Many business owners are always under the impression that great equipment leasing rates or low payments should be their sole focus when looking for leasing companies.
It is only recently that we came across some very useful information regarding equipment leasing rates so we shall put it in the viewpoint of an American Lessee and in the context of lease financing in America.
Equipment Leasing Rates
Many financial managers and business owners do not quite understand that there is a difference between the structure of an equipment finance transaction and low monthly payments.
One key element in the theory of pricing and lease rates, and many lessees hardly ever address this issue, is the fact that many lessees are not concerned about end of lease terms. They put in more effort in being approved for a lease but do not take the time to ensure that the end-of-lease terms are feasible.
End of lease terms are very important in the sense that they help in assessing equipment leasing rates. They are even more important when you are considering an operating lease as opposed to a lease-to-own agreement.
Normally, most equipment has certain value at the end of the lease term. There is of course some equipment that has very little residual value such as computers and other technological equipment. This is because rapid advances in technology make them obsolete after a period of time. The way you structure your lease will either increase the value of your leased equipment either to your lessor or to you.
Here’s the million dollar question. Do equipment leasing companies tell you what your end of lease options are and permit you to plan well in advance whether you want to extend your lease, renew it, return the equipment or purchase it? How you manage your equipment lease is what will determine if you will save or loose thousands of dollars.
As mentioned earlier, issues of equipment leasing rates are often intertwined with the theory of “low payments” and other issues that most lessees fail to address. What issues are we talking about?
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1. Interim rent
The interim period is the period between when the equipment is accepted and when the lease period officially begins. If this period isn’t capped, you could end up paying a significant amount of money.
2. Notice requirements
When notice requirements are too strict or you go into default, this will not only give your lessor leverage but you will incur extra costs. Many lease agreements have notice requirements that are difficult to meet and so they only lead to unwanted lease extensions.
3. Fair market value
Many lease agreements allow lessees to have end of lease options if they do not want to return the equipment; one of them is to purchase equipment at fair market value. Ensure that fair market value is a mutual agreement or have in place a fair mechanism that will be used to determine it. Even though you can still negotiate fair market value, you will continue to pay rent on the equipment as negotiations continue.
4. Return requirements
How easy will it be for you to return equipment? Many lease agreements make it very difficult to return equipment thus making lease extensions the next option. You need to be realistic and consider the fact that you may not be able to return all the equipment on time.
Is Leasing Really That Complicated?
Yes, it is but only if you let it be. One of the things that you should keep in mind when considering leasing is that equipment leasing rates are but one of the several factors to consider in your equipment lease contract.
You can save thousands of dollars when utilizing lease financing through proper structuring of lease contracts and credible leasing companies.
If you are not familiar with the lingo used in equipment leasing, you should consider hiring a leasing professional because they can help you:
- Choose a credible and reliable leasing company as well as analyze your current leasing program
- Find lessors with the lowest risk and cost
- Negotiate contracts to minimize risks and costs
- Reduce costs at the end of your lease and avoid unnecessary lease extensions
- Ensure that your current lease is in line with the ever-changing accounting standards of the Financial Accounting Standards Board and the International Accounting Standards Board.
For more information on equipment leasing rates, simply CLICK HERE.