This document summarizes a presentation about lease here pay here (LHPH) vehicle financing. It discusses LHPH benefits for dealers including improved cash flow and profits. A sample LHPH transaction is presented showing how the dealer can earn a positive cash flow on each deal. Sources of capital for LHPH financing are explored, including select national lenders, local banks, independent finance companies, and hard money lenders. A sample lender package is outlined including business history, financials, portfolio analytics, compliance policies, and regulatory considerations. Contact information is provided for further questions.

1. Lease Here Pay Here
FUNDING STRATEGIES
2014 NVLA ANNUAL CONFERENCE
Tucson, AZ
April 1, 2014
Edward P. Kaye, President
Advantage Funding
Lake Success, New York

2. Presentation Overview
• What is LHPH
– Benefits and how it works
• Funding structure
– Sample transaction
• Capital availability
– Sources of funding
• Sample lender package

3. Background
• Started in the leasing business in 1988
• Founded Advantage Funding 1997
• Sold majority stake to Marubeni America 2006
• Continue to oversee the daily operation and
long term strategic planning

4. Advantage Funding – Brief Overview
• Niche markets
• $250M in assets
• 5,000 contracts
• 50 employees
• Direct lender
• Fund through securitization and Marubeni

5. Independent Niche Focus
• Divisions and collateral types funded
– LHPH/BHPH Dealers
– Commercial coach
– School bus and shuttle bus
– Limousine and livery use
– Ambulance and paratransit
– Tow trucks and other vocational trucks

6. WHAT IS LHPH?
(Courtesy LHPH, LLC)

7. The LHPH Opportunity
• Independents always forced to reinvent
themselves (bank competition)
• A smarter business model
• Profitability
• Risk adjusted structure
• Significant growth opportunity

8. Benefits of LHPH
• Improved cash flow (most states sales tax is
paid on the payment rather than upfront)
• Increased profits and fee income (acq.
fee, termination fee, etc...)

9. Benefits (continued)
• Shorter term than standard loans
(customer control)
• Better car (less maintenance, giving customer
more ability to make payments)
• BK remote (assume or reject the lease)

10. Benefits (continued)
• Lower monthly payments
• Repossession friendly since the lessor owns
the vehicle
• Inventory management (lessee required to
bring the vehicle back at termination)

11. How it works
Three Possible Legal Structures:
• Dealer as lessor
• Outsourced lessor
• Related Finance Company (RFC) or
Independent Leasing Company

12. Dealer as Lessor
Dealer decides to
do leasing
Dealer buys a vehicle
and leases the vehicle
to the Lessee.

13. • $7,500 – ACV
• $12,500 – selling price (cap cost)
• $1,000 – cash from customer (security deposit)
• $12,500 – amount Financed (Adjusted Cap Cost)
• 36 month term
• 21% interest rate (lease rate)
• $3,500 balloon (residual)
• Payment - $400/month ($92 per week)
Typical deal for the BHPH/LHPH Industry

14. Funding Structure
Dealer – Advantage Funding Example:
Advance Cost of Vehicle + up to $750
Rate 10.5% Subject to Approval
Fees $100 per Lease
Cash Flow You Control
Deal Structure Residual (~ 20% of cap cost)

15. The Lease example (typical deal) Advantage Funding (same deal)
$ 12,500 Cap Cost $ 8,250 Amount Financed
$ 3,500 Residual $ 2,500 Balloon at End
$ 400 Mo. Pymt. ($92 weekly) $ 212 Mo. Pymt.
Dealer gets cost of vehicle + $750 + $1,000 Security Deposit (and any other
cash from customer) + $188/mo. positive cash flow on deal!
Funding Structure
Dealer – Advantage Funding Example:

16. 1. Positive cash flow for the dealer
2. Control of cash by the dealer
3. Fixed rate financing on each deal
4. No “unused line fee”
5. Dealer services and collects the leases
6. Perfect pay to lender (customer
delinquency does not excuse payment)
Funding Structure Benefits

17. Greatest Market Share

18. Capital Availability
• The Lease Here Pay Here business model’s
greatest challenge
• Few lenders in the space

19. Capital Availability
• Select national lenders
– Target market – Large BHPH dealers
($5M portfolios and up)

20. Capital Availability
• Local banks or lenders you have an existing
relationship with
– What is their appetite for leasing?
– Do they have capital constraints?
– How strong is your relationship with them?
• Must create a detailed business plan strong
enough to sell a conservative credit committee

21. Capital Availability
• Independent finance companies
– Portfolios under $5M
– Minimum three (3) years in business
– Reliable accounting
– Reliable portfolio analytics
– Not a lot of choices

22. Capital Availability
• Hard money lenders
– High cost of funds expected as a return on
investment (more common in real estate
transactions)
– Subject to termination
• Friends and family
• Home equity LOC

23. Sample Lender Package
• Business history
– Time in business
– Ownership bios
– High level description of operations
– Customer profile

24. Sample Lender Package
• Financial disclosure
– Two years tax returns (Form 1120) or financial
statements on LHPH operation and any corporate
guarantor(s)
– Two years tax returns (Form 1040) on personal
guarantor(s)
– Updated personal financial statement
• http://www.sba.gov/sites/default/files/tools_sbf_finass
t413_0.pdf

25. Sample Lender Package
• Portfolio and process analytics
– IT system
– Contract data (How many? Interest calculation?
Modification process?)
– Receivable detail
– Debt structure and detail
– Aging

26. Sample Lender Package
• Portfolio and process analytics (cont’d)
– Typical deal structure
– Vehicle Info (Acquisition process, concentration)
– GPS system utilized
– Existing lending relationships and terms
(comparable borrowing experience)

27. Sample Lender Package
• Compliance and policies
– Credit policy
– Repossession policy
– Charge off policy
– Document retention practice
– FCRA (Fair Credit Reporting Act)
– FDCPA (Fair Debt Collection Practices Act)
– CFPB Compliance

28. Regulation and Licensing
• Regulatory considerations
– Lease must be “Reg M” compliant (proper
consumer disclosures)
– Business subject to CFPB oversight
– State Leasing License may be required
• Also consider whether or not you need a sales finance
license and an automobile dealers license

29. Contacts
Toll Free 866.392.1300
Toll Free Fax 800.896.5952
Program Directors:
Edward Kaye 866.392.1300 ext. 786
516.280.1786 Direct Dial
ekaye@advantagefunding.us
Michael Kaplan 866.392.1300 ext. 796
516.280.1796
mkaplan@advantagefunding.us
www.advantagefund.com