Leasing is an essential business function that allows small and large businesses alike to operate in a cost efficient manner. Next time you visit the dentist, look around at all the leased equipment: x-ray machines, computers, utensils, etc. Your dentist leases this equipment for a number of reasons: it is more affordable to lease than purchase; in a few years it may become outdated and in need of an upgrade; and if repairs are necessary, the lessor covers the cost and the doctor does not have to pay for repairs out of pocket. Your dentist, like many other businesses, takes advantage of their ability to lease equipment.
The leasing programs we recommend revolve around leases of mission critical equipment, or equipment that is vital to a business. To stay consistent with our dentist example, suppose your dentist is not totally immune from the current economic situation. Business may slow down, but even if he lays off some assistants, he is likely to keep making lease payments on his x-ray machine. Your dentist must continue to pay the lease amount in order to keep the equipment that is critical to his business. Think about it, what is a dentist without an x-ray machine? An out-of-work dentist. Because of the nature of mission critical equipment, the default rate on these lease terms is quite low.
Leasing programs tend to perform well in all types of economies, and adjust well to inflation. During periods of growth, emerging companies are looking for ways to keep costs low and explore the cost-efficient manner of leasing equipment. During periods of recession, established companies that are trying to cut costs will lease new equipment instead of spending a larger amount of capital to purchase it. In periods of tightening credit, terms of the leases are adjusted in the same manner as other short term loans, and spreads remain consistent. When inflation occurs, purchased equipment often has a higher re-sale price than previously anticipated, allowing for an unexpected gain at the end of the leasing cycle.
At RAM Financial Group, our independent status allows our clients to have access to investments not offered at large brokerage houses. We utilize investments in leasing to diversify the systemic risk of being invested primarily or completely in the stock or bonds markets.
Leasing programs not only add diversification to your portfolio, but are generally diversified within themselves to increase safety. Diversification within a leasing program is reflected in the number, size, and terms of the leases, as well as the industries in which the program leases to.
At any point in time, the leasing investments that we recommend have a list of industries that the sponsors will NOT lease to. The restricted industries may include mortgage bankers, residential real estate brokers, personal credit institutions, or motor vehicle dealers. To learn more about the most up to date list of restricted industries, please contact us today.
The programs we recommend are usually structured as a Limited Partnership. No investments will ever be offered without a prospectus or private placement memorandum which outlines the details of the investment. When your dollars are invested into this limited partnership, the general partner, or sponsor, makes all the business decisions on behalf of you and the other investors called limited partners. The capital raised by the partnership is mainly used to purchase equipment that is then leased out to operating businesses. In return for leasing this equipment, the businesses make monthly payments to the Limited Partnership that is then distributed to the general and limited partners in accordance with their ownership. Through structuring lease terms and lengths, a very reliable and steady cash flow can be achieved through a leasing limited partnership.