There are certain things that you should look at in your rental lease agreement before you sign it. What exactly are these things?
8 out of 10 companies in America lease some or all of their business equipment. Simply put, one third of business equipment in America is financed by some sort of equipment lease. Equipment leasing remains one of the most popular methods of financing equipment despite the recent changes in tax laws and economic conditions.
As much as leasing is the way to go when a business needs to acquire equipment without tying up all its capital in equipment, there are a few “gotcha’s” in the lease agreement that can jeopardize your business.
How To Avoid Rental Lease Agreement Gotcha’s
Make sure that you check your leasing company’s track record through a credit rating company such as Dun & Bradstreet or the Better Business Bureau. Get as many references as you can from previous lessees and ask them how their experience was with the leasing company.
One way that you can avoid rental lease agreement gotcha’s is by becoming familiar with how a good lease looks like. A genuine leasing company will have less stringent lending criteria when compared to another financial institution such as a bank. They won’t require any down payment and if they do, they should clearly state that it is refundable at some point into your lease term. Most leasing companies, however, will have some loopholes in their rental lease agreements that favor them.
Another common method that unscrupulous leasing companies take advantage of unsuspecting lessees is by trying to sell to them extended lease periods. You can save thousands of dollars by knowing the longevity of leased equipment. At first, extended lease periods may appear very enticing especially because they are spread out over a longer period. The equipment might however never outlive the lease agreement. When this happens, you might end up paying for equipment that is not even functioning. For example, the average life cycle of a computer is 3-5 years so it won’t make sense for a lessor to try and sell to you a 10 year lease for it.
Your rental lease agreement should address important aspects such as what happens when the equipment breaks down before the lease ends? What happens when you want to end your lease agreement early? When the lease agreement is terminated early, who will cater for the expense of shipping the equipment back to the leasing company? In short, the lease agreement should know and protect the lessees rights.
Unethical leasing companies entice their prospects with ridiculously low introductory monthly payments. Once you sign such a lease, the payments can go as high as 14 times the original price. You should also avoid adjustable interest rates. Leasing companies will fluctuate the rates according to prime rates. It’s better to stick to fixed interest rates because they will not fluctuate.
Always ask for further clarification on your rental lease agreement. Some of the questions you should ask include: what type of a lease is it? An operating lease, also known as a fair market value lease, will allow you to return the equipment, purchase it at fair market value or renew the lease. Monthly payments for this type of a lease are usually very low. A capital lease on the other hand gives you the option to buy the equipment at the end of your lease.
Enlist an accountant or an attorney to review your lease. Accountants can quickly identify costly provisions in your rental lease agreements. For example, they can advise against signing a personal guarantee. This is whereby when your business fails, the lease signer will take personal financial responsibility to pay off the debt if the organization cannot.
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You should always refrain from quickly signing a rental lease agreement without reading the fine print. If you are not sure about something in the lease, always ask for a clarification. You can get your accountant to negotiate better terms for you and identify loopholes that might make a good lease turn bad.
Always do a background check on your leasing company before jumping into a deal with them. At LeaseQ, you will be connected with hundreds of leading finance companies willing to offer you free quotes. You can compare and prioritize quotes from reputable lending companies.
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