"A prudent person profits from personal experience, a wise one from the experience of others."
- Joseph Collins
Now that the national economy appears to be in a cyclical recovery that is gaining strength we are seeing many companies upgrading their technology or replacing capital equipment. Similarly, many retailers and service oriented firms are hiring again now that consumer spending seems to be accelerating. This is exactly what usually happens after particularly sharp recessions, which makes it surprising that many commentators, whether economists or politicians, seem to doubt that such a thing could possibly be happening. Perhaps it is human nature for recessions to make people pessimistic because nobody has been saying: “deep recession = big recovery.” It is probably normal for people to expect an abnormally weak recovery however if history is any lesson that expectation will be proven wrong.
As many of our newsletter recipients are aware First Star Capital is a sponsor of, and active participant in the major industry associations related to the equipment financing / equipment leasing industry. Due to this robust involvement we are able to share ideas with other funding sources and compare notes on current events in the industry. Over the last several months these experiences have enlightened us about some dramatically unethical behavior that has become rampant in Southern California – specifically coming from the Irvine / Orange County area. Apparently, there are at least five or six firms purporting to offer equipment leasing / equipment financing services when in actuality they have no funding capacity whatsoever and are only collecting deposit checks with no intention of ever getting the transaction approved or funded. After the applicant submits their first payment they are apparently told that the transaction can’t be approved and the fee is non refundable. Supposedly, one company in particular collected over $150K in deposit checks within a 60 day period and then immediately bankrupted the company so that the owner could walk away with the cash. This is so appalling to me that I felt obligated as small business owners ourselves (First Star is only 20 people) to share this information in the hopes of being a good corporate citizen.
There are a number of precautions that any company should take when evaluating a new business relationship – especially a financial one. Apparently, these lenders intentionally don’t register with the BBB so that they can’t be reported. Furthermore, they use fake company names so that it is impossible to trace the legitimacy of the entity itself. Also, they continually change their corporations – often dissolving one entity and just forming a new one when the heat catches up to them after a couple / few months.
As a lender one of the first things we do on all new applicants is verify that the corporation exists and is in good standing in their home state. This is done with a simple online search of the Secretary of State. As an applicant for equipment financing / equipment leasing it may be prudent to verify that your prospective lender actually exists as a legal entity and is in good standing in their home state – this can be done in less than 15 seconds. If the prospective lender is a brand new entity or the facts don’t add up (different name, location, etc.) you should certainly dig deeper before making any financial commitments.
It is important to know your lender / leasing company. Don't be afraid to ask for references to ensure that you are working with a professional firm. Unfortunately, not all companies adhere to the highest standards. Make sure your financial partner is a proven success that is in good standing with the Secretary of State in their home state, has a strong BBB rating and an impeccable customer service record. A little extra due diligence could save you in the long run.
About First Star Capital
First Star Capital is an established national firm that has financed thousands of different businesses across the country and has funded hundreds of millions of dollars worth of capital equipment. We are an independent commercial lender with a specialty focus in equipment financing and leasing. First Star Capital is a direct lender with the ability to quickly and efficiently fund new financing requests between ten-thousand and ten-million dollars. Since we are a direct lender with our own funding and servicing capabilities we are able to deliver tangible value added financing solutions with the utmost flexibility. First Star Capital has the internal ability to underwrite a variety of different financing requests - nothing is too big or too complicated.
Did You Know?
Each year American businesses, nonprofits and government agencies invest in excess of $1 trillion in capital goods and software (excluding real estate)
Of this $1 trillion 55% or $600 billion is financed through loans, leases and other financial instruments
There are approximately 4,000 - 5,000 equipment finance / equipment leasing firms in the U.S. (banks, independents, lessor and brokers).
There are less than 250 active CLP’s (Certified Lease Professionals) in the US. To learn more about the CLP designation please go to: www.clpfoundation.org
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