Lease Instead of Buy; Will Customers Try?

October 13, 2000
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One more way to sell new technology is not to sell it at all, but to lease it. This lets customers gain the savings and advantages of the technology without tying up capital.

But the hvac industry hasn’t really taken to equipment leasing. It’s been a buyer’s market, not a lessor’s market. Steril-Aire, Inc., of Cerritos, CA, hopes to change that.

The company recently reintroduced a leasing program for its patented UV equipment, called UVC Emitters™, that it initially introduced late last year. The reintroduction hopes to make a bigger splash than the first attempt.



Disconnected

“There’s a big disconnect between the hvac industry and the leasing world,” said Forrest Fencl, president and ceo of Steril-Aire. The leasing people “talk at a level that assumes the customer understands pretty much all there is to know about leasing µ its financial advantages.” But this is not the case among hvac customers.

The advantages include not having to write off equipment cost over five years, but deducting the payments each month. Or, trading your payback for your payment, “for all intents and purposes making it a zero-budget item,” stated Fencl.

Regarding payback, the company says its UVC Emitters installed in a typical, 10,000-cfm air-handling system can be leased for approximately $120/month on a 24-month lease. By keeping coils continuously clean, improved heat transfer alone can save $140/ month in energy costs (a conservative estimate, says the company), actually providing a net savings of $20/month. The ability to reduce or eliminate coil cleaning can bring further savings.

“But we in the hvac industry are woefully handicapped in our understanding of leasing,” Fencl remarked. Still more frustrating, he said he can’t find anybody in the leasing companies who can fully explain to people what it’s all about.

Fencl said that he decided to try leasing because UV can be capital-intensive. He’s trying this new program to make his equipment more affordable for customers.



No Money Down

Even though the payback on his equipment is very attractive, “Folks don’t know how to take advantage of leasing programs so that they can literally get into this with no money.”

Other benefits of leasing include:

  • Flexibility; leasing contracts can be tailored to the needs of the customer, to provide tax advantages, cash flow, variable payment levels, or a flexible buyout.
  • Expanded credit resources; existing bank credit lines are not used, leaving them available for other needs. Also, leasing generally provides more advantageous terms than bank credit.
  • Special benefits for municipal and government facilities; a lease/purchase improves a municipality’s ability to bond by avoiding use of bond issuance money. It reduces the costs associated with issuance of a bond. Plus, property under a municipal lease is viewed as a capital improvement or asset.
  • Fencl noted that the industrial world understands and uses leasing extensively, but the commercial world does not.

    He’s now on his third leasing agency, “and I’m just going to keep going around until I eventually find somebody…who can share what people did early on to sell this as an option.”

    Will hvac customers finally try leasing? Fencl is determined to help them see the (UV) light.



    Sidebar: Report Shows Growth in Equipment Leasing

    ARLINGTON, VA - The Equipment Leasing Association (ELA) recently released its Performance Indicators Report (PIR) for the second quarter. The report reveals that new business volume increased 39%.

    ELA’s report tracks the equipment leasing industry’s performance in six key areas: total net portfolio, total new business volume, average losses, credit approval ratio, total number of employees, and delinquencies.

    The association surveys approximately 20 major leasing companies on a quarterly basis, applying trend analysis across all the performance areas.

    Second quarter highlights include:

  • Total net portfolio continues to grow with an approximate 61% increase from the second quarter of 1999.
  • Credit approval ratios decreased by 5% between the second quarter of 99 and the second quarter of 2000.
  • Delinquencies declined slightly in current receivables.
  • Publication date:10/16/2000

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