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February 22, 2010

The Five C’s of Lending

Filed under: Credit tips — Tags: , , , , , , , , , , , , — afp @ 6:11 pm
approved

There are Five C’s of Credit that all business owners should know when they are ready to request financing for their business.  Those Five C’s are:

Cash Flow
Collateral
Capital
Character
Conditions

Every business owner should know where they stand on all Five C’s and use them to help in the preparation of questions and concerns you may get on your business when you apply for your next equipment finance.

CASH FLOW

Does your business generate enough cash flow to replay the loan you are requesting? Your historical and projected cash flow will both be reviewed during the cash flow analysis and will be compared to your projected debt service requirements.  Every bank completes their cash flow and debt service coverage ratios a little different, but here is a general formula you can use:

Cash Flow Coverage=    
Net income after taxes + depreciation + interest + rent – distributions
Proposed debt obligation + CPLTD (current portion long term debt) from prior year + rent + interest

Most lenders will look at the past two to three years of your financial statements or tax returns and the most recent financial statement on your business depending on where you are in your fiscal year.  While projected cash flow is important, the lender will usually put more weight into the historical cash flow of the business and make sure it is sufficient to support the requested debt.  Projected cash flows usually show higher figures than historical performance because of the expected growth of the company.  Because of this, your lender will review these with some skepticism.  You should be prepared to defend your future cash flow projections with information that would give your lender data to show these figures are accurate, such as signed contracts or backlog information.  A typical cash flow coverage should be 1.2 or higher to meet most lender’s guidelines.  This means the company is expected to generate at least $1.20 of cash flow for each dollar of debt service. 

COLLATERAL

Collateral is important to a lender as it is the secondary source of repayment of the loan.  If the company is unable to generate sufficient cash flow to repay the loan, the lender will get the collateral and liquidate it using the funds to pay off the loan.  Many lenders want the collateral to be equal to or higher than the amount of financing provided.  Some banks may ask for additional collateral on top of the equipment they are financing in order to overcome financial or credit issues.  Many banks are only interested in financing collateral types that they can easily liquidate such as accounts receivable, inventory, equipment and real estate.  Most lenders will only use a percentage of the value of the equipment or collateral on the financing.  For example, on average a bank will generally give a business 80% of the value of their accounts receivable, 50% against their inventory, 80% against equipment and 75% against real estate.  Each bank will waiver on these percentages a little based on their historical experience in other liquidation scenarios against each asset class.  Keep in mind there are costs to liquidating (appraisals, shipping, legal expenses) or collecting (bad debt customers) on these assets and the percentages will reflect these costs also.  Most lenders will look at comparable assets to verify the true value of the asset.

CAPITAL

Lenders like to see the owner(s) of the company to have sufficient equity in the company.  Capital is important for two reasons:  1) It gives the company a cushion to withstand a blip in the company’s ability to generate cash flow.  If the company has a tough quarter or becomes unprofitable for any reason, having enough capital to weather the storm is important.  Without capital, the company could run out of cash and be forced into bankruptcy.  2)  Lenders like to see owners have “skin in the game.”  This shows the bank the owner will be motivated to stick by the company and work hard to turn the company around should anything go wrong.  There is no exact number for having enough capital.  Many banks will look at the owner’s investment into the company relative to their total net worth.  Most banks will also run a debt to equity ratio which shows how much debt the company has compared to the equity in the business.  Most lenders want to see a debt to equity ratio no higher than 2 to 3 times. 

CONDITIONS

The overall environment the business is operating in can affect the lender’s decision.  The lender will assess the conditions surrounding your company and its industry to determine the key risks facing your company and how well you can mitigate those risks.  Here are some examples of things your lender will consider:

  • Competition- how do you differentiate from your competition?  What keeps your customers working with you versus going to your competition?
  • Customers- Do you have any significant customer concentrations?  If so, how do you protect these customer relationships?  What are you doing to diversify your revenue base?  Are any of your major customers having financial issues? 
  • Supply risks- What are your relationships with your key suppliers?  Is there any risk of disruptions from them?
  • Industry issues- Are there any economic or political factors affecting your company?  What trends are emerging in your industry?

Be prepared to discuss what you see as the primary threats to your business and what you are doing to mitigate those risks and protect your company.  Make sure the lender understands the drivers of your business.  These could be just as important as your company’s financial profile.

CHARACTER

I would argue that Character is the most important of the Five C’s.  It is important for lenders to know who they are working with; are the owners and management of the company honorable people when it comes to meeting their obligations?  Character can not approve your financing by itself, but it can make a lender turn you away by itself.

Character is tough to “grade” because it is an intangible asset.  It really comes down to the lender’s “gut feeling” about you and your business.  Your lender will get a good read on this based on your personal credit bureau report and how you handle other debt obligations.  The lender can pull business reports on your pay history and will also communicate with your current and former bankers and suppliers to find out how you have handled your arrangements in the past.  The lender may talk with your customers or past business partners.  How you handle yourself with the lender during the application process also plays a big role.  Most lenders will only work with people they can trust; in good times and in bad times.  The lender wants to know that if things go wrong, you will do whatever you can to honor your commitment to them. 

Take the Five C’s and make sure you are ready to present to your lender on behalf of your company when the time comes for you to apply for financing.  Being prepared and having your Five C’s in line will help your process go quicker and smoother.  You can also use these Five C’s as a management tool to aid you in running your company.

Visit my profile on Linked in:  Carrie Radloff

February 18, 2010

The Important Things Life Teaches You

Filed under: General — Tags: — afp @ 8:30 am

janitor

This is another story I have on my desk that I don’t quite remember when or who I got it from.  But I think it hits home on the way I want to do business. 

During my second month of nursing school, our professor gave us a pop quiz.  I was a conscientious student and had breezed through the questions, until I read the last one:  “What is the first name of the woman who cleans the school?”  Surely this was some kind of joke.  I had seen the cleaning woman several times.  She was tall, dark-haired and in her 50s, but how would I know her name?  I handed in my paper, leaving the last question blank.  Before class ended, one student asked if the last question would could toward our quiz grade.  “Absolutely,” said the professor.  “In your careers you will meet many people.  All are significant.  They deserve your attention and care, even if all you do is smile and say ‘hello’.”  I’ve never forgotten that lesson.

I also learned her name was Dorothy.

Reading this story always gives me the motivation to get on the phone and talk with active and potential customers and vendors.  I think it is important for all of us to remember that everyone we speak to is important and should be treated as such.   There are a lot of really good companies out there that truly believe in knowing their customers and treating them right and unfortunately there are a lot of companies who are out to make a quick buck.  Make sure when your customers call on your company that you and your employees treat them as they are, your customers.   People do business with people they like.  How many of your customers do you know by name?

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February 16, 2010

How To Give An Effective Presentation

Filed under: General — Tags: , , , — afp @ 10:37 am

 

presentation

“Speak clearly, if you speak at all; Carve every word before you let it fall.”  Oliver Wendell Holmes Sr.

Giving an effective presentation means knowing your audience and your topic.  Your presentation may be a little different depending on who you are communicating it to.  A professional language would be more adequate if you are at a business conference of professionals, a laid back style may be more appropriate in other situations.  Think about what the audience wants to get out of your presentation and what you can use that they all have in common.  Bringing in your audience’s emotion is a great way to gain interest.  A great way to do that is to tell a personal story about another person or situation or to tell a story about their line of work.

It is essential to have facts and statistics to back up any argument you raise.  If you only have “fluff” in your presentation, people won’t take it serious.  Highlight where you got your facts so they can go check them out themselves after your presentation if they wish.  Audiences respond to solid data that comes from reputable sources.  The most credit sources are said to be government agencies, universities and other well-established organizations that are relevant to the subject matter you are presenting on.  Remember that Evidence Defeats Doubt:
D Demonstrations
E Examples
F Facts
E Exhibits
A Analogies
T Testimonials
S Statistics

It is important to have a solid structure to your presentation.  If you jump all over the place people will get lost and you may lose interest of your audience.  Your presentation should have an slam dunk opening that gains the interest of your audience right away.  As Dale Carnegie would say, “Most airplane difficulties occur at two critical points: take-off and landing. The same is often true of presentations. A strong opening will create additional confidence and is an opportunity to make an immediate positive first impression.”  Make sure you catch the audience’s attention quickly in your opening and make sure it naturally leads into your presentation.  This is a great time to build goodwill with your audience and find ways to relate to them.  People like listening to people they like.  After opening, divide the presentation into main points with supporting arguments and then end with a conclusion that wraps it all up.  Closing a presentation will be what provides a lasting final impact on your presentation.  The closing should be brief, but inspire your audience with emotion and tie back to your opening or the theme of your message.  This is a time to build to a crescendo so your last words have impact.

“If you have an important point to make, don’t try to be subtle or clever. Use a pile driver. Hit the point once. Then come back and hit it again. Then hit it a third time — a tremendous whack!” -Winston Churchill

Keeping yourself organized is another important part of an effective presentation.  A good way to do this is to clearly write your main points on note cards.  Do not and I repeat DO NOT read your speech from a card, paper, PowerPoint or any other source.  You will lose your audience right away.  There is nothing worse than having a presenter read the PowerPoint to you.  You have to keep eye contact with your audience in order to keep their interest.  If you are using a projector, make sure you are familiar with how to use it before the presentation starts, have it ready to go when the presentation starts.  Other visual aids can also hold your audience’s interest and help drive home an important point.  Make sure you are prepared in everything you will be doing for the presentation so you can avoid any apology to the audience. 

“How often we all have heard speakers begin by calling the attention of the audience to their lack of preparation or lack of ability. If you are not prepared, the audience will probably discover it without your assistance.” — Dale Carnegie

Some final tips when giving a presentation:

  • Speak clearly and loudly, use a microphone if needed
  • Never turn your back to the audience
  • Get participation if possible
  • Time limit- make one and stick to it
  • Practice before you present

If you have to give a presentation and are not ready, here are some ways to strengthen your skills.  Join Toastmasters or another club to practice, practice in front of friends, family or the good ole’ mirror and read books or articles about giving good presentations.  Practice makes perfect, the most you practice and present, the more comfortable you will feel with it.  And remember to have fun with it! 

For more information on business presentations, visit the ToastMasters website at:  http://www.toastmasters.org/MainMenuCategories/FreeResources/NeedHelpGivingaSpeech/BusinessPresentations.aspx

Visit our website at:  www.financewithafp.com

February 15, 2010

What is Depreciation?

Filed under: Leasing tips — Tags: , , , — afp @ 10:05 am

 dollar

Depreciation is a term used in accounting, economics and finance to spread the cost of an asset over the span of several years.  In common speech, depreciation is the reduction in the value of an asset due to usage, passage of time, wear and tear, technological outdating or obsolescence, depletion, inadequacy, rot, rust, decay or other such factors.  Depreciation in the leasing and finance world gets confusing because we use it in both accounting and income tax, but very differently.

For accounting, depreciation amortizes the equipment cost, minus a salvage value, over the useful life of the equipment to the firm, on a “straight line basis.”  Depreciation for GAAP accounting is done in two forms and three different ways.  The two forms are straight line depreciation, of the net present value of the total lease rental stream, for capital lease accounting and expensing the lease payments as paid for operating lease accounting providing the rentals follow the use otherwise it will be expensed on a straight line basis.  Lessee depreciation for capital lease accounting depends on if an automatic title transfer or a bargain purchase option exists at termination. If so then the term of straight line depreciation must be the actual useful life of the equipment to the firm regardless of the lease term. If the purchase option is not a bargain but the lease fails the 90% test then the term of depreciation is limited to the term of the lease.

For federal income tax, depreciation is called “capital recovery” where our tax laws allow us to take an accelerated expense called the “Modified Accelerated Cost Recovery System” (MACRS) over a defined term.  The MACRS is actually a method to allow business to recover capital investment by allowing business to deduct from taxable income the (MACRS) percentage of original cost allows for that year.  MACRS allows 20% in the first year, 32% in the second year, 19.2% in the third year, 11.5% in the fourth and fifth years and 5.8% in the last year.  This means the tax payer gets tax free income equal to the loss in value of their capital goods.  However the tax system has altered the allowable percentage from time to time according to their need to collect taxes or reduce taxes, so it no longer matches the actual loss in value.  Federal tax rules on depreciation for non-profit and municipal entities can differ.

Please consult your accountant or tax advisor for details on both depreciation methods.

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February 11, 2010

Do You LOVE What You Do?

Filed under: General — Tags: , — afp @ 10:17 am

LOVE

One of my favorite books to pick up & read, even if just a few pages, is “101 Distinctions between Success and Failure” by Keith Cameron Smith and Doug Hanson.  This is a very easy read and always does a great job of motivating me when I had a tough day.  This book gives definitions of what it means to succeed.  With Valentine’s Day coming up this weekend, I wanted to share the Chapter on Love.  This not only reminds us that we have to choose our attitude each day but that we can use challenging times to make us remember what we really want out of life.  Use the challenges in the economy right now to develop your vision and figure out what you need to do to love what you do. 

Distinction #1 from “101 Distinctions between Success and Failure”:

Success is doing what you love.

Failure is doing what you hate.

Love makes you successful in every area of life.  True success is being rich spiritually, emotionally, mentally, physically, and financially.  Loving God makes you spiritually rich.  Loving people makes you spiritually rich.  Loving people makes you emotionally rich.  Loving yourself makes you mentally and physically rich.  And loving what you do to make money and what you can do for others with money makes you financially rich.

Most people are just getting through the day instead of getting from the day.  Each morning we wake up and decide how we will invest our time.  We literally trade in a day of our life to act on that decision.

Successful people are more often doing what they love than not.  They look back with enthusiasm on how they lived today and are excited to pick up where they left off tomorrow.

Certainly, we all have to pay our dues from time to time and endure a phase when we don’t necessarily “love” our current situation.  That doesn’t mean we can’t fill other parts of our day with something we do love. 

Use your challenging times to serve you, instead of depress you.  Get inspired to really think about your life and what you want.  Develop a clear vision, in vivid detail of the life you desire and then take a small step every day toward that vision.  You will “love” this process, regardless of your current circumstances, as your focus will shift from where you are to where you’re going. 

Success is doing what you love.

Happy Valentine’s Day from AFP! 

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February 9, 2010

The Importance of Critical Thinking

Filed under: General — Tags: , — afp @ 8:29 am

critical thinking

What is critical thinking?  Ask psychologists, philosophers, and brain scientists what critical thinking is, and you’ll get many definitions.  However, all of them seem to agree that it includes challenging and analyzing our own motivations, thought processes and conclusions.  A basic definition is:  “Reasonable and reflective thinking focused on deciding what to believe and/or how to act.”

Kids graduate from college having learned all kinds of things.  Is critical thinking one of them?  Critical thinking is a must for anyone looking to succeed in today’s business market.  The problem is most of our schools do not teach this, even in their MBA programs.  Business schools have emphasized quantitative skills over qualitative ones and critical thinking has dropped by the wayside.  As the markets are changing and complexity is growing, the need for critical thinkers has never been higher. 

David A. Garvin co-authored a book called Re-Thinking the M.B.A.:  Business Education at a Crossroads, which summarizes a foundation for how to begin instilling critical thinking into a mindset.  To think critically, one must:

1.  Question assumptions.  Critical thinkers are inquisitive and look to find the what and the why behind every proposition.  Make it a habit to ask for evidence.  That might mean simply asking “where did you read that?” or “Was that speculation, or did they actually do a test?”  We saw the need for this when our financial markets melted in 2008 and 2009.  Crisis can bring out the best critical thinking because it forces you to question how and why you ended up in trouble.

2.  Adopt different perspectives.  Take advantage of the genders and cultures represented in today’s diverse management landscape.  An Indian-trained engineer may not view a problem the way one raised in Iowa will.  Both may have the same problem-solving tool kit, but their different experiences can provide valuable insights.

3.  See potential.  Assumption-busting and harnessing multiple perspectives are deductive skills.  Critical thinkers should also have a creative bent that allows them to see opportunities where others see obstacles.  For example, one executive may see a production snag as a problem whereas a savvy thinker must view it as an opportunity to revamp the process to produce something new.

4.  Managing ambiguity. The speed of business, intertwined as it is with global factors and complex supply chains, dictates that you will never know all the variables.  Therefore, you need to get comfortable with operating in an environment where change is constant and rapid decisions are required.

A well cultivated critical thinker will raise vital questions and problems, gather and assess relevant information to come to well-reasoned conclusions and solutions, thinking openmindedly and communicate effectively with others to find solutions to complex problems.  Critical thinking is, in short, self-directed, self-disciplined, self-monitored, and self-corrective thinking. 

In a world of growing uncertainty one thing is certain; we will need sharp critical thinkers who can size up the situation, realize the potential where others may not, and seize opportunities through prompt decision-making.

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February 8, 2010

2010 Tax Issues: Section 179 and Bonus Depreciation

Filed under: Leasing tips — Tags: , , , , , — afp @ 8:27 am

IRS money

There are two federal tax issues that will effect commercial equipment leasing in 2010.  The first is the Section 179 deduction and the second is the bonus depreciation rules for 2010.

Let’s start with the Section 179 deduction.  In 2010, the Section 179 deduction allows a business to fully expense the first $134,000 in capital equipment expenditures until it reaches $400,000.  Over $400,000 the business must subtract each dollar spent from the $134,000.  Once the purchases exceed $534,000 there is no Section 179 deduction.  For those dollars spent that exceed $134,000 standard MACRS depreciation rates apply.  A lease must be considered a non-tax lease to qualify for Section 179.  The most popular type of non-tax lease is a $1.00 buyout lease although any lease where the lessee is considered the owner of the equipment would qualify.  Congress extended the Section 179 deduction into 2010 to support small business and thinks this growth will help stimulate the economy the fastest.

There are two potential problems with the Section 179 deduction.  One, this will only help companies who are making a profit.  There are many companies still trying to dig out from the recession and might not turn a profit in 2010.  Second, if a company fully expenses their capital equipment expenditures in 2010, then they have nothing for tax deductions in 2011.  Some companies prefer to have a steady tax deduction so they can plan their cash flow from year to year.

The second issue is bonus depreciation rules.  They were abolished December 31, 2009 however President Obama is planning to press for an extension on these into 2010.  The bonus depreciation proposal was part of the economic-recovery legislation adopted last February.  It was also part of previous stimulus measures such as in 2002 and 2003 under President George W. Bush.  This bonus depreciation will be 50% plus the standard MACRS deprecation on the 50% balance. An example of a $100,000 transaction with a five year life would provide $50,000 bonus depreciation with the standard MACRS on the balance (20% year one, 32% year two, 19.2% year three, 11.5% years four and five, 5.8% year six). So 20% the first year on the remaining $50,000 would provide an additional write off of $10,000 for a total of $60,000 for that first year. The second year would be $16,000, the third year $9,600, the forth and fifth years $5,750 and the last year $2,900.

A company looking to spread out their tax savings could finance equipment through a tax lease that uses the 50% bonus to lower the lease rentals.  This would give the business the benefit of the bonus depreciation but spreads it out over the term of the lease.  This could be very popular for small businesses that understand their tax position.  Also many companies need the equipment now but prefer their tax breaks in the future when they begin to recognize the income that the new equipment generates.

Talk with your leasing or accounting professional to discuss your options on any equipment leases for 2010. 

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February 5, 2010

Persistence Wins

Filed under: Sales Tips — Tags: , , — afp @ 10:29 am

Persistence-2

There is a lot we are all unsure of heading into 2010.  I hope some of these business principles can help you as you work to grow your business in 2010:

1. Customers buy people as much as products.

2. Building relationships by being a dedicated consultant rather than a slick salesman is the ONLY way repeat business and loyalty is earned in ANY enterprise in my experience.

3. Any sales person in any industry demands a good understanding of their clients’ business and their personal goals and unique challenges and attributes.

4. Every contact is like gold.  Every phone call you spend with a contact helps build the probability of EARNING their business and loyalty. 

5.  Sending flowers on birthdays, holidays and simple Thank-you Cards are sales 101 fundamentals but many of us forget to send them.

6. It is hard not to put a dollar amount on each prospect and only service them according to their immediate ability to line our pockets.  We forget how many times small deals with happy customers have led to unexpected bigger referrals.

7. You know you are born for this sometimes exasperating, but very rewarding, sales career when like the Irish poet William Butler Yeats said “You Can’t Separate the Dancer from the Dance”.

8. This recession will reward applied expertise, patience, resilience, persistence and most of all dedication to a customer’s long term goals. 

9. Most of us are working much harder to earn much less.  History is nothing if not cyclical.  This too, will pass.

10. Money isn’t everything.  Loving your work makes up for much of the temporary financial shortfall.

“Persistence is the twin sister of excellence.  One is a matter of quality; the other, a matter of time.”  Author unknown

Visit my profile on Linkedin:  Carrie Radloff

February 4, 2010

How To Earn Respect As A Leader

Filed under: General — Tags: , , — afp @ 4:43 pm

leadership

“Anything in life worth having is worth working for.” 

That quote came from Andrew Carnegie although I’m pretty sure he stole it from my Mom (just kidding Andrew).  This is just another one of those things that I found out Mom was right about.

Being a leader takes hard work day in and day out.  Being aleader always keeps you on your toes.  Being a leader doesn’t end after the office closes at 5:00.  Being a leader doesn’t mean always doing the popular thing and sometimes means making those tough decisions.  Being a leader can be hard, frustrating, and rewarding all at the same time.  When you have the right people and can accomplish the goals you set, it is all worth it in the end.  One of the most important elements to being a good leader is to have the support and loyalty of the people you lead.  The position you were hired into was probably appointed or hired, but being a leader is something you have to earn regardless of what title you have behind your name. 

For those of us who have been in management, we know that much of our knowledge and training came from making some mistakes in the past.  We can all remember times where we wish we would have handled a situation with an employee or customer differently or changed the way we communicated news to our team.  Sometimes falling on your face makes you a better person and manager and makes you a stronger leader for future situations.  Having the respect of your employees helps you get through these tough situations.  I want to share a list from Jim Taggart with ten ways to gain respect from your co-workers and those you lead.  I fully believe that having a strong leader at the head of a company makes all of the difference in the world and these will help you gain that respect that can not be appointed, but has to be earned.

 “Leadership is an action, not a position.”  Donald H. McGannon

1. Get to know your co-workers and their families. This doesn’t mean snooping or putting on a false interest, but instead showing genuine interest in those you lead.

2. It’s okay to change your mind. If you change direction, make sure that you explain clearly to your team why you did so. It’s also advisable to involve your team in setting direction, as well as when it needs to be altered.

3. Communicate clearly and regularly. Ensure that your team is up to date on what is going on in the organization. The best way to do this is face-to-face. Make judicious use of email.

4. Encourage a learning culture within your team. Show leadership by starting with yourself. Lifelong learning is not a 9 to 5 proposition; it’s about how you absorb new experiences at work and through community service, training courses, assignments, reading, travel, etc. It’s a reciprocal process: employers provide opportunities to learn and grow, but employees also need to engage in activities outside of work.

5. Maintain a careful balance between work and socializing. As much as it’s good to do some outside socializing with your team, take particular care as a manager to never be seen as creating favorites, which can occur through social activities.

6. Give regular feedback on performance. Be open and honest. Don’t whitewash performance reviews; this doesn’t help anyone and deludes people (especially newer recruits) into believing that they’re doing a good job. But acknowledge and recognize superior performance. And be sure to link performance reviews to learning activities. Performance and learning go hand-in-hand.

7. Make generous use of self-deprecating humor. NEVER make fun of others at their expense. This shows your own insecurity. And don’t tolerate others making fun of those who may be more vulnerable. Lead by example.

8. Share the leadership. Avoid micromanaging your staff. As they gain work experience and grow, keep the tension on by giving more responsibility and leadership opportunities. As manager, park your ego.

9. Admit when you screw up. Make a point of showing how you’ve learned from the mistake. This is a powerful way to demonstrate your leadership to your team and to underscore that you’re not above them–you’re a human being.

10. Stand behind your staff during times of difficulty. When your staff makes mistakes or gets caught up in organizational politics and are in trouble, don’t abandon them in an attempt to cover your own ass. If you can’t stand behind one of your team members, then you don’t belong in management and you’re certainly not a leader.

“Leaders don’t force people to follow-they invite them on a journey.”  Harold S. Hulbert

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February 2, 2010

Early Buyouts on Leases

Filed under: Leasing tips — Tags: , , , , , , — afp @ 9:19 pm

paying money

I get asked questions about early buyouts on leases several times a week and wanted to give a brief overview of the differences between an early buyout on a lease and an early buyout on a loan.  There can be exceptions to this rule, but this is a general explanation of how most lease agreements are written.

Most leases are written with an early buyout equal to the remaining stream of payments.  This means that if your lease payment is $500 and you have 24 months left to pay on your lease, that your lease buyout will be $12,000 plus any residual and other charges due such as late fees and taxes owed on the account.  Some banks will offer discounts on these buyouts based on how far you are into the term of the lease (generally higher discount at the beginning and lower discount near the end) and some will offer discounts depending on whether or not you have paid on time and have a satisfactory rating with them.  Some banks will also charge an early termination fee if you decide to paid off early, so make sure you read your contract and ask your leasing professional if there are any pre-payment penalties. 

If you are looking for a short term finance arrangement and want to pay the financing off early, leasing is typically not the best option for you.  A loan at your local bank would be a better option, as an early buyout on a loan is usually the principal balance only.   Because leasing does not break out principal and interest, leases do not have a principal only buyout on them.  A working capital product is also available that gives a customer the option to pay off early in six to twelve months.  I always recommend my customers to pay a lease to term and continue to take the tax benefits of the lease through the entire term of the contract.  After all, the main reasons people decide to lease is for the cash flow savings and the tax benefits of leasing.  Keep your cash in your business for other means and continue to pay for your equipment as you use it.

As I mentioned above, these are general rules and all lease agreements can vary.  It is important that you ask your leasing professional these questions and read your lease agreement before signing so you know exactly what you are signing and how you will be affected if you look to buy the lease out early. 

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