It is not uncommon in the course of marketing your leasing business, whereby you come across stiff objections from prospective lessees, either real or perceived. This equally applies to all types of business. More importantly, you should know how to counter each objection keeping in mind that real objections do not really have a counter. You need to learn how to dance around them.
The list of common objections to leasing includes:
i. Leasing is more expensive
ii. The entity wants to acquire through cash
iii. Leasing is complex
iv. The entity believes in ownership
v. Non-cancelable leases are a concern
vi. The entity is seeking tax benefits
vii. Leases lower Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA)
viii. The entity wants to control its assets.
Generally, the most common objection you hear from potential customers is that leasing is more expensive. Unfortunately, this expression is almost a “mantra”! When an entity makes this statement, they are obviously comparing the cost to purchase either through cash or a loan.
Therefore, to counter these objections:
- You need to first find out from the potential customer with what mode of purchase are they comparing leasing. To begin with, let us assume that leasing is being compared to outright cash purchase.
There are 2 different counters to this objection depending on how sophisticated the customer is.
- When you are dealing with a not so sophisticated entity who does not understand present value analysis, the counter would be to state that cash as a component of working capital should not be tied up in the acquisition o fan asset and that such acquisition is best procured through medium–term financing (using leasing of course); the cash one has today may need to be safeguarded for future use.
- Another way of expressing this is to say that working capital should be used for operations and not for medium-term financing. You should also tell this customer that cash has an opportunity cost.
In case the potential customer is sophisticated meaning the entity understands present value analysis;
i. You should convince them to do a lease – versus – buy analysis better yet you do such analysis after gathering the needed data. If you do the analysis, there is no scope for error in the choice of the discount rate, this would show to the customer that not only does leasing have numerous benefits, it is also cheaper.
ii. When faced with “leasing is complex” objection, you should ask them “what do they mean by that? Often they are unable to answer this which generally means you should take this as one of the excuse to pay cash.
iii. To counter ownership objection, you should let them know that the profitable use of equipment is far more than ownership. In the case of a finance lease, include that legal title be transferred to the lessee upon termination of the lease.
iv. On non-cancel ability of leases, explain that your investment is tied to the maturity of the leases. Therefore if a lessee wishes to pay off the remaining balance at a certain point in time, this can be discussed and negotiated.
v. If the lessee is seeking tax benefits, if the tax depreciable life is longer than the term of the lease and the rentals are deductible, then leasing will be more favourable from a tax point of view. But if the life is short or if the asset qualifies for substantially accelerated tax depreciation, then ownership is likely to provide faster tax breaks.
vi. On leasing causing EBITDA to be lower, you need to explain that operating leases (that qualify for off-balance sheet financing) indeed do adversely affect EBITDA. Also, let them know that finance leases do not adversely affect EBITDA.
vii. Prospect customers that are seeking total control of assets, should not generally lease such assets.
Therefore, It is expedient for operators to perfectly understand the operational dynamics of this business model and learn the secrets to succeed as a lessor. Learn from the experts today. Visit the Secretariat or call 08023176691, 08023179048, info@elannigeria.org for further engagements