Venture Leasing

Chase Pruitt, MGT 386, December 11, 2008

It’s my understanding that venture leasing is nothing more than just a creative form of leasing that allows start up companies to finance certain items and equipment it needs to start a business. Basically, this just means that a well established company will lease equipment such as computers and software to early stage companies for a certain interest rate to be paid back in an agreed amount of years.

This type of leasing has a number of benefits for the start up company and would be well worth it. The first and most obvious benefit is that it would save the start up company extra cash that it would have had to spend on purchasing the equipment at full price. This is a crucial benefit because a company that is just starting out would have very little money to spend on all its needs and equipment. This way they are allowed to get the items they need at a cheaper price in which they would eventually pay back with interest once the business took off and started making enough money to pay back its debts. A second benefit of venture leasing is that it will finance a company even when that company doesn’t qualify for a bank loan or any other type of lease. Banks can be especially difficult to get a loan from particularly when it’s for a start up company with more risk than its worth paying for. This way the entrepreneur would be able to start the business without even going to the bank for the loan. Lastly, if negotiations are done wisely, venture capital could be very flexible for the entrepreneur starting his company.

Even with all these benefits and flexibility, a venture capital leaser also must follow certain guidelines to decide if a business will be a good venture lease transaction. According to Pricewaterhouse Coopers, Venture leasers look at several factors which two of the main ingredients of a successful new venture are the caliber of its management team and the quality of its venture capital sponsors (ezinearticles.com/?Venture-Leasing:-Startup-Financing-On-the-Rise&id=7424 - 53k -). Pricewaterhouse goes on to say that a good management team must have experience in the key business functions which are sales, marketing, R&D, production, engineering, and finance.

Venture leasing also has its fair share of risk involved. One risk that a business might face is that if it gets to the point where it cannot pay back its debt then there is a good chance that its equipment will be taken back by the leaser. This is something that would not happen if the equipment was bought out right and therefore owned by the start up company. When starting a business and not having much money this is an easy risk to overlook because in the beginning stages, all the entrepreneur cares about is getting the items and equipment it needs to start its hopefully successful business.

With this all said, venture leasing is a very worthwhile and helpful form of leasing for start up companies. It is still important however, for entrepreneurs to fully look into all their financing options before choosing venture leasing as there might be a more logical financing opportunity out there.