Craig Berman beamed noticeably after completing his board presentation. Berman, CEO of a startup that develops nanotechnology applications for the defense industry, had just closed a $ 20 million equity round. Berman finalized the round at an equity valuation that made the whole board blush. Only six months earlier, Berman's team faced a daunting technical delay that set the company back three months. With only four months of cash remaining from a previous equity round, the delay would cause Berman's company to burn cash faster and to fall short of an important benchmark.

The prospect of raising additional equity earlier than expected and at a much lower valuation than anticipated was a chilling thought for Berman and his board.

Just as things appeared to be headed downhill, the company's CFO broached the idea of obtaining $ 1.5 million in venture leasing. Roughly $ 600,000 of this financing would be used to finance existing equipment. The balance could be used for upcoming acquisitions of computer workstations, servers, software, and test equipment.

A colleague had introduced Jamal Waitley, the company's CFO, to Jerry Sprole. Sprole heads Connecticut-based, Leasing Technologies International, a leasing firm specializing in equipment financing for venture capital-backed startups and emerging growth companies. It took Waitley less than a month to get the financing in place. Cash from selling and leasing back existing equipment along with a leasing line to add new equipment allowed Berman's firm to operate three extra months without additional equity. When the firm finally completed its $ 20 million equity round, the pre-money valuation was at least $ 5 million more than it would have been otherwise. Venture leasing had literally created millions of dollars for Berman's shareholders.

Like Berman's firm, a growing number of venture capital-backed startups are taking advantage of venture leasing to build equity value faster and to expand infrastructure. What is venture leasing and why has it become so attractive to venture capital-backed startups' How are savvy entrepreneurs using venture leasing to increase shareholder value' To find answers, one must take a closer look at this important financing source for venture capital-backed startups.

The term venture leasing describes equipment financing provided by equipment leasing firms to pre-profit, early stage companies funded by venture capital investors. Like Berman's firm, these startups need business essentials like computers, networking equipment, software, and equipment for production and R&D. These firms generally rely on outside investor support until they prove their business models or achieve profitability.

Where does venture leasing fit into the venture financing mix' The relatively high cost of venture capital compared to venture leasing tells the story. To compensate venture capitalists for the risk they take, they generally receive sizeable equity stakes in the companies they finance. They typically seek investment returns of at least 35% on their investments over five to seven years. Their returns are achieved via an IPO or other sale of their equity stakes. In comparison, venture lessors seek a return in the 15% ' 22% range. These transactions amortize in two to four years and are secured by the underlying equipment. Although the risk to venture lessors is also high, venture lessors mitigate the risk by having a security interest in the leased equipment and structuring transactions that amortize. Taking advantage of the obvious cost advantage of venture leasing over venture capital, startup companies have turned to venture leasing as a significant source of funding to support their growth and to build equity value faster. Additional advantages to startups of venture leasing include the traditional leasing strong points --- conservation of cash for working capital, management of cash flow, flexibility, management of equipment obsolescence, and serving as a supplement to other available capital.

How do venture leasing firms evaluate transactions' Venture lessors look closely at several factors. Two of the main ingredients of a successful new venture are the caliber of its management team and of its venture capital sponsors. In many cases the two groups seem to find one another. A good management team has usually demonstrated prior successes in the field in which the new venture is active. The better venture capitalists have successful track records and direct experience with the types of companies they financed. The best VCs have industry specialization and many employ individuals with direct operating experience within the industries they finance.

After determining that the caliber of the management team and venture capitalists is high, a venture lessor looks at the startup's business model and market potential. During this evaluation the lessor considers questions such as: Does the business model make sense' Is the product/service necessary' Who is the targeted customer and how large is the potential market' How are products and services priced' What are the projected revenues' What are the production costs and what are the other projected expenses' Do these projections seem reasonable' How much cash is on hand and how long will it last the startup according to the projections' When will the startup need the next equity round' These, and questions like these, help the lessor determine whether the business plan and model are reasonable

The most important question facing a leasing company financing startups is whether there is sufficient cash on hand to support the startup through a significant part of the lease term. If the venture is unable to raise additional capital and runs out of cash, the lessor stands to lose money on the transaction. To mitigate this risk, most experienced venture lessors require that the startup have at least nine months of cash on hand before proceeding. Usually, startups approved by venture lessors have raised at least $ 5 million in venture capital and have not yet exhausted a healthy portion of this amount.

Where do startups turn to get venture leasing' Part of the infrastructure supporting startups is a handful of national leasing companies that specialize in venture leasing. Like the Connecticut-based lessor introduced to Waitley, these firms have experience and expertise in structuring, pricing and documenting transactions, performing due diligence, and working with startup companies through their ups and downs.

Most venture lessors provide leases to startups under lines of credit so that customers can schedule multiple takedowns during the year. These lease lines typically range from as little as $200,000 to over $ 5,000,000, depending on the start-up's need, projected growth and the level of venture capital support. The better venture lease providers also assist customers, directly or indirectly, in identifying other resources to support their growth. They help customers acquire equipment at better prices, arrange takeouts of existing equipment, find additional working capital funding, locate temporary CFO's, and provide introductions to potential strategic partners--- these are all value-added services the best venture lessors bring to the table.

While Craig Berman's story is only an illustration based on an actual financing, many venture capital-backed startups are discovering that venture leasing can leverage venture capital to boost shareholder value. These startups are then able to use their venture capital for growth activities that build enterprise value, like product development, bringing in management talent and expanding their marketing efforts. Since venture leasing is more cost effective than venture capital, requires no board representation or loss of management control, and usually results in little or no equity dilution, this rapidly growing financing for start-ups is reaching the radar screens of many savvy entrepreneurs.

Leasing has become a preferred form of equipment financing, accounting for more than 30% of business equipment acquisitions. Each year, thousands of U.S. companies face the challenge of finding attractive financing to acquire business equipment. Many of these companies approach the lease sourcing process seeking the lowest lease rate. While securing a low rate is a worthwhile goal in choosing a leasing arrangement, it alone is usually not a reliable standard for obtaining the best lease transaction or leasing experience.

To obtain attractive lease proposals and to avoid lease blunders, make sure you choose the right leasing companies to bid. Ultimately, the wrong lessor choice can result in a slow approval, inability of the lessor to deliver, hidden fees, substandard lease terms, or worse. To secure the best lease arrangement, you must do your homework in pre-qualifying bidding leasing companies. Give this aspect of obtaining an attractive lease arrangement your highest priority.

How Leasing Companies Differ

Leasing companies can vary in a number of ways. Some specialize in specific industries, some in lease types, some in certain equipment types, and still others in transaction sizes. For example, some leasing companies specialize only in a single industry like health care, printing, agriculture, or transportation. Others focus exclusively on a lease type. They may only offer operating leases for equipment with attractive residual values. Some lessors specialize in full-payout finance leases. Still others focus on small ticket transactions with equipment cost under $ 100,000. It is important to understand the specialization of the lessors bidding on your lease transaction. To get the most attractive deal and to avoid the run-around, stick with lessors who focus on the type of transaction you are seeking.

Leasing companies also differ in resources and capabilities. Many large leasing companies are owned by banks, financial companies, or other large industrial concerns. These firms usually have abundant resources and expertise in a number of leasing segments. Mid-size and smaller leasing companies greatly outnumber large lessors. While these companies cannot match the resources of their larger brethren, they often have highly skilled professionals, sufficient resources and more flexibility to meet lessee needs. The goal is to obtain the best leasing arrangement for your firm. By establishing priorities for the leasing arrangement you are seeking, you will be able to determine whether a leasing firm with sizeable resources or one that is nimble and flexible is a better choice.

When And Where To Look

The time to start your search for a leasing company is early in the lease-planning phase, once you have established criteria for a leasing arrangement. Some criteria to consider for a leasing arrangement are: pricing, monthly cash outlay, financial statement impact, the appropriate lease type, lease term, lease flexibility, lease facility size, and whether your equipment will be accepted for lease. Use criteria like these and the qualities you are seeking in a leasing company to start your lessor search.

A great starting point for finding bidding leasing companies is through professional and personal referrals. Check with your attorney, your accountant, bank contacts and colleagues in your industry. Also ask friends and acquaintances who use leasing in their businesses. Asked them for contacts at leasing companies that specialize in your industry or that offer the type of lease you are seeking. Call your industry association and ask whether they have names of leasing companies serving others in your industry.

Another approach is to call a couple of the major equipment leasing trade associations. Major association websites include: www.elaonline.com, www.eael.org, www.uael.org, www.naelb.org, www.aglf.org, www.mael.org, and www.nvla.org. Describe the type of equipment and the industry you are in. Ask whether they are in a position to provide you with a list of members to contact regarding your lease. If you receive such a list, you may need to narrow the candidates based on further homework and the criteria you have established.

Evaluating Leasing Companies

Qualities to look for in any leasing company you consider include: 1) experience and expertise; 2) reputation; 3) ability to perform; and 4) a relationship approach.

Interview prospective bidders carefully. Discuss their expertise and experience in the leasing business. Ask about experience with the type of transaction you are seeking, involvement with similar firms in your industry, and the types of lease products they offer firms like yours. Discuss your equipment needs. Find out whether they will be able to lease most of the equipment you need. Ask whether they will finance your lease using internal funding or whether they will broker the lease to another funding source.

Get enough information from and about bidding lessors to decide whether to include them in the bid process. If possible, ask for financial information from potential bidders to evaluate their financial condition. Also, if you can, obtain a Dunn and Bradstreet report (“D&B”) for each bidder. In the D&B report, look for lawsuits filed against the lessor, judgments, severe payment delinquencies, poor financial performance and similar issues that might impact performance on a new lease transaction.

Ask for and check customer, vendor, bank and trade references for each lessor. Contact each reference and verify key information given to you by the lessor. Ask how the lessor handles its account and whether there have ever been any problems or issues. Ask customer references about the lessor’s ability to perform and about attentiveness to customer problems and concerns.

Investigate bidders online. Check Google (www.google.com) to see whether prospective bidders appear in any newsworthy articles. Hit the message boards and newsgroups. Look for unresolved problems, fraud, financial problems, success stories, and awards. Visit bidders’ websites to get as much information as possible before extending an invitation to bid. You may be able to screen out undesirables.

Lastly, make sure prospective bidders belong to one or more industry trade association. While membership alone does not speak for the integrity or expertise of members, most of the associations set standards of conduct for their members.

A Word About Lease Brokers

Lease brokers serve roles similar to insurance brokers. They profit by placing lease transactions with the ultimate financing sources for those transactions. You should decide whether a lease broker would serve you better than seeking direct bids from lessors. Lease brokers can be useful in finding sources for difficult transactions, due to weak credit or unattractive equipment. They also can be useful in placing transactions that are highly specialized. Only work with lease brokers who have high integrity, who have a good understanding of leasing, and who understand the market you are in.

The entry bar for becoming a lease broker is relatively low and not all brokers are well trained or reputable. Check the broker’s references and capabilities thoroughly. Check to see whether the broker belongs to the national trade association for lease brokers, NAELB (www.naelb.org) or to one of the other major equipment leasing associations. Use the same guidelines for evaluating brokers as outlined above for leasing companies.

Parting Words Of Caution

Avoid high-pressure lease sellers. Whether they are brokers or leasing company representatives, the odds of you being misled or disappointed with the outcome are very high. Only work with lease representatives or brokers who have a good understanding of leasing and who are sensitive to your needs. To do otherwise might result in delays or disappointment.

Avoid giving lease deposits or advance rentals to brokers. Brokers do not provide the financing directly and, in possession of your money, represent a potential credit risk.

If the lease broker or leasing representative says anything that constitutes a significant misrepresentation, walk away. Chances are the first such misrepresentation won’t be the last. There are too many knowledgeable leasing professionals with high integrity. Avoid spending time with those who are unprofessional.

Lastly, make sure you get at least three or four lease bids from qualified lessors, if you can. At the end of the day, lease pricing is market driven. Getting several bids will help ensure that you get competitive pricing and terms.

Choosing the right leasing company is worth the effort. By taking a few easy steps during the planning and bidding phases of the lease procurement process, you can eliminate or greatly reduce time wasted with unqualified lessors. You can also avoid getting the run-around. Allow enough time to carefully check out all bidders. Be partial to lessors with high integrity, great reputations for performance, good expertise and who communicate well with you. You will invest a little time upfront, but you will thank yourself later.

In the last article we looked at a few of the things you should consider before leasing that first office or storefront for your business. To recap, you should not only consider the old standard "location, location, location," but also consider things like sufficient parking, the number of employees who will be working onsite, and future growth projections. I stressed that it was important not to get caught up in the moment. You should take your time to find the space best suited for your business for the long haul, not just for today.

This week we'll discuss the most important aspect of the process: signing a commercial lease (insert dramatic music here). One of the biggest mistakes many entrepreneurs make when leasing commercial space is not reading the lease. Forget reading the fine print. When it comes to a lease its ALL fine print.

Don't believe me? Let me tell you the true story of my friend, Homer, whose name I have changed to protect the ignorant. Homer signed a two year lease on a suite of offices for his business. As the owner of the business Homer signed on the dotted line and agreed to personally guarantee payment of the lease and to abide by its terms. Homer moved in and it was business as usual until the end of the two year lease term drew near. It was then that Homer discovered that failing to read the lease was going to be a very costly mistake.

Toward the end of the two year lease period Homer decided to relocate, but when he gave the landlord what he thought was the customary 30 day notice, he discovered that the lease had automatically renewed for another two year term at the 60 day notice point. In other words, Homer didn't realize that the lease required a minimum of 60 days notice to let the landlord know that the lease would not be renewed. Because Homer did not know that he was required to give at least 60 days notice of his intent to vacate, the lease automatically renewed for another two years. And there was not a darn thing Homer could do about it but reach around and slap himself in the back of the head for not taking the time to read the lease.

What was the landlord's position when Homer pointed out that he had not read the lease and therefore was not aware of the 60 day notice? The landlord, while sympathetic to Homer's plight, stuck to his guns and told Homer that he would have to honor the lease, which meant that even if Homer moved out as planned, he was still on the hook for paying the rent for another two years.

Does the fact that the landlord chose to enforce the lease agreement rather than let Homer off the hook make him an evil man? Not at all. From the landlord's point of view, he had no choice but to enforce the terms on the lease. He had a signed contract that told him his space was going to be rented for the next two years. He had not planned on the space suddenly being vacant. Being a landlord with unrented space is like being a business with no paying customers. Empty space means no revenue from rental fees which means no money to pay the mortgage payment. As the old saying goes, "It's just business..."

Sure, any landlord with a heart might feel bad that Homer was ignorant of the auto-renewal clause, but not so bad that they are willing to risk their own financial well-being by having Homer's space sit vacant. The bottom line is this: whether Homer read the lease or not is irrelevant. Homer signed the lease, thereby agreeing to its terms, and therefore he must hold up his end of the bargain, period.

As of this moment, Homer is relocating his business in spite of not being able to get out of his old lease and he will continue paying the payment on the vacated space for the remaining two year term of the lease or until he can sublease the space. Even then Homer is not fully off the hook because he will still be considered the legal tenant unless his sublessor agrees to sign a new lease with the landlord. Hopefully he will just have someone else making the lease payments.

Again, the moral to this story is READ THE LEASE. Or even better, have an attorney read it for you. I have learned over the years to never sign a legal document of any kind without letting my attorney review it, especially if the document involves money and my first born child.

Here are a few other points to ponder before signing a commercial lease.

How is the lease payment calculated? The most basic equation for calculating a lease payment takes the number of square feet times the cost per square foot, then amortizes that over a 12 month span. For example, if you have 1,000 square feet and the cost per square foot is $12, the annual lease payment would be $12,000. Divided by 12 months the monthly lease payment would be $1,000. Again, this is a simplified scenario. These days most commercial leases include additional factors that affect the final price, such as rent increases, operating expense escalations, common area charges, etc.

Who pays for what? It's important that you understand exactly what you are paying for. Are you responsible for any costs other than the rent? Will you be responsible for paying your own utilities, for example? Will you have to pay for parking privileges or janitorial service? Who handles maintenance and repairs?

Is there an escalation clause? It is typical that the lease contain what's known as an escalation clause that allows the landlord to pass on increased building operating expenses to the tenants. If your lease contains such a clause you should ask for a cap on the amount the lease payment may rise over a given period of time. And if the escalation clause is ever activated by the landlord you are well within your rights to ask for an itemized accounting of the expenses that are being considered as cause for your raise in rent.

What rent increases might there be? One very important factor to know is this: if you do renew the lease how much can the landlord go up on the rent? It is expected that rents will increase as property values increase. If your landlord can rent the space for more than you agreed to pay a year ago, he is within his rights to ask for the increase. However, it would be a nightmare if your rent suddenly doubled overnight. Negotiate the increase before you sign the lease. Most rent increases are calculated by percentage, not by flat rates.

Renewals and terminations. Most leases require that you give a minimum of 60 days notice if you intend to terminate the lease and vacate the property. As Homer learned, many leases also renew automatically for another term unless you give notice within 60 days of expiration. Know when your lease expires and the time required to give notice.

Is a personal guarantee required? What happens if your business goes south and can no longer afford to make the lease payment? Are you then responsible for paying the rent out of your own pocket? Probably so. Most landlords insist on a personal guarantee from the owner or an officer of the business. This means that even if you go out of business you are still personally on the hook for the remainder of the lease.

Finally, clarify all points. You should be clear on every point in the lease. And if you are not, ask for clarification. Exactly what space are you leasing? Who is responsible for repairs? What common areas will you have access to? Who is responsible for maintaining the little things, like keeping the shared restrooms stocked with soap, towels, and most importantly, toilet paper.

A small detail to consider now, but not when you suddenly find yourself without such amenities at the wrong time.

If you have a company that requires your employees to have company cars, you will want to look into leasing cars. The reason for this is that leasing cars will be affordable and will provide you with a warranty on all their vehicles. There are many leasing companies that are more than happy to work with businesses because they know that if the business has a good experience with them they will continue to lease cars for the long term.
Leasing cars for your company can be very easy. Much of the time you can actually end up leasing cars online or over the phone, so you don’t have to haggle with pushy salespeople. This is the best way to lease cars because as a business owner you don’t have the time to deal with salesmen or women that want to sell you something you don’t need. Leasing cars for your company is as simple as providing the leasing company with all your business information including your financial statements and such.
Leasing cars for your company is much wiser than actually buying the cars outright, even if you have the funds to do so. The reason for this is that when you look into leasing cars you will realize that you will make the same monthly payment, but at the end of the term, you can bring the car back and upgrade to something newer and more reliable. This means that your staff will always have nice, new cars to drive.
Christain Cullen is a successful webmaster and writer. He has over 350 websites online which offer help or information on a diverse range of subjects, from 1031 Exchanges to Pet-Birds to Flying Schools to Plasma TV.