When leasing an asset is the better option, and why you shouldn’t dilly-dally about it
Sponsored by RentWorks East Africa Ltd
By Evans Ongwae
Firms should embrace vehicle leasing to grow and manage their fleets successfully, urges RentWorks East Africa Limited business development manager Cynthia Abiero.
She asserts that businesses that lease vehicles solve their transport needs while at the same time-saving costs. The leading leasing firm, which has been operational for 18 years, has 4,000 vehicles out on lease to corporate organisations and government institutions in Kenya and East Africa.
Ms Abiero says that broadly, RentWorks EA handles a leasing asset portfolio worth Ksh15 billion.
“The assets we manage are varied; from motor vehicles to aircraft, and information technology hardware plus the attendant software, among others,” she says.
Since its inception in April 2004 as the pioneer independent equipment leasing finance provider in Kenya, RentWorks EA has been offering specialty asset finance solutions.
Ms Abiero explains that the firm’s philosophy is centred on the notion of discouraging the outright purchase and ownership of depreciating assets. These assets, she explains, “are better acquired through our specialist leasing arrangements.”
She goes on to add that leasing in its simplest form is a means of delivering finance. It in effect separates the legal ownership of an asset from the economic use of that asset. Leasing provides a way that matches the cost of an asset to its productivity.
The firm’s leveraged lease solution for the transport sector involves arranging for organisations to acquire vehicle fleets from their preferred vendors. The solution would ideally offer bundled services, which would include full service and maintenance of the units and bodybuilding.
RentWorks’ solution applies even for specialised bodies, such as stainless steel bodies for fuel carriers and vehicle tracking and insurance. “In certain instances, we have even arranged for vehicle operators as well,” adds Ms Abiero.
She points out that a major difference between leasing from RentWorks and other equipment acquisition methods is the residual value component of leasing.
The RentWorks business development manager explains that through leasing, firms avoid residual risks at the end of an equipment’s life. This is because they lack used equipment re-marketing competency.
RentWorks, says Ms Abiero, “is in a better position to assess, manage, and absorb the residual asset risk associated with equipment acquisition. We assume the risk of the resale value and we wait until the end of the lease term to realise our return objective. This way, we reduce the front-end cost to the lessee and we pass on lower lease payments.”
Moreover, she informs prospective clients that RentWorks is also able to offer longer financing terms “than you would get if you chose other financing options.”
RentWorks has created strategic partnerships with most vehicle vendors in the market. These include the body builders and other associated service providers. “These partnerships have enabled us to offer a one-stop solution to our customers when they come calling,” says Ms Abiero. RentWorks’ lease terms can be arranged to up to an eight-year term.
Ms Abiero observes that there is a general lack of information on leasing products and services in the regional market. The majority of firms have traditionally gone for bank financing, and there is limited awareness of the impact or advantages of lease financing.
What is RentWorks doing in the face of such a challenge? “We continue to balance our marketing strategy to effectively address this, and we see positive results through repeat business and conversion of new clients each year,” Ms Abiero explains.
She points out that businesses that lease typically believe that equity tied up in equipment can be better used elsewhere, as equipment leasing frees up working capital.
Explains Ms Abiero: “A major benefit of leasing is that it allows a company to conserve capital for investment in its business rather than in the infrastructure required to run it.”
She adds that unlike other equipment acquisition strategies, leasing does not typically involve upfront commitment fees or require down-payments or deposits.
Leasing, Ms Abiero points out, has two primary benefits: It protects against equipment obsolescence, and preserves cash. Leasing offers the advantage of low cash outlays and possibly off-balance sheet financing.
For more information on RentWorks’ transport solutions, visit www.rentworks.co.ke/
