When businesses need to acquire equipment without a major upfront cash outlay, leasing may be a preferred solution. There are standard lease options available, especially with many financial institutions offering customized structures that allow a customers’ payments to line up with their income. Two such payment options are seasonal and step leases.
Seasonal Lease
A seasonal lease is structured so that payments line up with the uneven income streams generated by those companies whose business cycles are dependent on seasonality. Payments are lower in slow months and higher in times of greater cash flow. Industries such as agriculture, tourism, construction, and retail often face periods of high and low revenue due to their seasonal nature.
Some customers may prefer to skip payments in the off-cycle. In such instances, businesses can skip several continuous payments at the regular amount, and instead pay just a nominal amount or “touch payment” to keep in good standing.
Additionally, payment frequencies can be structured monthly, quarterly, semi-annually, or annually.
Step Lease
In contrast, step leases are designed to start with lower payments that gradually increase over time. Businesses that may benefit most from a step lease have solid overall performance and predictable, but often gradual, increases in growth and revenue. Step leases provide these businesses with a real budgeting advantage.
The step lease is designed so that businesses can get optimal equipment right away, in advance of their future needs. A step lease can be structured to match a company’s budget growth over the term of the lease, with lower payments in the beginning of the lease term that increase as revenues grow.
Companies that expect their revenue to increase as they scale operations or benefit from the equipment’s use may include startups, logistics and transportation companies, technology businesses and the healthcare industry.
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Vendor financing is a powerful tool for businesses looking to increase sales, enhance the purchasing experience, and drive revenue growth. Whether you’re looking to establish a financing program or learn more about the benefits of financing for your customers, contact PNC Vendor Finance. Visit pnc.com/vendorfinance for more information.
