Why Business Entrepreneurs Prefer to Lease Vans on a Short-Term Basis

The recent studies have proved that most of the business entrepreneurs are opting for van leasing nowadays. As such, it’s quite evident that the driving force behind the increasing flow of revenue from van leasing is the businessmen who are either not in a position to spend huge chunk of cash in buying vans or is not willing to invest their money in it. The coming up of many vehicle leasing companies have proved to be a boon for them. When they are opting for it, they are getting the opportunity to lease the van of their choice even on a short-term basis.

Leasing the vans for a short-term is one of the greatest advantages that a person can avail by turning his head towards this option. When they are taking the vans for a short-period, they are getting the opportunity to change it after the expiry of the contract period. Many a times, it happens that the businessman who is not sure which van to pick takes a wrong decision and lease one that is not efficient enough to perform the activities properly. As a result, he gets irritated with the performance of the van and wants to change it soon. To avoid such a situation, it is recommended to lease the vans for a short-term and before you make the choice, you should know its features so that you won’t have to regret your decision.

When the businessmen opt for leasing vans, they want to get a van which is spacious enough to haul the heavy goods to long distances. Additionally, it must be robust too so that it won’t easily get damaged due to the constant use. As the business entrepreneurs need to lease a fleet of vans, they prefer to take them on a short-term basis. Though the leasing company provide the maintenance service of the leased van, yet maintaining a number of vans may prove tough even to the leasing companies. But, when you are taking the van for a short-term, there is very less chance of getting the van damaged. Apart from it, as you have taken the van for a short-period, you will get the opportunity to try another model of vehicle after the expiry of the contract.

The financial situation of most of the businesses is not sound initially. Hence, the business owner has to struggle a lot to make it successful. He may require to invest more money in it. Consequently, he may not be ready to spend money in buying vans though he knows very well that without it, the job couldn’t be performed. In such a situation, they inclined towards leasing to save their hard-earned money. The money they have, thus saved, can be used for other commercial purposes.

Getting Your Venture Lease Approved

Each year venture capitalists fund more than 2,500 start-up companies in the U.S. Many of these companies try to conserve their equity capital by approaching venture-leasing firms to secure equipment financing. By obtaining lease financing, these savvy firms are able to use their equity capital for high-impact activities like recruiting key personnel, product development, and expanding their marketing efforts.

What are the qualities that make some start-ups more attractive than others to venture lessors? Here are ten factors that most venture lessors evaluate to decide which start-ups to finance:

Caliber of the Management Team

Most venture lessors consider the start-up’s management team to be the most critical success factor for the venture. Though it can be challenging to quickly evaluate management talent, there are several qualities that venture lessors consider. They look for experienced managers with high integrity and a proven history of business performance.

Quality of the Venture Capital Sponsors

Another important factor for most venture lessors is the quality of the start-up’s venture capital sponsors. Venture lessors look for experienced venture capitalists with successful investment performance over a number of years. The venture capitalists should also have good reputations for dealing fairly with creditors serving their portfolio companies. Before entering new lease arrangements, most venture lessors verify that the start-ups’ venture capital sponsors are actively supporting them.

Soundness of the Business Plan

Successful start-ups usually have compelling, well-articulated business plans. Lessors look for signs that the start-ups have promising market opportunities, clear and credible projections, and reliable financial statements.

Cash Position /Monthly Burn Rate

A yardstick used by many venture lessors to measure risk is the start-up’s projected cash consumption rate. The ratio of available cash to the start-up’s monthly burn rate is a useful measure. It crudely determines how long the start-up can last before a new equity round is needed. The lessor views a transaction as less risky if the start-up can make full payments during a significant portion of the lease term without raising additional equity. Most lessors look for a ratio that supports at least 9 – 12 months of the start-up’s operation.

Equipment Quality

The quality and intended use of the equipment is an important factor for most venture lessors. Most lessors look for transactions involving equipment that is essential to the start-up’s operation. Additionally, the equipment should have acceptable collateral value and be readily re-marketable in the equipment aftermarket.

Product Prospects and Revenue Track Record

If the start-up is in the development stage and has yet to sell products, venture lessors generally look for products capable of establishing a strong market position. If the start-up’s product is already in distribution, lessors look for strong monthly or quarterly revenue growth. A poor reception of the product in the early stages, when measured against the business plan, can often signal a faulty product launch or faulty product concept.

Valuation History

A valuation history records the share prices of stock sold to investors by the start-up. Unless there is a good explanation, most lessors look for significant share price appreciation over successive offering rounds. The assumption is that the start-up is making steady and significant progress in its development, which will be reflected in rising share values.

Balance Sheet Strength

Venture lessors usually evaluate a start-up’s working capital to ensure that the start-up can make payments when due. Along with an analysis of the start-up’s burn rate, lessors use traditional working capital measures like the current and quick ratios. Lessors also look for other signs of balance sheet strength, such as: low to moderate leverage; positive tangible net worth (inclusive of subordinated debt); and minimum paid-in capital of $7 – $10 million.

Outside Professional Involvement

Most venture lessors view the involvement of reputable and successful outside board members as a positive factor for start-ups. A reputable CPA firm, law firm, institutional partners and/or service providers are also viewed by lessors as positive. These professionals can bring valuable expertise and contacts that can help the new venture to succeed.

Payment Performance

As with more traditional lessees, venture-leasing companies frown upon poor lessee payment histories. Most venture lessors expect lessees to have satisfactory payment histories, unless good explanations can be offered. Like other vendors, satisfactory payment of bills by customers is where the rubber meets the road. Whether the lessee is a start-up or a Fortune 500 company, most lessors view prompt payment as sacrosanct.

While venture lessors use additional factors to make their credit decisions, these ten factors seem to be used universally. Though most of these factors are subjective, they have stood the test of time for venture lessors in making informed and reasonable credit decisions.

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