Producing More Efficiently and Cost-Effectively Thanks to Leasing
Credit Suisse (Switzerland) Ltd. has offered leasing in the Swiss market for more than 50 years and is also the market leader, thanks to its broadly diversified offering. There is also a trend towards leasing among companies, and an increasing number of SMEs are employing this instrument as a possible form of financing. Silvio Mariani, Senior Leasing Specialist at Credit Suisse (Switzerland) Ltd., explains why the construction sector in particular values the advantages of leasing so highly, and what potential there is for leasing in general.
Credit Suisse is represented here at Lucerne's BAUMAG, a trade fair for the construction sector, with a booth and client advisors. What are leasing specialists from a bank doing here?
Silvio Mariani: As the bank for entrepreneurs, the mechanical engineering sector is very important to us. At trade fairs like BAUMAG, we provide information on leasing as a form of financing and visit the booths of our clients, which is to say the manufacturers, importers, and suppliers of construction machinery. The end customers, i.e. the purchasers of these products, need to work in a highly efficient manner and to stay on the cutting edge of technology. This often requires an immediate investment in construction machinery. Leasing is very well suited for this. For this reason, we have specialists here on site who can answer questions and provide advice on this type of financing.
What questions and feedback have you faced in the last few days?
Generally, questions on ownership of the equipment, the monthly costs, interest rates, and the expiration of the lease. We've received two types of feedback, most of which is overwhelmingly positive feedback from companies who are happy to have the opportunity to discuss financing options with specialists.
Credit Suisse has already been offering leasing for the last 50 years. In spite of this, it seems like this type of financing is still not particularly popular with SMEs.
In the past, the prevailing opinion generally held that leasing was only something for companies without sufficient liquidity. Today, together with cash payment, supplier credit, and borrowing, it ranks as a common form of financing that also makes sense for tax reasons alone. Furthermore, we only conclude leasing transactions with clients that have good creditworthiness.
Should leasing then be considered a part of an SME's overall financing mix today?
Yes, absolutely. As mentioned before, even though leasing is not yet especially popular with SMEs here in Switzerland, it has a great deal of potential as an additional component of the financing mix.
What are the advantages of leasing?
The entrepreneur is only the possessor of the leased property, and the bank is the owner. The entrepreneur thus holds the full rights of use despite a smaller commitment of funds. For example, the entrepreneur leases a construction machine and then pays off the leasing installments with the monthly profit from his services, which allows him to retain sufficient liquidity to settle costs for salaries, property rents, and fuel. This is referred to as "pay as you earn" in the leasing sector. In addition, it is possible to plan the costs incurred with a high level of precision. Another advantage is the option that the company has to choose the newest technology again after five years, which enables it to work more efficiently and potentially even more cost-effectively.
What type of leasing does Credit Suisse offer?
We have two models: vendor leasing and capital goods leasing. With vendor leasing, our leasing partner can provide its clients with financing in the form of leasing or rental in addition to its products. This leads to more business options for both sides. We have a large number of "vendor-partners" in Switzerland in various industries that involve us in their businesses, which we then, in turn, help to achieve higher revenues. The second model is capital goods leasing. Here, the entrepreneur leases property directly for its own use, anything from cranes and PistenBullies to mountain railways and dentist chairs.
Credit Suisse plans to launch an option for online leasing soon...
That's right, capital goods and vehicle leasing will be digitally accessible to clients starting in June 2017, which will allow clients to prepare binding and non-binding offers themselves in a very short time. The digital world makes it possible to process contracts paperlessly. In addition, the documents generated will be available at all times on the new Online Banking portal for corporate clients, Credit Suisse Direct Business.
How extensive is your advisory service?
Once the terms, interest rates, and equity capital of the client have been clarified, we provide clients with a full spectrum of financial advice. However, we do not involve ourselves in entrepreneurial decisions, such as those concerning the product range. Our lessee handles the contract and all negotiations concerning prices and discounts himself, and all documents except for invoices are in his name. Many other leasing companies insist on all contracts being in their name.
Could you give me a successful example of a lease?
Yes, recently we were able to lease machinery to a mechanical engineering company that manufactures wool material components for railroads worth 1.25 million Swiss francs. The company contacted us because it could no longer manage its high order intake with its old production machinery, but was no longer liquid enough to procure new machinery following a relocation. One of this company's major customers threatened to take its business elsewhere if its order was not delivered on time with the same level of quality. For this reason, the company decided to lease lathes, production machinery, CNC machines, and robots. The machinery was delivered last month. The company was able to keep its customers, and even sell its old machinery second-hand. It is extremely satisfied with the overall result.
Does Credit Suisse also buy back second-hand equipment?
Yes, this is known as sale and lease back. If the property and the lessee's creditworthiness are acceptable, it can sell us virtually anything it has already purchased from another company and is not too old, and create liquidity by doing so. For example, we could buy a two-year-old crane that cost 300,000 francs and lease it back to the same company. After the lease transaction expires, the equipment must once again belong to the party that sold it to us.
Which attitudes concerning leasing have developed across different sectors in recent years?
Sectors that previously held a more negative attitude towards leasing have largely changed their opinions. For example, interest from the healthcare sector has increased significantly in recent years. Today, our portfolio includes a number of physicians, hospitals, clinics, and retirement homes that now lease everything from computer tomography equipment and implant manufacturing to complete medical practice equipment. In this context, it is clear once again that with leasing, there is no major risk of encountering a liquidity shortage – monthly revenues are all that are needed to make an investment affordable.
So the bank refinances in the background, and reduces capital commitment by doing so?
Leasing solutions not only offer a bridging solution for a temporary resource shortage, such as for space or infrastructure, they also offer long-term financing options. Thus, there is a solution for almost everything, from leasing solutions for a mountain railway stretching over a period of years to equipment leasing to provide a short-term bridge for a production shortfall.