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One thing never changes regardless of market swing...Risk is risk
The company I represent has been leasing large ticket equipment since 1978. It has seen its world of change in that time frame. We specialize in operating leases. In otherwords, we take the risk on the back end. When ever you take that approach, one must manage risk and look deep into the future to look for pitfalls that each economic swing may challenge the company with.
When Scott Capital Group (Scott Computer Leasing in 1978) was started, IBM was our client and thier product was a computer...a $350,000 computer. IBM clients would lease $millions worth of this computing machine. One unit took up a whole room and had less memory than my kid's ipod. After five years we would get the equipment back and it went out on lease a second time for $120,000. Five years after that, another $25,000, until it was scrap. The company was built on these systems until in 1997 with offices from coast to coast, Scott Computer leasing was offered the Dell account for all Canadian clients. Here was the problem...computers had fallen in value to such an extent, that there was very little back end value to them at the end of the lease. We would have thousands of personal units coming back every month...there were doors closing but no windows to throw from. As an operating lessor, we were finished so to speak. Our market had all but gone the way of the dodo bird.
Around that time, our founder decided that there were two routes for the company. Fund through capital leases from here on, or change the business model to accomidate the risk that we had grown use to in operating leases. A decision was made to sell the existing portfolio and move into bigger equipment with higher risk on the back end. The reason...we knew how to manage risk found in the after market, we did not know how to manage portfolios with mass amounts of computer equipment that had no value in the end...to us...this was more risky than the unknown in dealing with different equipment levels and unknown back ends. Reason...we know one thing here...Risk is risk. it hides itself well in some market swings. It can be made to look less than it really is...but in the end, Risk will always bite back if it is not managed right. I won't waist your time going over the past decade in everything from credit cards to home mortgages to valuations on everything that no longer added up...they all were nothing more than a lack of understanding towards risk and who can manage it.
There is a new reality for us in the leasing industry today...and with it new oportunities. For the most part, what has happend to the overall market, had to happen...even if no one wants to say it. Leasing is back to the basics now...A good deal is a good deal and a bad deal, no matter how pretty...is a bad deal once more.
Scott Capital Group has funds available for good deals...heck we are desperately seeking good big deals to fund... That may sound risky right now to some...but to us...risk has shown its ugly head in North America and around the world...and in our business it means its time to grow.
When Scott Capital Group (Scott Computer Leasing in 1978) was started, IBM was our client and thier product was a computer...a $350,000 computer. IBM clients would lease $millions worth of this computing machine. One unit took up a whole room and had less memory than my kid's ipod. After five years we would get the equipment back and it went out on lease a second time for $120,000. Five years after that, another $25,000, until it was scrap. The company was built on these systems until in 1997 with offices from coast to coast, Scott Computer leasing was offered the Dell account for all Canadian clients. Here was the problem...computers had fallen in value to such an extent, that there was very little back end value to them at the end of the lease. We would have thousands of personal units coming back every month...there were doors closing but no windows to throw from. As an operating lessor, we were finished so to speak. Our market had all but gone the way of the dodo bird.
Around that time, our founder decided that there were two routes for the company. Fund through capital leases from here on, or change the business model to accomidate the risk that we had grown use to in operating leases. A decision was made to sell the existing portfolio and move into bigger equipment with higher risk on the back end. The reason...we knew how to manage risk found in the after market, we did not know how to manage portfolios with mass amounts of computer equipment that had no value in the end...to us...this was more risky than the unknown in dealing with different equipment levels and unknown back ends. Reason...we know one thing here...Risk is risk. it hides itself well in some market swings. It can be made to look less than it really is...but in the end, Risk will always bite back if it is not managed right. I won't waist your time going over the past decade in everything from credit cards to home mortgages to valuations on everything that no longer added up...they all were nothing more than a lack of understanding towards risk and who can manage it.
There is a new reality for us in the leasing industry today...and with it new oportunities. For the most part, what has happend to the overall market, had to happen...even if no one wants to say it. Leasing is back to the basics now...A good deal is a good deal and a bad deal, no matter how pretty...is a bad deal once more.
Scott Capital Group has funds available for good deals...heck we are desperately seeking good big deals to fund... That may sound risky right now to some...but to us...risk has shown its ugly head in North America and around the world...and in our business it means its time to grow.
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2 Comments
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Comment by Muhammet Kose on October 22, 2009 at 8:29am -
Hi Garett,
I would say thank you for this article....I am writting you from Turkey....In Turkey we have been talking operational leasing for the last 5 years or more...But no one knows much more about this...Leasing market has been established in near future (1990's) .Almost all of the leasing facilities are about financial leasing.
I want to learn more about operational leasing...Can you help me how can I find my way in operational leasing ..
Regards....
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Comment by Chris Raley on April 22, 2009 at 12:58pm - Great post Garett!
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