Less Regulation Prompts Startups to Offer Leases Versus Loans

canstockphoto22387440New entrant powersport financiers are more interested in leasing, versus traditional financing, thanks to fewer regulatory requirements.

Startup CycleOne Financial, for example, was initially drawn to the leasing platform because “it works easier for us in terms of repossessions and structuring the contract,” President Logan Riley told Powersports Finance.

“With leasing, there is no such thing as APRs,” Riley said. Instead, leases include a “money factor,” rather than an annual percentage rate (APR), according to the Consumer Financial Protection Bureau. A money factor is the alternative method of presenting the amount of interest charged on a lease with monthly payments. The APR can be calculated by dividing the money factor by 2400.

Repossessions are also easier for CycleOne Financial, considering the startup owns the motorcycles it leases to consumers. The Orlando, Fla.-based lessor does not have to provide customers with a 30 to 60 day repossession notice, Riley said. “If a customer is late 10 days, we can go repossess the bike because we own the vehicle. We are essentially renting it to the customer,” he added.

One of the primary reasons Speed Leasing chose to lease motorcycles versus offering traditional consumer loans was due to “easier execution” and fewer restrictions, Partner Hasham Malik told Powersports Finance. For one, lending license requirements are less strict, Malik said, which allows Speed Leasing to get “up and running” quicker.

Speed Leasing, funded by an undisclosed Miami-based private equity firm, plans to have its dealer agreements in place by the end of this month, and it will start underwriting leases by April 1.

“When considered on a national basis, the regulatory burden related to licensing for the acquisition of leases tends to be lower than it is to acquire retail purchase contracts for both powersport products and automobiles,” John Redding, partner at Buckley Sandler LLP, told Powersports Finance. “The burden can, of course, vary by state.”

However, there are drawbacks to leasing in powersports — consumer demand being the main culprit. “Most people think with leases you are not going to own the motorcycle,” CycleOne’s Riley said. “People get scared when they hear the term ‘lease,’” especially when it comes to a luxury or recreational vehicle. “But to us, the benefits outweigh the drawbacks,” he added.

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