Business equipment leasing companies undoubtedly provide plenty of benefits to many companies in America and around the world. However, you should not only focus on how the pros of leasing outweigh the cons. You should also ensure that your company does not take any undue risks.
There are plenty of risks that may come up when you are dealing with business equipment leasing companies. If you are not familiar with the risks, you might not make an informed decision at the end of the day. Right now, eight out of ten companies in North America acquire their equipment through leasing. Out of this number, there is a percentage that has experienced some kind of difficulty when dealing with leasing companies. While some may easily deal with the issues they face, others may be stuck with unfavorable lease agreements. With that said, it is much easier to avoid taking any risks rather than try to deal with them later and as such, some of these risks and their solutions have been discussed below.
Risks Associated With Business Equipment Leasing Companies
Before getting into the risks associated with business equipment leasing companies, you should understand that leasing is all about two things: your obligations and your rights. If you can assess these two things before you sign your lease agreement, the better it will be for you.
The first risk you have to understand is your maintenance obligation. Some assets such as computers or software require very little maintenance while others such as treadmills, kitchen equipment, etc., may require regular maintenance. Ask your lessor if they will cater for maintenance or if it will be up to you. Leasing companies recognize the concept of equipment maintenance and will often include it in the lease.
Do you know the end value of your asset at the end of the lease period? Most equipment business leasing companies have lease periods ranging from 2-5 years for equipment that needs to be upgraded on a regular basis. For long term equipment that does not become obsolete, the lease period can be for over five years. If you plan on signing an operating lease, you should understand that you are obligated to re-lease the equipment, purchase or simply return it.
For this reason, you should know the value of your equipment. If you know the value of your equipment, you should negotiate a price with your business equipment leasing company rather than pass the value to your partner without a negotiated benefit. Discuss an early buy out or fix a buyout price that is acceptable to you.
The next risk avoidance tip is to understand your upgrading options at the end of your lease or in the middle of your lease term. Ensure that your options are properly documented, whether it is an operating lease or a capital lease.
Another risk element associated with business equipment leasing companies is taxes. Ensure you are well informed about the tax and depreciation issues surrounding your lease transaction. If this is not your field of expertise, rather than going with your “gut feeling”, you should consult your tax expert or accountant. Sometimes the benefits that come with leasing equipment can be overridden by your inability to properly assess depreciation and tax.
Ensure that your equipment is insured. Your insurance firm should cover losses that may make you lose your property through theft or damage. Most leasing companies will ask you to provide a certificate of insurance because they too have purchased the equipment and are just renting it back to you.
If there is any indemnification, it should be within reasonable risk and control. Issues such as operation of the asset, transfer and title should be clearly stated in the lease agreement. All the terms that you agree on with your lessor should also be included in the lease.
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In a nutshell, you should not only consider the positive aspects of business equipment leasing companies but you should also focus on the risk avoidance aspect. If you require additional assistance, you should speak to a trusted financing advisor or visit LeaseQ, the leading source of finance companies. They offer leasing quotes free of charge and you can go back to the site as often as possible until you get one that suits you.
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