Bill intro

To the unobservant eye, it can seem that there is no rhyme or reason as to why some deals are accepted and others declined when it comes to small-ticket transactions.

This article will dispel that thought process.  There is certainly a reason why your transaction may be approved or declined by D&D Leasing.

It’s often asked if D&D is a higher-risk funder in the small-ticket space – – not just with regards to the types of deals we buy, but what goes into making those deals creditworthy.  In other words: how does one get their deals bought by us?

Ultimately, just like any other funder, D&D needs to ensure it’s going to see the lease contract to fruition. Higher interest rates and personal guarantees can certainly mitigate transactions, but they cannot be the only reason a transaction is written.  A failed transaction carries with it stigma, legal issues and the reality that there has been more work on the back end of the transaction then was hoped for.  In every instance, it’s in everyone’s best interest to see a client go the full term their lease contract.

So what does D&D look for in a small-ticket transaction?  First and foremost we’re looking for a solid exit strategy; understanding that the above doesn’t always happen, that a client contract doesn’t go all the way through to fruition. There then must be a viable exit strategy on the equipment itself.  The assets purchased need to have a value throughout the term of the lease contract and importantly, a solid resale value.  Ideally, this resale value should make up the majority of the value of the nullified contract.

A successful sub-prime, small-ticket transaction is, in essence, approved by meeting the following conditions:

  • a decent resalable asset
  • a down payment
  • and a viable personal guarantee.

Next, to mitigate any loss against the resale of the asset, a down payment at the start of the contract is required.  This not only helps mitigate any losses on asset resale, but also shows that the lessee has equity to place into the contract.  As a non-prime lessor, D&D is looking for lessees who understand that they must put skin in the game.  It shows that the lessee understands that they need to come into the deal with more than just a first and last payment.  It also shows that they have the ability to save the required funds, and can do so again over time if required for maintenance or other, unexpected issues.

Finally, D&D always looks for strong personal guarantees.  Unlike in a prime situation, where the strength of the customer company is enough to carry a lease covenant, the client class D&D typically reviews shows a weaker profile.  Thus, D&D will look to the personal guarantee to strengthen and cover any weakness that may be seen in the company.  A strong guarantee will again mitigate loss in the event of any untimely or unfortunate scenario of the lease contract failing.  It will also show that the lessee understands that they need to stand behind their company and the agreement they wish to sign.  For most customers, this isn’t an issue, but for some they are simply unwilling to provide the guarantee and, if that is the issue, it will put the transaction to an almost immediate halt.  D&D typically requires a guarantee to complete all transactions, with rare exceptions.

Taken together, a transaction is virtually guaranteed to be approved.  However, the absence of one of these factors doesn’t preclude the acceptance either; it simply means that the other factors need to be stronger to ensure a credit approval.

D&D’s job as an alternate funder is to ensure not just the best approvals for our brokers and lessees, but also that transactions that shouldn’t be approved and clients that shouldn’t receive credit, don’t.  In this way we ensure fiscal responsibility when dealing with our client base, especially when we look at the higher incidence of lessees looking to borrow above and beyond their ability to repay.  Companies like D&D need to stay vigilant when lending monies, more so today in this increasingly regulated environment.

The transactions that will have the greatest incidence of successfully completing are sub-£200,000 lease transactions in which the assets are resalable, and commercial loan products in the same value scheme with solid personal guarantees.

We’d love to see your next transaction and to have the opportunity to fund it as well. Why not give us the chance to do so?

We look for lessees who understand that they must put skin in the game

Leave a Reply