Thousands of U.S companies grow and boost their businesses every year by signing equipment leasing contracts.
Top Ten Elements Of Equipment Lease Contracts
1. The Law
An equipment leasing company will choose the state in which it is established in as the legal platform under which your lease disputes will get resolved. This means that only a court that is within their jurisdiction can settle your equipment lease contract issues.
If the leasing company happens to be located in a state other than yours, and the courts have no jurisdiction there, the leasing company may need to hire a lawyer who is licensed to practice in that state.
2. End-of-Lease Options
Many lease agreements allow lessees to purchase the equipment at the end of the lease for a bargain amount but keep in mind that some leases do not have this provision; instead, they will include a variety of other options such as renewing the lease for a specific period, returning the equipment or purchasing the equipment at fair market value. Make sure that you read your lease contract carefully to ensure that it has an end-of-lease option suitable for your business.
3. Return Of Equipment
Many equipment lease contracts stipulate that you must return the equipment in good condition if you don’t want to purchase it at the end of the lease. If you return equipment that is damaged or has missing parts, your lessor will charge you for repairs. While they might not expect you to return the equipment looking like it’s brand new, they do expect you to return it with minimal wear and tear.
4. Payment defaults
Your lease contract will have a specified date of the month when you should make payments. Leasing companies understand the nature of running a business and they may allow you some leeway if you make late payments.
Being issued with a default notice can trigger severe consequences. You might find yourself dealing with expensive legal proceedings or worse, repossession of your equipment. While this may not have an impact on your credit score, legal expenses will cost you a lot of money and repossession of equipment will be a huge set back to your business.
5. Assignable Contract
Some equipment leasing contracts will give you the freedom to assign the contract to another company at will. This provision is very important especially when you are unable to continue making payments.
While it doesn’t relieve you your obligations of paying for the equipment as per the equipment contract, it gives you an alternative source of financing for your equipment.
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6. Personal Guarantees
Some leasing companies require you to offer some form of personal guarantee. Under most guarantees, your guarantor will stand behind your performance and obligation under the lease. Upon certain uncured contract defaults, this guarantee will give your lessor the opportunity to bypass the courts and demand guarantor performance.
7. Interim Rent
This is payment charged for the period between when you accept payment for the equipment and the official start of your lease. Interim rent can quickly add up and make your lease costly.
What many business owners do is that they schedule equipment acceptance and delivery towards the end of the month. This way, they can reduce the amount of interim rent they have to pay. So rather than accept equipment at the beginning or in the middle of the month, you should negotiate the interim rent clause so that you schedule an appropriate time when your equipment should be accepted and delivered.
When a leasing companies offer you equipment lease contracts to sign, you should keep these top 7 elements in mind. These are only a few of them but they are the most important. Remember to always request a financial advisor or a lawyer who specializes in leases to review your contract before signing it.
It’s very easy to go with your “gut” and make decisions because your lessor told you to “trust” him. More importantly, never believe a financial advisor or a lawyer who tells you that your lease is a standard lease. Almost everything on your lease can be negotiated to suit to your current needs.
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