The Types of Lessors
Lessors come in many shapes and sizes, with widely divergent motivations, needs and goals. However, there are several major categories.
Independent Lessors. A signifianct portion of the leasing industry worldwide is comprised of independent third-party lessors. These are leasing companies that have been formed for the primary purpose of making money from the leasing of equipment without regard to the generation of profit from the sheltering of income of an affiliated company or without regard to promotion of an affiliated companies' equipment. They are in leasing business to be in the business of leasing as its own independent basis.
Bank Affiliated Lessors. These are leasing companies that are wholly or substantially owned by a bank or similar financial institution Banks are typically allowed to enter the leasing business by their regulators so long as their leasing activities are the functional equivalent of lending. For that reason, leasing by bank affiliated lessors involves almost finance leasing exclusively and no operating leasing. Because banks have a cheaper cost of funds, such as from consumer deposits, they can have an unfair pricing advantage over other lease companies. This situation can be compounded by the fact that the leasing companies themselves are often borrowing their own funds from the same banks they are competing with.
Manufacturer and Vendor Affiliated Lessors. A number of manufacturers, distributors, and others with particular equipment to market have often established either equipment leasing departments or separate subsidiaries or other affiliated companies to assist in the financing of their products. These lessors may offer only a finance lease or may include a variety of services in connection with the lease. In many respects, vendor lessors have some of the greatest opportunities in the leasing field.
Significance of the Distinction Between Different Types of Lessors. Different types of lessors will be operating under different sets of rules, regulations, constraints, motivations, goals, and philosophies. Such differences will generate differences in pricing, structure, risk, documentation, needs, and negotiation style. The savvy lessee will want to have an appreciation of these differences when seeking a lessor.
Article by Steven Gilyeart.
Updated 6 March 1998
