The “leasing vs. financing” question has a lot of layers, and I’ve explored a lot of them in this blog over the years (like “vehicle leasing vs. financing”, and the “differences between a capital lease and an operating lease”.) 

But one thing I haven’t talked about too much is the off-balance sheet aspect of an operating lease, and how it relates to board approval. And I had a situation crop up recently that perfectly exemplified this.

Many companies, especially larger entities, will utilize a board of directors that makes company decisions. Now let me start by saying a corporate structure requires a board, but in the case of many corporations, the “board” is a two person entity (husband and wife, business partners, relatives, etc.)

But in other companies, especially once the company is larger and more complex, there’s an actual board of directors. And this board of directors makes decisions. And one of those decisions may be acquiring new assets.

In other words, there are many companies who cannot acquire a new asset without board approval. Now this isn’t super-limiting – after all, most board members became board members because they are smart businesspeople, and if a company needs something, it needs something. 

But sometimes getting a timely meeting to approve a new asset can be troublesome, and if time is of the essence, this can be detrimental. 

In the example I’m giving, a company was in the middle of an important project. There was an unforeseen problem, and the company realized they needed another piece of equipment quickly. Getting a meeting together for board approval was going to take two weeks. That kind of time would have put the project hopelessly behind schedule, and also may have cost money, as another rate increase was imminent. What to do?

Lease it. Lease it with an Operating Lease. 

Operating leases are off-balance-sheet. The company doesn’t own the item, and it doesn’t appear as an asset. Most importantly, it then doesn’t need board approval if that’s how your company works. Two weeks turns into two hours. 

Mind you, I’m not advocating anything nefarious or “hiding” anything from the board. It’s more about making sure a rule (“board approval needed, and we’ll talk at next month’s meeting”) doesn’t get in the way of production.

Now do you understand why leasing is faster than the boardroom? 

Personally, I think they are looking for stock tips or such (because it does seem that when a particular industry is “rising” in equipment financing, that industry in general does well in an overall sense – and vice versa.) But, and this is key, I can only speculate on what an industry in general is doing, and not any individual company (meaning don’t corner me at the party asking for stock tips.)

So with that, let’s explore a few industries that are currently hot in terms of equipment leasing / equipment financing:

The biggest surprise to me this year is that agricultural equipment seems to be a hot item for companies. Things like farming equipment, dairy equipment, machinery and equipment for storing produce, staple goods… that kind of thing. I’m not a sociologist or economist, but I would guess as populations increase (which they have been), food becomes even more important. Plus, even though the economy isn’t as robust as we’d all like, it is better than the previous several years, meaning “eating out” is likely on the rise. Regardless of the reason, though, agricultural and farming equipment is definitely hot right now.

Another “hot” item (or items) as of late is landscaping equipment. Everything from commercial riding mowers to cherry-picker trucks for tree companies to hand held equipment like commercial gas powered trimmers and the like. This is a little less surprising to me because it’s an every year seasonal thing – landscaping equipment is always “up” once spring hits around the country. Partially because those old mowers are started for the first time in months, so if they are going to break, now’s the time.

So there we have two industries that are moving upward. We’ll go over two more “hot ones” in the next post, and then we’ll look at what’s “not hot” in equipment financing.

See, with the bank, you have an anniversary date – a date which they aren’t going to forget. And on this anniversary, you will not be presented with a gift, a fancy dinner, wine, or any creative hanky-panky (let’s hope Mrs. Fletch is reading.)

No, instead of a nice celebration, you will be asked how things are going, and then asked to provide the bank with any or all of the following: personal financial statements, tax returns, insurance certificates, accounts receivable stuff, inventory schedules, and other various certificates and financial documentation. Don’t believe me? Read your fine print – it’s in there. Banks aren’t going to allow you to have a bad year.

Conversely, an equipment financing company will go ahead and write your equipment lease, and then leave it at that. Like husbands all over the world, we’ll forget the anniversary. But in this case, it’s a good thing. As long as you make your scheduled payments, we’re going to leave you alone. No flowers, no candy, no wine, no… you know.

However, this does not mean we’ll forget about you altogether. No chance. We’ll be right here when you need us again, ready to finance equipment, write an equipment lease, or anything else you need. But your original loan with us? No worries – that’s said and done, and we won’t bother you about it again in the least.

And now that I’m finished with my ten reasons, I can now shop for an anniversary gift for Mrs. Fletch (it’s here in August). Go ahead and insert your favorite hanky-panky joke – I won’t mind.