Several companies offer lease financing for billboards. They offer fast approval. They often do 100% financing. Financing charges are falling and reasonable. And collateral is limited to specific assets. Insider computed a financing charge of approximately 8% on the most recent billboard lease he examined. There are two disadvantages of financing your billboard with a lease.
Finance charges aren’t always disclosed.
Most finance leases disclose the equipment financed, the number of payments and the amount of each payment. The finance charge isn’t disclosed. If you’re good with present value calculations you can compute the finance charge. Ask your accountant or the leasing company if you need help with the calculation. You need to know how much the lease costs so you can compare it with the cost of other financing.
Prepayment expenses.
A lease may not make sense if you intend to sell a billboard shortly after construction if the lease contains a prepayment clause. They can take several forms:
- The sum of all future payments. This means you owe the sum of all future payments when you pay off a lease early. If you finance a $250,000 digital billboard via 84 payments of $3,896 with a finance charge of 8% and you want to pay off the loan the month after you close you will owe $327,000 or 30% more than what you borrowed. The sum of all future payments is also what your leasing company may also ask to be paid if you default.
- A makewhole. Sometimes the prepayment is reduced to a makewhole based on the sum of all future payments discounted at some reduced interest rate. This is less than the sum of all future payments but it can still be substantial. This is a complex calculation which you’ll usually have to ask your leasing company for.
- A fixed percent. A fixed percentage of the original amount financed, which may go down over time. Read the fine print.
Insider’s take: Lease financing is cheap, fast and great to use if you can’t put money into a new billboard. It works for lots of out of home companies. It may not be the best way to finance a billboard you want to flip after construction due to the prepayment penalty. Next week we’ll write an article with some cautions about bank and private loans. Billboard Insider has a related company, Billboard Loans, which makes loans to out of home advertising companies. What’s been your experience with lease financing for billboard construction? Email billboardinsider@gmail.com or let us know using the form below.
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