DRAFTING AN AWESOME LEASE REQUEST FOR PROPOSAL
By: Sonia von Matt Stoddard, Stoddard & Associates
A
Wouldn't it be nice to find a way to save time and money on your lease finance project
before you even get to the cost of the lease itself? What about the bonus of being able to
answer everyone's concerns as well as presenting your proposal to the firm in a format
that all can easily understand? Putting together a simple, yet comprehensive and succinct
Request for Proposal (RFP) may just be the solution for you.
As you probably know, there are as many lease programs as there are companies offering
lease financing for your equipment. Being able to compare "apples to apples" and not
"apples to rocks" is a good start. Fine tuning your process to really compare "apples to
apples" and not "apples to other fruit" is the key to an awesome RFP.
Call your accountant first. From an accounting standpoint, will your firm prefer the
flexibility of a true or rental type lease, or are you just looking at the lease as a way to
finance the equipment by simply spreading out the payments over time, like a disguised
loan? Knowing this will enable you to dictate, from the outset, the type of lease you
want or don't want. It will also be easier to compare if you are also looking at a loan
option. If your accountant doesn't care either way, or does not have a strong opinion,
then you can include a request for suggestion from your lessor. At the very worst,
whomever you are working with won't spend a lot of time presenting an entirely
inappropriate structure. Also, your accountant may be able to suggest some funding
sources that have worked with them in the past.
Here are the basic elements of a Request for Proposal:
Background and Overview. Spend some time to provide a quick overview of the firm,
practice area, size and location as well as its goals on this project and into the future.
Provide a short and simple statement about why you are looking to lease financing as a
solution, such as "the firm wishes to move the risk of technical obsolescence to a third
party instead of bearing the risk in-house." If there is anything specific you want to
accomplish, such as better tracking of inventory, this would be the place to put this
requirement.
The Big Picture. Calculate the total scope and cost of the project, net of sales tax,
combined with an indication of timing on the expenditures. Break down the cost of the
system by providing numbers for hardware, software, then other "soft" costs such as
installation, training, license fees, consultations, etc. For example, on a phone system, a
charge for "voice mail" on a vendor proposal may mean actual equipment (hardware) or
may be the program (software) that runs it. It may not make a tremendous difference in
pricing if you are not opting for a true lease; however, many lessors have a cap on the
amount of "soft" items they can include on a lease and still have it qualify as a lease and
not a loan. Many vendors providing an integration service don't separate these costs. If
not specified, a lessor is forced to make an assumption in order to provide you with a
proposal. Not providing the correct configuration will make responses to your RFP
damaged at the outset.
Timing. Spending $100,000 on a project today is quite different from spending $5,000
in January, then $95,000 the following December. I've had firms tell me that they expect
to spend over a million dollars on upgrades . . .over the next five years. If their current
takedown in the next six months is only $5,000, we are going to have to find a lessor that
will price the transaction based on the anticipated takedown, not just the $5,000 project.
Chances are that a lessor that approves credit lines in the range of $1,000,000 may not
want to provide an individual schedule for anything under $50,000 in accumulated
equipment. Whenever possible, break down a mega-project into workable chunks within
a realistic time frame. An anticipated order date compared with an anticipated
installation date helps to create a viable illustration.
"Before-Lease" Specifics. This section would list the type of lease that either your
accountant has suggested or the firm wishes to explore, the lease term and an equipment
description including configuration and brand information. Especially important to note
is the anticipated equipment location as well as multi-office locations. Tax laws vary
from state to state so it will be extremely helpful for your lessor to know ahead of time
what they need to accommodate or facilitate along those lines. Note here if you have a
preference for a lease start date, for example, if you are looking for expense items within
the current calendar year, your lessor may be able to start a portion of the lease early.
"During-Lease" Questions. This is the part where you can raise all the issues pending
as well as ask questions about your future financial partner on the project. A very
important first question to ask is "what is the Price Index or Rate Adjustment" at the
outset of the proposal and how does this translate at the start of the lease. The factor or
rate provided will give you a set point in the event that the rate of Prime or Treasury rates
rise or fall. Don't assume that all funders use the same index, or assume that their policy
is the same as to changes. Some companies may "guarantee" their rates for a certain
amount of days; others adjust the index on a daily basis. While some may lower the rate
if their index drops, others may only adjust your account in the event that the index goes
up, but not the other way around.
Even if you don't expect your vendors to need deposit payments or advances, it is a good
idea to ask if the funder has a Master Lease Program or ability to Warehouse in the event
this is necessary. If so, what is the interim financing plan? Is interim rent or interim
interest charged or a combination of both? Exactly how does one end and the other
begin? Are there restrictions on the start date of the lease? What, if any, are advanced
payments, deposits, commitment fees and when are they due.
Ask your lessor to explain, by example, a typical procurement and transaction process.
What is the minimum Schedule size and how often do items Roll into a lease schedule?
"After-Lease" or End-of-Lease Issues. The very best way to answer your end-of-term
concerns is to get a copy of the lease document, usually the Schedule, which outlines the
terms and conditions on a contractual basis. Armed with this document, and assuming
you have read and studied it completely, you can go over the scenario your firm
envisions, using each option as your plot.
Response, Format and Reply. Finally, give your respondent a contact name, location
and preferred format and venue for response plus a deadline date and time. If this will be
distributed immediately to a committee, request that submissions be sent in duplicate, if
necessary. If you know, it is always a good idea to give the lessor an idea of when the
firm will be reviewing the information such as "we are having a planning meeting on
December 1 and expect to have preliminary guidelines and questions by December 15."
This will hopefully keep your funder from unnecessarily contacting you before you have
had an ample chance to review all proposals. While you should expect to receive a call
confirming receipt of the proposal within a few days after it is sent, giving your lender
contact a time frame for reply will also enable you to see if they are paying attention to
your instructions at the outset.
Other considerations.
If an operating lease is requested, include the firm's internal borrowing rate.
Ask for a reference list and perform the reference check. Because of the fiduciary nature
of a finance relationship, the lessor may not be at liberty to provide you with a blanket
reference list; however, you should be able to get the names of at least two or three
contacts that have worked with the funder before. Once you have received the
references, make sure you take the next step and call to ask questions such as what went
right/wrong and how were issues handled. While a business may not knowingly give you
a bad reference, taking the time to ask meaningful questions will give you insight on how
the overall process went.
Maintenance and insurance costs are assumed to be covered by the firm; however, in
some instances it is offered, as a convenience. The cost for such services varies so it pays
to check, in advance, with your office package policy carrier. Proof of coverage is
typically required at lease signing and is rarely in place, which is why it may be offered at
a premium, along with the lease. At worst, your carrier will know that a certificate of
insurance may be necessary in the near future.
Finally, ask your respondent to stick with your outline format, if at all possible. This will
help make sure that all your issues are addressed in the order of importance you have
assigned.
Obviously, every firm will have different issues, requirements and needs, so this list is by
no means all-inclusive. Receiving responses based on these outline questions will give
you a fairly complete preliminary proposal. From the most basic, statistical data about
your leasing needs to the specific details, a correctly drawn RFP sketch will put your
lease picture on paper. So, whether you truly need an "apples to apples" comparison or if
"apples to fruit" will do, putting together the RFP will bring items to your attention that
you might have otherwise overlooked. All you have to do now is fine-tune the details.
 Sonia von Matt Stoddard 2003
Sonia von Matt Stoddard is the founder of Stoddard & Associates and has structured
leases and loans for over 300 law firms, as well as a myriad of non-legal businesses.
Before joining the bank and finance world over eleven years ago, she was a legal
administrator and paralegal manager. She has authored many nationally published
articles and is a frequent and respected speaker.
Stoddard & Associates are independent equipment lease consultants and brokers who
save you time, money and aggravation by lending you their expertise in every aspect of
the equipment lease process, including project planning, credit preparation, contract
review, placement of the lease arrangement to a funding source, asset management,
inventory control and negotiation of buyouts.
Sonia can be reached at 310.390.2009 or by e-mail at
Lease@StoddardAssociates.com.com or through the website at
www.StoddardAssociates.com.