 12 to 24 months or more.
Your first option as mentioned above is the buy option. If you choose to buy the equipment at lease end you simply negotiate a buy out amount with the lease company. The lease company is not a retailer and would prefer not to have the equipment back at lease end. The simplest thing for the lease company is to sell the equipment to you, the lessee.
Your second option is to trade the equipment and upgrade. If you elect this option, you work with the equipment dealer much as you would with an automobile dealer when you trade in a car. The dealer contacts the lease company and negotiates a buy out. You work with the dealer to establish a trade in value.
The third option is the walk away option. If you exercise this option you must return the equipment to the location designated by the lease company. When exercising this option, the lease requires that you return the equipment in good repair with ordinary wear and tear accepted. There is no cost to you as long as there is no extraordinary wear and tear. You may want to consult with the lease company regarding this requirement.
As you can see the lease has many advantages. It can be more than a financing alternative; it can be a tailor made solution for your financing concerns. A properly structured lease can allow you to reduce your taxable income, use the equipment at the lowest possible cost and avoid the "tax gotchya" called the Alternative Minimum Tax.
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