The Equipment Leasing Underwriting Process Explained

Leasing new business equipment involves several critical steps, including equipment selection, obtaining manufacturer quotes, finalizing the lease agreement, and making an initial payment. One of the most important steps in this process is underwriting, where the leasing company assesses the financial health of the borrower to determine any risks associated with the lease. This step ensures that the lender can accurately price the lease and make an informed credit decision.

In this article, we’ll walk you through the underwriting process for equipment leasing, explaining what it involves, who performs it, and what documents you need to provide. Understanding the process upfront can help you secure the financing options you need, whether you’re acquiring new equipment or expanding your lab with more specialized tools.

What Is Underwriting?

Underwriting is the process of evaluating the risk of lending or leasing money to an individual or organization. In the context of equipment finance, underwriting assesses a company’s creditworthiness, ensuring that they have the capacity to make monthly payments on time. This evaluation looks at the balance sheet, cash flow, and other financial indicators to determine whether the lease is a sound investment for the lessor.

Underwriting helps financial institutions manage risk and ensure they’re making sound decisions when offering credit, whether in the form of equipment loans, leases, or other financing options. In credit underwriting, this evaluation may include an analysis of credit reports, tax returns, and financial filings.

The Role of Underwriting in Equipment Leasing

When it comes to equipment leasing, underwriting plays a vital role in determining if a business can afford the lease payments and whether the equipment is a valuable investment for both the lessor and the borrower. The leasing company assesses the fair market value of the type of equipment being leased, as well as its useful life, to determine its suitability for the lease.

During the underwriting process, the lessor collects financial data about the borrower, such as income statements and balance sheets, to assess their ability to meet business needs and pay the lease on time. The lessor also evaluates the equipment’s potential for depreciation, its resale value at the end of the lease term, and whether the lease terms align with the equipment’s expected lifespan.

Who Performs Underwriting?

Several types of professionals and institutions handle underwriting, including:

• Commercial banking institutions: They assess business loans and leases, ensuring the risk is acceptable for both the bank and the borrower.
• Leasing companies: These firms use their own underwriting teams to assess lease applications and make credit decisions.
• Syndications: In cases where multiple lenders share a lease, syndication underwriting ensures all parties involved agree on the lease’s risk and terms.
• Vendor finance companies: These firms work with manufacturers and equipment providers to offer leasing and financing directly to their customers.

In the context of equipment leasing, underwriting is often performed internally by the leasing company. This can help speed up the approval process and reduce the time it takes for the borrower to get the equipment they need.

The Underwriting Process for Equipment Leasing

The underwriting process for equipment leasing is straightforward, though it may vary based on the specific financing options and the equipment being leased. Here’s a general overview of the process:

1. Lease Application: The borrower submits a completed lease application, providing details about the equipment they need and their financial position.
2. Documentation Review: The underwriter reviews financial filings, such as balance sheets, income statements, and cash flow reports, to assess the company's financial stability.
3. Credit Check: The underwriter performs a credit report check on the borrower to evaluate their creditworthiness and ability to make timely monthly payments.
4. Risk Assessment: The underwriter analyzes the borrower’s working capital, debt-to-income ratio, and any potential risks that could affect their ability to repay the lease.
5. Equipment Evaluation: The underwriter evaluates the type of equipment, including its fair market value, useful life, and potential for depreciation.
6. Decision and Terms: The underwriting team decides whether to approve the lease and determines the appropriate lease pricing, term length, and conditions.
7. Finalization: Once approved, the lease agreement is finalized, and the equipment is delivered.

Documents You’ll Need to Provide

To help the underwriting process run smoothly, gather and organize the following documents before submitting your lease application:

• Balance Sheet: Provides a detailed look at your company’s assets and liabilities.
• Income Statements: Shows your company’s revenue, expenses, and overall profitability.
• Cash Flow Statements: Reflects your company’s liquidity and ability to cover lease payments.
• Tax Returns: These provide official records of your company’s earnings and verify the accuracy of other financial documents.
• Supplemental Documents: These could include funding agreements, lines of credit, or real estate investments that could affect your ability to meet financial obligations.

Having these documents ready can speed up the process and help the underwriter make a quick and informed decision.

How Long Does Underwriting Take?

The time required for underwriting depends on various factors, such as the complexity of the lease transaction, the size of the business equipment loan, and the documentation required. For example, smaller leases for a single piece of equipment may take just a few days, while more complex leases for multiple pieces of equipment could take weeks.

At Excedr, our underwriting process typically takes 3 to 7 days, allowing you to get the new equipment your business needs quickly. Because we specialize in healthcare and life sciences, we’re able to understand your business needs and provide more efficient underwriting than traditional commercial banking options.

Do Different Types of Leases Impact Underwriting?

Yes, different types of leases affect the underwriting process. The two most common types of leases are operating leases and finance leases (also called capital leases). Each of these leases is evaluated differently during underwriting due to the varying levels of responsibility and risk.

• Operating Lease: In an operating lease, the lessor retains ownership of the equipment throughout the lease term, and there is no obligation for the lessee to purchase the equipment at the end of the lease term. Because the lessor bears more risk, the underwriting focuses on ensuring the lessee can make regular payments and that the equipment will retain value.
• Finance Lease: In a finance lease, ownership responsibilities shift to the lessee during the lease, and the lessee usually has the option to purchase the equipment at the end of the term. Underwriting for a finance lease evaluates the lessee’s ability to maintain the equipment and make lease payments on time.

How to Prepare for the Underwriting Process

To ensure a smooth underwriting process, it’s important to take these steps:

• Gather all documentation: Have all financial documents ready before submitting your lease application.
• Avoid large financial changes: Avoid making significant financial moves, such as taking out a new business loan or opening a new line of credit during underwriting.
• Keep your books updated: Make sure your financial filings are current and accurate.
• Respond quickly: If the underwriter requests additional information, respond promptly to avoid delays.

Fast & Simple Equipment Leasing with Excedr

At Excedr, we specialize in providing equipment leasing options that cater to healthcare, life sciences, and other specialized industries. Our streamlined underwriting process helps you get the equipment you need quickly, with clear pricing and simple terms.

If you’re looking to lease business equipment to grow your company, contact us today to discuss how we can help meet your business needs.