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Review the Equipment Lease Contract Before Signing On the Dotted Line

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Review the Equipment Lease Contract Before Signing On the Dotted Line Powered By Docstoc
					Review the Equipment Lease Contract Before Signing On the Dotted Line
Many business people don't know that equipment leases can be negotiated.
They do a quick read-through of the contract, see that the monthly
payments are what was represented, and sign where indicated. Not
carefully reviewing each paragraph of the agreement can be costly. Long,
drawn-out contracts are often developed by leasing companies to gain
added revenues and advantages for themselves. Consequently, in this
situation, it is to the detriment of the lessee.
This article discloses some of the terms and conditions that are
contained in lease contracts, but can often be negotiated. A properly
trained lease broker can be invaluable in helping the lessee discern the
points of contention and negotiate a fair and equitable agreement.
1. Credit or commitment fees: Some leasing companies will charge you a
fee simply to process the credit application. Others may charge a fee to
keep the credit commitment open after the application has been approved.
These are ridiculous fees that I would advise never paying.
2. End of term option: This is a critical point in the contract. Beware
of language that allows you to buy the equipment at a "mutually
acceptable price" as opposed to fair market value. When a lessor states
they will sell you the equipment at a mutually acceptable price, they can
back you into a corner by charging just about what they want. Fair market
value and $1 buyout leases are legally defined and more quantifiable.
3. The never-ending lease: Some leasing companies try to lock you into a
leasing situation forever and the only way to escape is to pay an
inordinate fee. Beware of a lease that gives you three options at the end
of the term: a. Buy the equipment at a "mutually agreeable price". b.
Extend the contract at a mutually agreeable price, or c. Return the
equipment to the lessor and strike a new deal at a mutually agreeable
price. These are all poor options for you, the lessee and only serve to
benefit the profit of the leasing company.
4. Equipment pass title fees: These are fees that some lessors charge
when the lessee chooses to buy the equipment at the end of the lease term
and obtain clear title. These fees can be as high as $250 or more.
5. "Put" at end of lease: Make sure that you have an option to buy the
equipment at the end of the lease and not a put. A put may result in
lower monthly payments, but requires you to buy the equipment, as opposed
to an option, which gives you a choice.
6. Delayed payment to vendor: Some leasing firms delay payment to the
vendor for the purpose of increasing their yield. This is unethical,
creates a hardship for the vendor, and makes your company appear in a bad
light.
7. Up-front broker fees:Some lease brokers charge an up-front fee at the
onset of the relationship. I have never charged such a fee because my
compensation is based upon a successful completion of the transaction and
is a percentage of the amount funded.
These are some of the items to look for when reviewing an equipment
lease. Keep in mind that competition among leasing companies is intense
and they do not want to lose your business. Do not be shy about asking
that these fees be taken out of the agreement.
Kent Harlan has been a CPA since 1984 and has provided consulting,
accounting and financial services to several industries. He is the owner
of Ozarks Capital Funding, LLC, a Springfield, MO based company offering
business and heatlhcare financing.
Does your company need to finance new equipment or refinance your
existing inventory of equipment? click here to apply.
EMAIL: kenth@ocflink.com
WEB: http://www.ocflink.com
PHONE: 417.849.7394

				
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