Why It’s Important to Choose Your Equipment Leasing Partner Carefully
For decades, I have advocated for community banks to offer equipment leasing for their customers. It makes sense:
- Commercial customers lease equipment frequently
- Equipment leasing is widely offered by larger, competitor banks
- Customers who do lease equipment overwhelmingly prefer to lease through their community bank
At the same time, my advocacy has always included the critical importance of choosing a partner carefully when offering equipment leasing.
Aligning with a partner can shield your bank from credit risk and eliminate the normally heavy cost associated with lease accounting systems, personnel and operating expenditures. At the end of the day, your customer is happy, their needs are addressed, you strengthen your customer relationship, and your bank earns fee income from your partner on each transaction.
There are 3 key factors banks should consider in a lease partner:
1. Experience and Product Knowledge
Lease transactions often come with tax considerations – and your customer will often have a tax objective. Many customers will lease but still want the Section 179 and/or bonus depreciation on the new equipment. This can be done as a finance lease but not as a tax lease. IRS rules are very specific about what qualifies as a tax lease. Your lease partner should know what structures will work and what structures will not work.
Additionally, your lease partner should be able to answer the following:
- Is there a residual – or does there need to be?
- Are the documents correct for the type of lease being structured?
- Is the vendor invoicing correct?
- When and how do sales or use taxes come into play?
- Will the customer be exposed to a “double sales tax”?
- What are the accounting implications for the customer?
A partner with the staff, resources, experience and product knowledge can help navigate these areas, proactively assist your customer in meeting their objectives and avoid unnecessary risk and costly mistakes.
2. Financial Strength and Economic Value
Leasing can be very competitive. Larger banks are always seeking opportunities with your customer. And your customer is of course always interested in obtaining the most competitive rate. Choosing a partner with the financial strength and capability to deliver a competitive lease can help you keep customers from looking elsewhere. Tax leases are particularly competitive, due to the leasing company taking depreciation, and should always be priced lower for your customers. Your lease partner should never take advantage of a bank alignment to charge higher-than-market lease rates.
3. Culture and Commitment to Customer Service
One of the most important – and often overlooked – considerations in choosing a lease partner is managing risk to your bank’s reputation. An omnipresent component of community banking, risk to your bank’s reputation is also an important component of a leasing partnership. Nothing can be more uncomfortable for a banker than to learn that your leasing partner has taken wrongful advantage of a customer, usually through excessive fees and egregious prepayment penalties. Such actions are often a result of differing company cultures and unnecessarily elevate your bank’s reputational risk. A bank should heavily consider a lease partner that shares the same appreciation and commitment to community banking, community bank customers and the value and importance of long-term customer relationships.
Bell Bank Equipment Finance works as your behind-the-scenes partner, helping you help your customers with thoughtful, creative and purposeful lease structures. Our staff has a deep and thorough understanding of all leasing aspects. With an unwavering commitment to community banking, our objective is to help banks like yours use our highly competitive equipment leasing services to expand and strengthen your valued customer relationships, while generating significant fee income.
Please contact me or your correspondent banking officer to learn more about our community bank leasing program. We would be happy to meet with you and your team to discuss specific market opportunities for your bank and the easy, no-cost program you can start using immediately.
SVP/Bank Channel Director
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