In other to succeed as a lessor (owner of asset), it is important to identify objections to leasing and find a way to overcome them to win the deal. Some of the most common objections include:
- Leasing is more expensive
- The person or entity wants to acquire through cash
- Leasing is complex
- The person or entity believes in ownership
- Non cancelable leases are a concern
- The person or entity is seeking tax benefits
The following suggestions could help in addressing the concerns of the lessee
- Leasing is more expensive; assuming purchase is through cash and if the lessee is not that sophisticated, he can be told that cash as a component of working capital should not be tied up for the acquisition of asset. The cash one has today may need to be safe guarded for future use. T he opportunity cost of tying up Cash can make cash more expensive. For sophisticated lessee (user of an asset), the present value after tax analysis when comparing a loan versus leasing will show that leasing is actually cheaper.
- The entity wants to acquire through cash: cash should be preserved and cash has opportunity cost. Also, the present value after tax analysis will show cash to be more expensive.
- Leasing is complex: ask “what do you mean by this?”Often the lessee may not have a ready answer to this, if this is the case the lessor may need to assure the lessee if the lessee provides any examples of the complexity, the lessor will painstakingly provide the needed explanations and answer.
- The entity believes in ownership, the profitable use of an asset is more important than ownership. In any case the lessee can still own the asset at the end of the lease, bringing double advantages to the lessee.
- Non cancelable leases are a concern: early termination can be discussed and negotiated. However, this must not be stated in the agreement.
- The entity is seeking tax benefits: As mostly the case, if the tax depreciable life is longer than the term of the lease and the rentals are deductible, then leasing will be more favourable. However, in cases where the tax depreciable life is shorten, or the asset qualifies for substantial tax depreciation which makes ownership to become more favourable, the lessor should convince the lessee that leasing has many other benefits that will offset any tax disadvantages it may have.
There are indeed other objections to leasing, it is important for the lessor to make a comprehensive list of commonly encountered objections and arriving at sensible and cohesive responses, will help win deals.
Therefore, it is expedient for operators to perfectly understand the operational dynamics of operating lease and learn the secrets to succeed as a lessor. Learn from the experts and learn from the best. Visit the Secretariat or call 08023176691, 08023179048, info@elannigeria.org for further engagements