Equipment Leasing – Things To Bear In Mind

It is very common nowadays for companies to make lease contracts regarding their equipment instead of buying it first hand. If the business flourishes and makes profit, they will have the option to buy such equipment after the loan comes to an end. As you can see, equipment leasing works very much like car leasing. There are many advantages to equipment leasing, but we are not here to discuss them. In this article you will find the basic points to keep in mind regarding equipment lease contracts.

Number 1: Your Obligations Vs. The Leaser’s Obligations

As beneficial as equipment leasing might be, you have to know that you will have much more obligations than your counterpart. Once they have signed the contract, the responsibility is all yours to carry. Apart from paying the lease contract on a monthly basis, you will have to ensure the proper care of the machinery, you might even have to pay insurance fees, rental fees, among others. Make sure you will be able to handle the pressure before signing the contract.

Number 2: Security

Some leasing companies might demand some personal guarantee from you (the lessee). You might need to have a co-signer who will answer for you in case you default on the lease contract.

Number 3: Lease Contracts Are Triple-Net Contracts

What does this mean? This means that the consumer is in charge of equipment maintenance, insurance (liability and casualty insurance) and taxes (use and property taxes) associated to it. In other words, the real owner will not pay a dime as long as you are leasing the machinery.

Number 4: Hell-Or-High-Water Clause

This clause will appear on the lease contract, and it means that the lessee has the obligation to pay rent for the entire life of the lease despite any external event affecting either the equipment involved or the lease contract itself. Any claims against the leasing company must be taken separately to court.

Number 5: Defaults On Payments

Most leasing companies are very tolerant when it comes to payment dates, they know how hard it can be to get a new business off the ground, or how tough it is to keep up when your economy is not going through its best time. But as understanding as they might be, you should not abuse their trust. Tolerating slightly late payments is one thing, bearing with complete default is another. Full default on your lease payments might lead to extremely expensive legal battles you will not want to fight. Keeping up might be hard, but it is for the best.

Number 6: When The Lease Ends

When the lease contract comes to an end, you might face a variety of options regarding the equipment. Some leasers will allow you to buy the equipment at a bargain price, others will prefer a fair market value, and others will not let you buy the equipment at all. You might be able to renew the lease contract or to simply return the equipment and move on.

If it is your choice to fully terminate the contract and return the machinery, keep in mind that you will be charged penalty fees if it is not in good condition and out of working order.