The services that finance brokers and leasing companies provide may seem similar if you aren’t familiar with leasing. While both offer organisations finance in some capacity, their roles in asset financing are different.
Brokers provide finance only, while a leasing company is involved in more of the asset lifecycle, enabling companies to manage their costs better and optimise their systems and processes, such as asset management. This article outlines the difference between a broker and a leasing company and why a leasing company provides more strategic, financial and operational benefits.
What is a finance broker, and what is their role in the asset financing process?
A finance broker acts as an intermediary in the asset financing process, facilitating lending to a business to purchase assets. Their key role involves connecting borrowers with lenders to obtain appropriate financing solutions.
To begin, finance brokers start with understanding their client’s financial needs and objectives, ensuring a clear understanding of the specific asset financing requirements. They then leverage their access to multiple lenders and financial products to research and compare various options, enabling them to identify the most suitable solutions.
Using their expertise, finance brokers tailor financing packages that align with their client’s financial capacity and preferences. They also negotiate terms and interest rates with lenders on behalf of their clients, aiming to secure favourable deals. Throughout the application process, finance brokers guide clients and ensure all necessary documents are submitted. Once financing is received, the client purchases the assets and makes monthly repayments to the financial institution where their financing is held.
How is an asset finance company (lessor) different to a finance broker?
A finance broker acts as an intermediary between borrowers and lenders, facilitating asset financing without owning the assets.
On the other hand, an asset finance company, also known as a lessor, directly owns the assets and leases them to lessees. Their role centres around acquiring and owning the assets, taking on the ownership risk, and providing the lessee with the use of the assets for a specified period in exchange for regular lease payments.
By using an asset finance company to lease assets, businesses benefit from working with finance experts with a more holistic approach to finance and asset use. This ensures the finance arrangements are correctly aligned with the required equipment or assets. Further, a full-service asset finance company manages the entire asset lifecycle.
What can an asset finance company do that a broker can’t?
An asset finance company possesses distinct capabilities. It directly owns the assets it finances and leases to clients, enabling them to offer specific assets for lease without involving multiple lenders. They handle all aspects of the leasing process, bear ownership risks, and can tailor financing packages to meet a client’s unique needs. At the end of the lease term, a leasing company looks after all requirements, including:
- collecting the devices
- wiping data from the devices
- safely and securely refurbishing or e-wasting the devices.
These end-of-lease activities are included in the lease payments, providing peace of mind that the assets will be appropriately dealt with at the end of the lease term.
Additionally, asset finance companies develop long-term relationships with clients due to their ongoing involvement in servicing the lease throughout its duration. The knowledge developed through the lessor’s service offerings and expertise means that they are equipped to communicate at a strategic level. This means a lessor can talk the language of a Chief Financial Officer to understand how asset finance can strategically help the cash flow and balance sheet of an organisation, not just simply fund their technology requirements.
Some asset finance companies may have in-house financing divisions, allowing them to provide direct financing options. In contrast, finance brokers primarily serve as intermediaries, connecting borrowers with lenders, but lack the direct asset ownership and leasing services capabilities of asset finance companies.
Stefan Iggo is the CFO of Australasian-based sustainable equipment financer Quadrent.