Independent vs. Captive Equipment Leasing Companies

Independent vs. Captive Equipment Leasing Companies

The debate rages on as to which type of lessor agency is best for the consumer. In reality there are very distinct differences between the two that require a detailed review before final decisions are made and monies change hand. Both have some pluses and both have their limitations.

First let’s look at the dynamics of a captive equipment leasing company:

The only purpose of the existence of a captive leasing arm of a manufacturer or supplier is to support the top-line revenue growth and profit of the primary company. They only provide financing options for their own company’s equipment and are supportive of the overall health and profit margins of the manufacturer.

As part of the ongoing sales process these leasing companies are contacted once a client has already negotiated his or her own “best deal” and requesting terms on the purchase. As in any basic lease, one of the best-selling features of the sales process is presenting a monthly payment number that makes sense to the buyer and one attractive enough for them to sign off on and have the equipment delivered.

There is much that goes into the final financial equation of a lease of this nature however such as:

  • A “what will the market bare” rate mentality exists as a prospect is turned into a buyer?
  • Credit worthiness becomes a factor in determining the final pricing offered to the client and often times used as leverage to increase rates or charge additional fees to hedge any ongoing risk
  • Manufacturers extended warranties usually become part of this financial equation and add to the overall cost of the equipment
  • The leasing / finance arm of the company works closely with the sales staff to “get the deal done”
  • In this exchange between the two operating divisions of the same company,  both are usually required to take responsibility for making the most money possible on the transaction and showing an annual profit from their own unique operations
  • One positive is that a captive leasing company has an existing sales channel in place to take equipment back and resell. This is only a bonus however to the lessor since they rarely want the equipment back and would prefer the client just continue their payments

Independent Equipment Leasing Companies Offer the most flexibility:

Just like any client advocate a good independent equipment leasing company has only the buyers interests in mind, therefore all of the communication is about providing the best financial deal possible and the buyer the capital they need to negotiate their own sales price.

Let’s now look at the benefits of using an Independent firm to manage the funding:

  • By definition an independent leasing firm is exactly that, independent. They focus exclusively on the financial transaction and making sure the client has the capital they need to buy their own equipment
  • Armed with the knowledge that they will be able to immediately fund any and all of their equipment needs they then are in charge of the negotiations to obtain the best pricing possible, reduction in shipping costs, free extended warranties and anything else they can get a salesman to offer for a “cash deal”.
  • With the security that comes from independent financing a savvy business owner is able to get several competing vendors involved in bidding for his / her business. This usually results in a more competitive quote and lower overall costs to acquire the equipment.
  • Since an independent leasing firm is only concerned about the client, an improved capital lease can usually be structured on behalf of the business thus setting the stage for additional equipment needs and funding down the road
  • The cost of the lease is usually a bit higher than a captive firm but savings come from custom tailored lease terms and acquisition savings on equipment, warranties, and installation or training costs.
  • Independent firms are structured to move quickly and make funds available immediately, often times within 24-48 hours they can be in motion

Conclusion

In the final analysis each business looking for equipment financing needs to look at their own circumstances and make the determination on which type of lease makes the most sense for their organization. Our experience as told us that both types of firms offer unique pros and cons to any transaction. The independent route however usually provides the most flexibility in the long run since they are standing on the same side of the transaction with the client, as compared to a captive agency that is without question standing on the seller’s side.

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