Can you lease equipment under £1000 in value?

The short answer is yes, however, you may struggle to find a leasing company that will lease equipment under £1,000 in value.

What is the minimum value at which you can lease equipment in the UK?

There are hundreds of equipment leasing companies in the UK and they all have different policies on whom they lend to, the assets they will finance, and the minimum lease value.

Speaking last year to the leasing division of ABN AMRO Bank in the UK, they are looking for lease transactions with a value in excess of £10m. A number of other leasing companies have since changed their lending policy from a minimum value of £5,000 to £15,000 due to the pandemic last year.

Others have a minimum deal value of either £2,000 or £3,000.

Some leasing companies – like ours – can finance values in excess of £500.

Why do leasing companies not like leasing equipment under £3,000?

There are a few reasons. Put simply, leasing companies have to lend money to stay in business. They would have to write 250 £1,000 lease deals to lend the same as a £250,000 deal. For some leasing companies it is a lot easier to find and focus on larger value transactions. These bigger deals are what keeps the business running for many companies.

Even though lease rates are more expensive for small deals, there is a cost of underwriting, processing, and managing a lease deal over its life. Often asset finance and leasing companies will divide their cost base by the number of deals they write every year to get a “cost of loading a new lease deal.” This cost – often around £150- £250 – will mean the leasing company may lose money on small lease transactions, which is why some tend to stay away from these smaller deals.

Why will a leasing company arrange a lease for £1,000 if they lose money?

Leasing companies offer a service to their end user customers, suppliers and brokers. They will make the profit up elsewhere in their lease portfolio with the introducer. It also helps to keep competition out of their account.

Why do WestWon offer leasing for capital equipment values under £1,000?

Three reasons:

1. Here at WestWon we pride ourselves on quality customer service. Making sure the customer is happy is our number one priority, so any finance needs you may have, we will take care of it, no matter how big or small the deal may be!
2. Creating and building a relationship with a supplier offering leasing from £1,000 up to £10m. We do not wish a competitor to handle the smaller deals
3. We are interested in the end user customer base. Those small micro-ease customers can grow and will come back to us for larger transactions later in their business journey.

So how does WestWon make profit on lease transactions under £1,000?

1. We use echo sign documentation for speed of processing
2. Also, we collect the rentals via direct debit
3. We have DORIS, our own inhouse CRM and lease deal processing system that automates as much as possible. This includes everything from data loading to invoicing and API links for cash collection
4. In the future, we hope to be lending our own money out of our own book, which will enable us to make profit more easily

Contact Us

If you would like to find out more information about whether you can lease equipment under £1,000 in value here, or any other finance needs you may have then please call us on 01494 611 456. Alternatively, you can email us on hello@westwon.co.uk. You can also see more over on our LinkedIn page.

It is a question I often get asked on a regular basis, how do you value a leasing broker? For the sake of this blog, I am just going to focus on leasing brokers with less than twenty employees.

Large leasing brokers that have been sold

Many of the UK’s largest leasing brokers have sold out over the years. Wyse Leasing, Syscap, Henry Howard, Kennett, Premier Asset Finance, Lease Direct Finance are just a few of the well-known names.

Selling a large leasing broker is a totally different project to selling a smaller broker with under twenty staff. The main difference being who will be the acquirer? With larger brokers, the target purchaser is a funder or private equity house. Leasing funders and private equity players are often not interested in smaller leasing companies.

Who will buy a small leasing broker?

Firstly, I do not intend to be of offense to the hundreds of hard-working, successful leasing brokers business owners up and down the UK by calling your business “small.” I only use this word to differentiate your business when looking at who an acquirer would be.

Let us look at some key points:

What is the sector you are involved in and do you have a speciality?

A leasing company just doing HGV vehicle leasing was sold to a vehicle insurance company.

A company focusing on professions loans was sold to Syscap, another leasing broker in that space.

A telco leasing company could be sold to a telco supplier. Same applies to IT or office furniture.

It may be a large office equipment supplier or manufacturer would buy your leasing broker to provide them with the infrastructure as opposed to setting up a leasing company from scratch.

A high net worth individual looking to invest his funds in an own book position.

And then there is the obvious answer…another larger leasing company!

In summary to who will buy a leasing broker, sometimes the answer is not as obvious as you think it will be.

What is the value of a leasing broker?

When we sold Wyse Leasing many years ago, the value was mainly calculated as a net present value of the end of term income and then an additional small sum for the brand, which was quickly ditched by the way! An interesting point here, we worked really hard over many years investing into brand development thinking this investment will only improve the value of the company. Take a look at all the brokers who have been sold. Wyse Leasing, Syscap, Henry Howard are just a few well known leasing brands where the company name has been dropped.

More recently, buyers have been valuing business on volume of business written. The more deals done, the more money lent, the higher the value. This is great if you are a funder looking to acquire. The maths is quite simple, XYZ Leasing company lent £50m at 8%, our cost of funds (as the buyer) are 5%, hence we will automatically put on £50m more volume at an additional 3%.

For us, we will look at five key elements:

• Client portfolio
• Employees
• Supplier relationships
• Funder relationships
• End of term income

Let’s look at these in more detail.

Client portfolio

How many clients? What sectors, What size of company? Where are they located? What equipment have they financed?

How often have they been called? Was a welcome pack sent out? How much bad debt is there? How many clients have taken payment holidays?

Is there a CRM system in place? Is the data quality high? Does every client have their registration number? Website address? Full contact details?

At WestWon, we have analysed out the lifetime value of a client using averages to work out how many companies repeat order and what on average is the true profit per deal written. Can you do the same?

Sadly, nearly all brokers I speak to do not know the value of a client and do not have a process of keeping in touch with them other than a monthly email.

Employees

How many? Where are they located? How easy/expensive will it be to exit people? Are there great people you can promote? Are there any key salespeople? Have you got all the personnel records? What has been the staff turnover?

What about self-employed salespeople, consultants commission only etc?

Your team has a value, finding good people is hard. I would put a value on each member of staff and then reduce this by any potential liability.

New supplier relationships

Be careful, just because you have an amazing supplier relationship does not mean they will stay should you leave, sell up, retire. I have seen this far too many times when we buy a great business based on a supplier relationship only to see circumstances change when a deal is done to buy/sell a company.

Saying that, good quality supplier relationships will bring in future business.

Funder relationships

Is there a funder you do not presently deal with? If so, who are they and will they add value in your business?

Many years ago, when Wyse Leasing was doing about £5m per year of leasing business with Siemens Financial Services, we bought a small broker who was doing £1m per year with them. This broker was getting better rates than us. We brought this to the attention of the funder, and they reduced our rates, the extra profit paid for the acquisition.

End of term income

This is the real annuity stream. End of term income, being a share of secondary rentals or title in equipment is real future profit.

If you only do business loans, car finance or hire purchase deals, there is no end of term income. This makes it significantly harder to put a value on your company.

Valuing a broker at zero

I spoke to one broker who was looking to retire. He had 400 clients that did repeat order, all on hire purchase agreements. There was only one employee and he was looking to retire.

Clearly, he had fantastic relationships with some of his clients but in the end, I could not put any meaningful value on his company.

Lets recap

We look at the five key points above and drill down into the business seeing where the worth is. For us, top dollar is paid when we can see an end of lease base with funders we know well. Here, we can net present value the future revenue streams and pay a meaningful price.

Author

Jeremy Hall, CEO of WestWon Limited. For further information, help, assistance, or a chat if you are looking to sell your leasing brokerage, please call me for a confidential conversation.

From conversations we have held, many SME companies who have undertaken a lease via WestWon have confirmed to us they have taken out either a Bounce Back or CBILS Loan.  A number of these business owners have directly asked us asked the question, “Will my Bounce Back Loan (or CBILS Loan) affect our ability to obtain lease and asset finance in the future?”

The implications of a Bounce Back Loan on your balance sheet

Let us firstly look at the financial implications on your company balance sheet. (We have assumed you have taken out the maximum loan allowable under the Bounce Back scheme of £50,000.)

You have created a current asset, cash of £50,000. Likewise, you have added a long-term current liability of £50,000. We say a “long term liability” as the loan facility repayments will start in twelve months. Hence your Net Current Assets position will remain unchanged.

Bounce Back loans being an insurance policy or used to reduce existing debt

Quite a few companies we have spoken to have taken a Bounce Back Loan as an insurance policy. They have put this money aside and presently are not using it to fund the business. This makes financial sense and is a prudent thing to do.

Likewise, there are company directors who have used a Bounce Back Loan to clear off an existing company overdraft or to reduce an existing bank loan. Again, there is a clear financial benefit here, you are clearing historic debt down almost certainly at a higher interest rate. In the background, we know that people are using the Bounce Back Loan facility to get out of banking agreements where they have a personal guarantee.

From the perspective of obtaining a new lease, the two options above would not have any impact on your future ability to obtain lease finance.

Using a Bounce Back Loan to invest in your business

We have spoken to other companies using a loan to put down as a deposit on a commercial vehicle. Another company has used a CBILS loan to pay a rental deposit on a new building. Others have used it to buy stock or build a new website.

These are all legitimate uses for the Government backed loan and will not affect your ability to raise new leasing and asset finance in the future. However, we would like to add, we must tell the underwriter:

1. Have you taken out a Bounce Back or CBILS loan?
2. What have you used the loan for?

Using the loan to tide you over whilst business income has been reduced

Most companies are using the loan to help cash flow whilst sales and profit are down, again a legitimate and sensible use of the facility.

Leasing companies must lend to stay in business. If they do not lend, then ultimately, they will look to reduce costs and “wind down their lease portfolio.” The job of their underwriters is to look at all prospects customers and ask themselves one simple question, “Will this company be able to afford to make the 36/60 monthly repayments and will they still be in business at the end of the lease term?”

To make their task easier, underwriters now require most lease proposal forms to have a COVID-19 attachment. This is a one-page document that we can help you fill in. Its primary purpose is to illustrate what steps you have taken to keep trading and how the pandemic has affected your business.

So, going back to our original question using this example, will a Bounce Back Loan or CBILS Loan affect my ability to obtain leasing finance? We would say no. However, there is a big caveat here, our job is to positively explain why you have taken out the loan and more importantly, what steps have been taken to protect your business.

Summary

There are many different reasons for taking advance of a government backed loan, some positive and others negative.

All underwriters will take into account the effects on a company’s longer-term cash flow when they have to start paying back a Bounce Back or CBILS loan. Also, not forgetting how COVID-19 has affected the business.

With most new lease proposals, we will look to ask a number of questions around the impact of COVID-19 on your business and if / why you have taken a loan out.

Our job is to arrange finance for your company, our doors have always been open for business so if you have taken out a loan, please feel free to call us for all your leasing needs.