GUEST ARTICLE Why Community Banks Should Offer Equipment Leasing By Mike LaSalle, Bell Bank Senior Vice President/Correspondent Bank Leasing Director Community banks have unique access to equipment leasing opportunities, but many are not taking advantage of – and profiting from – them. As with any industry, leasing has had various periods and levels of annual growth. Our nation’s capital investment growth rate, customer liquidity levels, bank liquidity levels, and the current flavor of tax legislation and accounting rules all influence leasing activity. However, the equipment leasing market is large, growing and serves a crucial role in providing capital for businesses. Many businesses, many of which may be your current customers, use some form of leasing from time to time. Large money center banks hold the majority of leaserelated earning assets in our country, with community banks holding less than 2%. There are compelling reasons why community banks should offer equipment leasing, including: 1. Community banks already have leasing customers. A middle market leasing customer typically: • Is a family, multigenerational, closely held entity • Has local or regional operations • Maintains strong ties to the community • Is highly reliant on their accountant and community bank • Is very cautious with cash flow Sound familiar? Middle market leasing customer profiles are usually community bank customers. 2. I have found by an overwhelming margin that if and when a company does lease, they want to lease from a community bank they already know and trust. 3. Leasing helps community banks develop, expand, strengthen, solidify and retain customer relationships. Customers won’t need to lease equipment every day, but when they do, banks need to respond and capture the opportunity and income. Banks have historically not been more engaged in equipment leasing because it can involve estimating the future value of equipment, and in some cases, if your estimate is incorrect, you could face a loss. Leasing involves tax law knowledge and specific documentation that must be used with different lease structures. Additionally, lease accounting systems can be quite expensive. Historically, banks have been wise to avoid getting involved with leasing without first: • Understanding the risks • Acquiring necessary talent • Gaining important product knowledge • Obtaining systems But today, offering an equipment lease without risk and costs can be done. The best solution for a community bank is to partner with a correspondent bank with strong leasing expertise, an established correspondent bank leasing program and one that shares in your dedication to preserving customer relationships. 18 The Community Banker mibonline.org
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