What is retail leasing?

Retail leasing encompasses micro- and small-ticket leasing.  Micro-ticket leasing involves the leasing of high-volume relatively low-price assets, such as office equipment, shop machinery and small vehicles (ELFA: $0-$25,000).  Small-ticket leasing involves the leasing of mass-produced, relatively low-cost equipment with a liquid second-hand market, such as cars and trucks, construction equipment and machinery (DBRS: $15,000 - $100,000, ELFA: $25,000 - $250,000, Fitch: < $100,000).  Retail leasing is characterized by high pricing, high spreads and high delinquency rates.  The terms “rental” and “rent” rather than “lease” are most commonly used for the operating leasing of micro- and small-ticket equipment.  Monthly payment is generally most common for retail leasing.

Lease and credit applications are used mainly for retail leasing, which is commonly dependent on “app-only programs”.  Retail leasing relies on a process-oriented business model and standardization in documentation, acceptance procedures and residual values.  To support the high volume, lessors invest heavily in automated systems in order to reduce the turn-around time and number of people required to process lease applications.

Leasing in the micro- and small-ticket segments includes conditional-sale, single-investor nontax leases in which the lessee is treated as the asset’s owner for tax purposes and entitles the lessee to the tax benefits of ownership.  For small-ticket equipment, synthetic leases are commonly used via a master lease and through the use of a special purpose vehicle (SPV).

Typically, small-ticket leasing is provided by leasing companies that are active in various industries and geographic locations.  Leasing in the micro- and small-ticket markets is provided mainly by captive and independent lessors, although bank lessors are also active in this market segment through their extensive branch networks and established distribution channels to their account holders.  Vendor programs are highly important to leasing companies operating in micro- and small-ticket markets.

The profitability of the micro-ticket segment is higher than in the small-ticket market, which is yet higher than the middle-ticket segment.  Leasing is an important means of finance for retail customers and SMEs and has low default and loss-given-default rates.