I’m often asked two questions; why is D&D Leasing so expensive and secondly is there a moral issue with the cost of the credit we offer. To both questions I say this: we need to be where we are in the market to provide the service we do, for the kinds of customers we offer it to.
Lets get something straight: blue chip customers do not and should not be offered high cost leasing. In their case it would be a disservice, unless they are running into exposure issues, to even propose a high cost lease to them.
Conversely, small entrepreneurial businesses that are newer, have hit tough times, are looking to purchase bad assets or are in difficult sectors, should not be receiving the same sorts of pricing as a blue chip customer. Unless they have credit enhancements available, these customers are riskier, often unproven, and sometimes in a difficult situation. To offer them the same credit package you would offer a blue chip is insulting to the blue chip but it’s also grossly under weighting the cost of the risks that may be in play here.
With 80% of all business failing inside of 5 years and another 10-15% not making the 10 year mark, success in business is not easy to come by and unless you’ve got a proven track record behind you, there should be a cost to the capital you wish to borrow.
Our role as funders is, I believe, to adjudicate the risk to the best of our ability and ensure that the funds we loan are going to pay us back dividends based on what we lend out.
However, it is equally important for us to ensure we are lending to the right class of customer. Companies like D&D Leasing should be lending to the entrepreneurial set; we know how they work, we understand them and how their specific market works and can better assess, value and monitor their risk.
Equally, other leasing firms which specialise in the blue-chip sector should continue to focus on their strengths as they know how to manage and monitor those customers well.
If a blue-chip leasing company started buying into the small business entrepreneurial space, you would find them dealing more with learning curves than profit curves and have less money left over for their blue chip customers. In reverse if D&D started working the blue-chip marketplace, not only would we be out of our depth seeking more assurance on transactions than would otherwise be unnecessary but there would be less funds available for the entrepreneurial set that we should be funding.
This would leave these potential lessees out in the cold or worse seeking funding from guys in the back of the pub, and while many people don’t believe this happens I have witnessed former customers go down this route and wind up in a serious debt.
If companies like us didn’t exist, there would only be the expensive alternatives left out there and that is a frightening thought for small businesses. High cost leasing may not be fashionable and it may be expensive but as long as it is conducted with high ethical standards, and it truly fits a need, I think it has a very important place in our market.
Bill Dost is managing director of D&D Leasing UK