Sample equipment lease agreements should address certain critical items that you should pay attention to.
Banks became nervous after the mortgage melt down and are now more than ever adhering to lending standards. This gives small businesses an even smaller chance of meeting these traditional lending standards. Analysts doubt whether banks have the patience for the kind of handling that small businesses often require.
Along with the mortgage meltdown, most small businesses gave up on hopes of expanding. Business owners who did not apply for loans complained that banks were reducing their credit limits and canceling their credit lines. Small business loans went down by 42% in 2009 and the number of SBA loans also reduced by 36%.
After talks with President Obama, many banks adopted “second look” programs in which they reviewed applications that were originally turned down. These efforts are still there even today but the results are mixed. This has led many small business owners to turn to leasing as a way of acquiring equipment to run and grow their businesses successfully.
With that in mind, it is very important as a business owner, you maximize the benefits of your lease by ensuring that your sample equipment lease agreements are in accordance with your business needs.
What Sample Equipment Lease Agreements Should Contain
The lease agreement should clearly outline the terms and conditions. The following are the items that you should pay close attention to in the agreement.
1. The Length Of The Lease
A short-term lease generally has higher rates but it is the best option if you require equipment that needs upgrading on a regular basis. It is also ideal for businesses that only need to use the equipment on a short-term basis. Long-term leases are usually for equipment that doesn’t need to be upgraded often because it is not subject to technological changes. Examples of such equipment include heavy machinery such as construction and farming equipment.
2. Monthly Payments Including Allowable Increases
This again comes down to the type of lease that you choose. There are many different types of leases and they all have different payment structures. Some leases are flexible in the way monthly payments are made. For instance, a skip lease will allow you to pay when your business is at its peak. An example of a business this lease would be most suited for is the farming business. Farming is seasonal and making monthly payments can become almost impractical during the low seasons. A skip lease allows farmers to skip payments during the low season. Some leases also start with low interest rates but a few months into the lease, the interest rates begin to increase.
3. What Does The Monthly Lease Payment Cover?
This is another very important element of sample equipment lease agreements that you should pay keen attention to. One of the key things that should be stated is if the lease payments cover repair and maintenance costs. Does it also cover installation and shipping of the equipment? What items will you be charged for separately? These extra costs may seem little at first but when added up, they eventually amount to much more.
4. End Of Lease Options
At the end of the lease, will you automatically own the equipment, purchase it, return it or renew your lease? Your end of lease options should be clearly indicated on the lease agreement. Some leases have auto renewal clauses. Usually this is not a very good idea because you may decide to close your business, look for another leasing company or simply move your business to another location.
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5. Can You Terminate Your Lease Early?
Sometimes due to unavoidable circumstances, you may be forced to close your business. This means that you will no longer need to use the equipment you are currently leasing and this calls for early termination of your lease. Most equipment leasing companies will penalize you for this. The penalties still provide a way out and you do not have to continue paying for equipment that you are no longer using.
The above are just some of the terms included in a sample equipment lease agreement. To avoid signing a bad lease agreement, involve a trusted lawyer or financial advisor.
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