Lease credit analysis is very subjective.  While there are definite good and bad credits in this business, the general rule is that, the credits seen in a leasing environment will fall within a gray area.  This type of credit requires experience, knowledge and intuition.

Transactional Guidelines

The following types of transactions should be handled on cautionary basis

1. Sale-Lease back transactions where the equipment was purchased over 90 days previous to the approval date.

2. Leases where the equipment is to be used as inventory.

3. Leases to vendors or sources on the program.

4. Leases where there is a relationship between the lessee, vendor or source.

5. Leases with a term of over sixty months.

Source Considerations

All sources of business, brokers and lessors, should be reviewed and approved prior to funding.

Equipment Guidelines

Equipment is to be for business or agricultural use only.  No personal leases will be considered.  The equipment is to be located at the lessee's place of business for use by lessee and employees of the lessee, exclusively.  The exception to this would be in the instance of rental equipment, which is considered cautionary.  There may also be cases where the equipment is located at the lessee's place of residence provided this is also the place of business.

Equipment Guidelines

Prohibitive Equipment

Cautionary Equipment

Industry Guidelines

Prohibitive Industries

Cautionary Industries

Professional and Service Industries

Vendor Considerations

Financial Disclosure Guidelines

Bank References

Personal Guarantees

Generally, personal guarantees should be required for all small, closely held corporations and Sub-S corporations.  When the personal credit of the owners is essential to the credit decision, personal guarantees are necessary, regardless of the time in business.  Personal guarantees might not be required if there is a professional layer of management in a firm, such that the departure of a principal will not materially impact the day-to-day operation of the company.

Transactions where there is absentee ownership should be reviewed with caution.  It is preferable for the owner to be active in the daily business activities.

Trade References

It is preferable, but not mandatory to have trade references when making the credit decision.  The following are guidelines regarding trade investigation.

1. Trades should correlate with the business activity of the company.

2. A minimum of two active trades should be contacted.  An exception to this involves certain service and professional applicants where the references are basically useless except for establishing time in business.

3. Trades should report a satisfactory relationship with limited slowness and little or no collection activity.

4. Special consideration should be given to the firm's larger suppliers.

5. It is preferred to have some credit amount comparable to the lease request.

Soft Cost Guidelines

Medical Leases

Other Considerations

Credit approvals are valid for 60 days unless further derogatory information is discovered prior to funding.  If documentation for funding is received after 60 days from date of approval, credit must be reviewed.

Dollar amount of approval can be exceeded by up to 10% of approved equipment cost (excluding tax) without additional investigation.  The underwriter may waive further disclosure if it is determined the credit quality of the lessee is strong enough to support the higher debt.  Sources who regularly submit deals for funding at an amount higher than approvals should be identified with appropriate actions taken to correct the source's procedure.