Players in the leasing industry has been facing the challenge of funding for lease transactions for over the years. Despite the fact that leasing has been contributing greatly to the Nigerian economy and creating wealth, there still exists this challenge.
This particular challenge has hindered its capacity to effectively participate in big-ticket leases, thereby limiting players in the domestic leasing terrain to the provision of supporting equipment such as vehicles, generators, computers, air-conditions etc, while reducing its capacity to effectively enhance the productive capacity of the economy. Even the supporting equipment is now requiring more funds due to the devaluation of the Naira and lessors are increasingly finding it difficult to gather such funds to finance these assets
Although, each lessor emphasises different aspect of funding, they all share common objectives including obtaining funding at the lowest price, ensuring an adequate and consistent supply of funds and maintaining flexibility in funding. Proper management of these important aspects of operation is therefore critical, as lessors need to put themselves into a position to provide equipment to their customers.
In determining a funding strategy, the lessor (owner of asset) must match the funding to its ownership interests, including its tolerance for risks and the way it measures performance, whether it be cash flow, return on equity (ROE) or consistent growth. The funding strategy also should match the lessor’s underlying core business. Factors such as equipment type, industry type, underwriting strategy and concentration risk must be considered.
Different sources of debt and equity may be utilised to fund the leases once the strategy has been developed. These sources depend on the form of the company. For instance, the manner in which equity is raised is different among a private company, a public company and wholly owned subsidiary. Sources of equity include common stock, contributed capital, preferred stock, and retained earnings. Equity can be raised in either the public or private market, although there are privately few publicly held leasing companies globally.
Similarly, the debt used to support the lessor’s transactions can be accessed through the public or private market. Common sources of debt that may be utilize include banks, finance companies, other leasing companies, insurance companies, pension funds, private investors, public debt offering, securitization and multi-lateral agencies.
Financing Structures
There are four structures typically used to finance leases from the point of view of both lessors and financiers. The structures are:
i. Lending to a full service lessor against a portfolio of leases, with full security, but including variants where the lender has limited recourse.
ii. Structure involving the provision of equipment by the financier, ether by head lease/sub lease or by agency arrangements
iii. Block discounting and other re-financing arrangement and
iv. Capital market based structure involving an special purpose vehicle (SPV) and a lessor that is a coordinator of the provision of a package of services to a customer.
To regularly navigate this crucial aspect of your business, contact the experts for consultancy on the right application of available medium of raising funds. 08023176691, 08023179048, info@elannigeria.org, elan_nigeria@yahoo.com