Dealers have several choices for funding sources: a financial firm that specializes in equipment leasing, a bank, or in-house. Most dealers use a combination of these options as it gives them the greatest flexibility in meeting their customers’ needs, and it sets up a little competition on rates among lessors.
Leasing specialists boast a deeper understanding of the channel’s needs, the products it sells, and its market. “What we don’t want to be is just a leasing company. We want to understand what [our clients] are trying to do and align with those goals. A high percent of their business is repeat customers, and those customers go back to them based on how the equipment worked, how they performed, and how we performed,” said Michael D’Errico, Office Imaging Commercial Leader at CIT. “We have to be a part of why that customer goes back. That’s really more a cultural thing.”
Being focused allows for operational advantages, too. “We have our whole servicing in one building, from origination through booking, credit, customer service, collections, end of lease, and everything in between—accounting, financial reporting, marketing,” said D’Errico. ”It makes us consistent in our service and also it makes our whole employee base understand the business, so it drives the culture.”
Those advantages of pure-play lessors must be weighed against higher rates. “The biggest objection we hear is about our rates. We’re competitive, but not the lowest,” said Jennie Fisher, Senior Vice President and General Manager, Office Equipment Group at GreatAmerica Financial Services. She added that dealers that work with GreatAmerica do so because they appreciate the added value the company can bring for the term of the lease.
That value is embodied in what GreatAmerica calls its Customers for Life principle. “We have always understood that the protection of our dealers’ customer base is vital,” said Fisher. “Our innovative products, programs, and tools help our dealers achieve their goals and differentiate in their markets. An example is our industry leadership with technology integrations that allow our dealers to run their business more effective and efficient, while remaining in their system of choice.”
We have always understood that the protection of our dealers’ customer base is vital. Jennie Fisher: Great America
Bob Hunter, Senior Vice President of Sales, Office Technology for Lessor at DLL, agrees. “The biggest asset a dealer has is its customer base,” he said. He sees DLL’s role as a partner that can help the dealer attract and retain customers, and it is well positioned to do so because DLL is focused solely on vendor finance, and Hunter’s group only on the office equipment industry. “We continue to invest in the segment and in long-term relationships with dealers,” he said.
Those investments are designed to provide total solutions that can accommodate small to large lease deals. Much of DLL’s investment is going into technology. “It’s about how we connect. That could be APIs [application programming interfaces] that allow different systems to talk to each other or mobile enablement,” said Hunter.
Banks tend to have the lowest cost of funds and better fund availability because of their depository nature. That could be a big advantage for dealers who need to price aggressively. The disadvantages of dealing with a bank-owned lessor are the additional regulations. “It creates some challenges at times from credit underwriting and structuring transactions,” said Fred Carollo, Vice President of Originations, Office Products at EverBank Commercial Finance.
EverBank started out as an independent and was acquired by a bank, and Carollo believes this allows the company to offer the advantages of both. “As an independent, we developed a lot of creative financing products that we’ve been able to keep,” he said. “We now have the benefits of being bank-owned, which include pricing and consistency of having capital.”
Some manufacturers have their own captive leasing and financing units to support the placement of their products in businesses. “There’s nobody that knows the asset, the equipment, better than the OEM, and that translates into, in many cases, a lower financing rate. They have such keen knowledge of the secondary markets that they are able to successfully remarket that asset, and they know the customer needs. Having in-house finance capability many times presents an advantage for the captive manufacturer or vendor,” said Ralph Petta, President and CEO of the Equipment Leasing and Finance Association (ELFA).
Canon Financial Services (CFS) is one example. “As a captive, our charter is to support and assist with the placement of Canon equipment and to create unique financing options that support the overall health and profit margins of the manufacturer,” said Dominic Janney, Vice President of Sales and Servicing for CFS. “We understand the complexity of the sales of all our equipment types and work closely with all the sales channels to offer products that will result in the placement of more Canon equipment.”
He added that all CFS products and promotions are created in collaboration with Canon’s direct and indirect channel partners. ”This open and direct dialogue with our partners presents us with opportunities to expand our products, create unique programs, and allow us to develop quicker and more efficient processes which will ultimately lead to increased sales,” said Janney.
A few dealers provide their own funding for leases, either exclusively or alongside options from leasing partners. For some, the decision was made out of necessity. “You have to go back to 2008,” said Mike Sarelson, President and Owner of Commonwealth Digital Office Solutions. “That’s when the financial crisis hit, and almost everybody was being turned down. We were really scared—all of our machines were financed and we couldn’t get financing. We had no choice. Fortunately, we had the money to do it.”
That decision has paid off for Commonwealth. Its in-house lease portfolio is now $10 million, although the company still works with other lessors for accounts that don’t meet its criteria for in-house financing. “We only take 60-month leases and we only take new businesses,” said Sarelson. He added that 60-month leases are preferable to 36-month leases because “The interest rates are just not high enough for us to bother with.”
For Commonwealth, the hard part of setting up an in-house leasing unit was the initial investment. The company did not have to hire additional staff. One person handles the paperwork for both in-house and outside leasing, and the sales team works out terms with customers. Commonwealth already had people doing collections and rolled collections for leases into their duties.
The Commonwealth sales team plays a big role in the leasing process. “Our sales guys can go directly to the leasing companies,” said Sarelson. “They can call DLL, Everbank, Wells Fargo, and they can negotiate a cheaper rate. We don’t bump the rate to the customer, and we don’t bump the rate to the salesman. I don’t know if there’s any other dealer that does it like that.” For Sarelson, this approach keeps the monthly lease rate lower for the customer, and it takes pressure off of sales to discount to meet a competitor’s price, which in turn would eat into commissions.
Even without bumping the rates, he sees plenty of upside in the interest earned from the lease and the tax benefits. “You get interest plus depreciation on the equipment, so the tax benefits are fabulous. On a $10 million portfolio you can get $500,000 tax free. It’s a great place to put money. When you own your own leasing company, you have the product on both ends. You’re the seller and the buyer, you can’t get hurt. It’s not the best return in the world, but it’s very, very safe.”
We don’t bump the rate to the customer, and we don’t bump the rate to the salesman. Mike Sarelson, Commonwealth
Gordon Flesch is one of the largest dealerships in the US, and it has used its own captive leasing unit, GFC Leasing, for 50 of its 60-year history. The reason can be summed up in one word: control. “We could have used third parties, but we would have had no control over the customer’s experience,” said Mike Ullsperger, Vice President of Leasing at Gordon Flesch. “Doing our own leasing allows us to meet GFC’s and customers’ expectations on invoicing and servicing. We want the leasing experience to be similar to the sales and service experience.”
Ullsperger said that Gordon Flesch will use a third-party lessor in certain situations, such as when the transaction is extremely price sensitive. “We have to have a minimum yield,” he said. “We’ll utilize financial institutions or CFS in these instances, because they have access to lower-cost capital.”
We want the leasing experience to be similar to the sales and service experience. Mike Ullsperger, Gordon Flesch
GFC Leasing currently has about 8,600 leases in its portfolio, and once a lease is in the portfolio, it’s never sold, said Ullsperger. About 75 percent of Gordon Flesch’s customers have leases.
All sales reps at Gordon Flesch go through a training program that stresses the value of GFC Leasing products and teaches the components of leasing, said Ullsperger. This training helps them understand things like how flexible they can be with terms, or when to offer quarterly or monthly payments.
Working with Lessors
When it comes to the core underlying qualities of a strong dealer/lessor relationship, CIT’s D’Errico summed it up in three words: “alignment and trust.” He continued: “Trust meaning capability and integrity. It’s the trust that you’re going to take care of their customers during the three, to four, to five-year term of that lease. The customer will have a positive experience during that and will want to stay with that copier provider for their next equipment deal.”
You can’t have alignment or trust if the lessor does not understand the dealer both culturally and from a business perspective. “If you’re talking to a family‑owned business and the goal is to pass it along in their family, they want to approach their business in their community a certain way, versus those who are looking to operate for three to four years and then sell the dealership,” said D’Errico. “How they go to market, what’s important to them on the two examples, are very different. We have to make sure we are aligning what they need from their finance partner with what we offer them.”
We have to make sure we are aligning what they need from their finance partner with what we offer them. Michael D’Errico, CIT
To ensure that alignment, the CIT sales team focuses on the dealers’ goals. “‘What are your goals?’ It’s a more thoughtful question. You’re going to learn more about them and that’s a better opportunity to align,” said D’Errico. “It also gives us insight into what we should be developing, or the things that we do today that match up that they’re not even aware of. If we ask a standard question, we’re going to get a standard answer, and we’ll never get to a more important partnership and resolution that way. But asking more thoughtful questions has worked very well for us.”