By John Tucker
1st Capital Loans LLC
As part of the ongoing rebranding discussion I've focused on in this column, I have presented a number of alternative financing solutions: merchant cash advance, alternative business loans, accounts receivable factoring, accounts receivable financing, purchase order financing and asset based lending. So how about one more rebranding discussion centered on equipment leasing?
Equipment leasing is just one more option MLSs can use in their efforts to rebrand themselves and provide value in the marketplace that merchants will be willing to pay for. GS Online MLS Forum member DEE MALIK recently said, "Some of you guys are super successful in this industry. You have forgotten more than I will ever learn. However, after all the success and all the years that we have been a part of this space, the merchant looks at us as only a cost center rather than a profit center.
"How is that possible when we offer core services that may indeed make up their profit margins? The only fighter I've ever watched that could sting you while backing up is Ali. We need to throw punches while advancing our offerings."
Equipment leasing is one of those ways you can "throw punches" as DEE MALIK put it, positioning you as a profit center for the merchant rather than just another cost center.
As an MLS, you are likely already familiar with the leasing of credit card terminals. POS terminal leasing may even be in your MLS toolkit. I, however, have never recommended leasing a credit card terminal to a merchant. Due to my customer-first approach, I believe buying a terminal wholesale has always been the better option for merchants, thus, that is the option I have recommended.
However, there are other types of equipment you can lease that actually make sense for merchants and do not involve putting a $300 terminal on a $100-a-month lease for 36 months. Consider the diversity of equipment types used in various business verticals – from restaurants to medical offices to grocery stores. Countless merchants very much need flexible equipment leasing options over the lifetime of their businesses. Leading with this service would make you an equipment leasing broker.
As an equipment leasing broker, you would bring together three different parties:
This combination of business objectives gives you the opportunity to make a commission from the equipment leasing company, as well as from the manufacturer upon successful completion of the entire transaction. For example, your merchant might be looking for a $200,000 piece of operational equipment. You might have a contract with an equipment manufacturer to resell their equipment, as well as a network of equipment leasing companies looking to setup a lease program on an equipment acquisition.
You could get, let's say, a 7 percent commission from the equipment leasing company on a lease approval amount of $200,000, which would come to $14,000. Then your equipment buy rate from the manufacturer could be $194,000, and you could mark it up to $200,000 for resale. Thus you would make $6,000 from the equipment sale. This is a total of $20,000 earned from one piece of equipment. You just need to do five of these transactions per year to bring home $100,000.
In the payments industry, lease is a contract between a leasing company (known as the lessor) and a merchant (known as the lessee). The lease gives the merchant the right to use the equipment for a specific period of time (known as the lease term), in exchange for a specific payment (the monthly lease payments). Within this transaction, the leasing company would (usually) purchase the equipment from the manufacturer and have the manufacturer ship it to the merchant's location. The leasing company makes its money back from the lease payments and makes profit by receiving a higher lease payback amount from the merchant than the cost of the equipment purchase.
With most leasing options, when the lease term ends, the merchant will be provided a number of choices on what to do with the equipment. The merchant could purchase the equipment, return the equipment or set up a new lease contract.
There are several leasing options a merchant can choose from, including the:
John Tucker has over 10 years of professional experience in commercial finance and business development. He is also an M.B.A. graduate and holder of three bachelor's degrees in accounting, business management and journalism. To connect with John, please send him a connection invite via LinkedIn at www.linkedin.com/in/johntucker99.
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