Many of you got your start leasing your billboards from Courtesy Finance.  Courtesy is no longer around but companies like Geneva Capital write equipment leases.  Here are the pros and cons of equipment leases.

Pros of Equipment Leasing

• 100% financing.  Because leasing companies understand equipment they will often lend 100% of the equipment cost.  This can be important if you are a small company and are converting a billboard to digital.

• Payment deferral periods.  Leasing companies will sometimes offer you up to 90 days without payment at the front of a lease.  This is helpful because it gives you time to get your sign sold and to bet the first month’s payments collected which conserves cash.

• Fast turnaround.  Leasing companies are smaller and more nimble than banks.  They can process your request in days versus weeks or months.

Cons of Equipment Leasing

• More expensive than loans.  Leasing companies, like most private lenders, charge more than the banks.  In a world where bank financing is 4-6% you should be prepared to pay 8-12% for your lease.

• Lack of transparency.  Sometimes leasing companies are reluctant to tell you what your lease costs.  If you know the lease amount, number of payments, payment amount and the end of lease payment you can figure this out with excel.  If you’re stumped just call Insider.

• Financing Gaps.  Equipment companies love to finance LED signs but don’t want to financing permits, development costs and sometimes the steel monopole.  This is OK if you are retrofitting a static sign to digital but it leaves a financing hole if you are spending $250,000 sign which consists of a $65,000 steel base and $185,000 in LED signs.

• Prepayment penalties.  Never sign an equipment lease if you intend to pay it off early.  Never sign an equipment lease if you intend to pay it off early.  Never sign an equipment lease if you intend to pay it off early.  Have I made myself clear.  Equipment leases always have prepayment penalties – sometimes as high as of 20-30% of the lease amount.  More about prepayment penalties tomorrow.

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