While an equipment lease collateral may be a requirement for some leasing companies, some companies may only require a good credit rating.
For many business owners, equipment lease is a good option; they get to use the latest equipment without spending a lot on the purchase. However, there are a number of protocols involved in the process of leasing. Some companies offering these services require equipment lease collateral in exchange for the equipment. This is a way for them to protect their investment and ensure that they get payments for the expenses of the lease.
What Determines Whether Or Not You Need Collateral?
When getting equipment lease, you may or may not be asked to offer equipment lease collateral. This decision will depend on a number of things. First, the company policy will dictate whether this is necessary or not. There are some companies that will not ask for any guarantee, while others have this as part of their lease agreement.
The second aspect is your credit history. If you have an excellent borrowing history, then you can borrow without the need of any security. For example, the company may have a set credit rating required to qualify for a lease. This means there is no actual collateral but your history is used to determine whether or not you get the equipment.
Anyone who does not have the required rating might be given other choices before securing an agreement. Therefore, it is important to check with different companies and find out the options available to you. It is worth noting that the credit rating checked is for the entity wishing to take out the lease.
If you are seeking to get the equipment as an individual, then your credit score will be regarded. On the other hand, if you are leasing as a business, then personal scores will not be regarded. All references will be made on the business scores and assets.
What Type Of Equipment Lease Collateral Will You Need?
There are many types of collateral for an equipment lease. Many companies that require security prefer getting tangible assets. An example is a proper inventory of the business assets. This is a list of everything the business owns in terms of assets. This is constantly changing and the lease company might need to do an evaluation before accepting it.
The assets need to be substantial compared to the equipment you are getting. This inventory is presented to the lease company for them to look over. If they are satisfied with the inventory, then the application is approved and the business gets the equipment. In the event you default on payments, the company could possess the assets listed in the inventory
You can secure a lease by using accounts receivable as guarantee. This simply means you present the company with a list of clients who owe your business. This should show how much you are owed and when you will be paid. If you are not able to make payments for the lease, then the company will collect these debts.
For very high value equipment leases, real estate can be used as collateral. This can be owned by the business or the persons seeking to get the lease. However, this is only used when other avenues have been explored unsuccessfully. For example, this can be used when the other sources of collateral are too weak to qualify.
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This form of security is normally used to ensure that the person leasing equipment stays committed to making payments. It is also commonly used for equipment which the company would wish to get back in good condition. The lease provider might request for a valuation to be done to determine the market value of the real estate. This ensures that the amount is enough to act as a guarantee on the lease agreement.
What Happens At The End Of The Lease?
Once the lease ends, you have different options. You can decide to buy out the equipment or return it to the leasing company. If you wish to renew, you will have to sign a new contract and the terms might change. When you pay off all your installments for the lease and end the contract, the guarantee is called off and you regain full control of your assets. Therefore, there is no risk putting up collateral when you are dealing with a professional lease company.
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