One of the traps a small business falls into is signing an equipment lease without getting expert counsel from someone knowledgeable in equipment leases.
Often, the only source of information is the leasing company’s sales rep or the equipment salesperson. Equipment salespeople seldom understand the lease and often are paid commissions from the lease company, so they want the lease to close without negotiations.
Leasing is unregulated and misunderstood by many businesses.
If you don’t read your lease and fully understand its language, you could set yourself up for big problems down the road.
Here are 6 big problems:
1. Personal guarantees are expected in today’s economy. Most of these guarantees allow the leasing company to go after the personal assets of the company owner first.
2. Interim rent can slip into a lease and adds one to two extra payments to the lease.
3. Fair market value: The customer thinks that fair market value is about 10%. It never is. It’s usually at lease 20% of the original equipment purchase price.
4. Monthly payment: The lease or equipment salesperson gets the customer to think only about the monthly payment. Customers seldom realize they paid full list price for the equipment.
5. $1.00 purchase option: Customers think they will own the equipment at the end of the lease for $1.00, but they didn’t receive the addendum that states the $1.00 purchase option. The lease contract says they may purchase the equipment for fair market value and with no proof of the $1.00 purchase option, customers are out of luck.
6. UCC liens: Some unscrupulous leasing companies file UCC (Uniform Commercial Code) liens on all of the customer’s assets, not just the leased piece of equipment.
Stayed tuned next time for 8 things you can do to avoid falling into lease traps.