Insider’s Guide to Snaring the Best Lease Deal

Written by George A. Parker


Continued from page 1

A flexible lease arrangement anticipates upgrades. Usually, atrepparttar time of equipment upgrade,repparttar 112199 present value of rents associated withrepparttar 112200 upgrade can be combined withrepparttar 112201 present value ofrepparttar 112202 remaining equipment rents to create a revised schedule. Other methods might be required inrepparttar 112203 event thatrepparttar 112204 lessor will incur penalties or additional charges resulting fromrepparttar 112205 wayrepparttar 112206 lessor has fundedrepparttar 112207 lease.

Will you be able to terminaterepparttar 112208 lease early without an onerous charge? An amount consisting ofrepparttar 112209 present value ofrepparttar 112210 remaining rents plus a termination charge no greater than 3% to 5% should compensaterepparttar 112211 lessor for early termination in most leasing arrangements. Where equipment has high residual value, request that a portion ofrepparttar 112212 anticipated residual value be applied to reduce early termination charges.

Doesrepparttar 112213 lease have flexible end-of-lease options? Clearly, ifrepparttar 112214 lease contains a nominal purchase option, there is little need for additional end-of-lease flexibility. Otherwise, a good array of end-of-lease options is desirable. Requestrepparttar 112215 right to returnrepparttar 112216 equipment torepparttar 112217 lessor without undue penalty or expense,repparttar 112218 right to purchaserepparttar 112219 equipment at a fair or reduced price, andrepparttar 112220 right to continue leasingrepparttar 112221 equipment at a fair or reduced rent. Use of ‘caps’ in fair market value purchase or rental options can greatly reduce potential costs at lease end. Beware, however. Lessors may insist on fair market value ‘floors’ (lower limit) when they agree to ‘caps’.

It may become necessary to relocaterepparttar 112222 equipment to another site. Make surerepparttar 112223 lease provides that equipment can be relocated without unreasonable penalties or charges, subject to notifyingrepparttar 112224 lessor. Keep in mind that equipment relocation may create extra expense forrepparttar 112225 lessor, particularly if it is to be moved to another state or to multiple locations. Most lessors perceive multiple locations as adding additional risk torepparttar 112226 transaction inrepparttar 112227 event they must repossessrepparttar 112228 equipment. As long as these considerations are taken into account,repparttar 112229 lessor should permit relocation of equipment with reasonable notice and reimbursement of lessor’s direct costs and administrative expenses.

Is there a sufficient notice period atrepparttar 112230 end-of-lease for you to indicate your desire to renewrepparttar 112231 lease, purchaserepparttar 112232 equipment or returnrepparttar 112233 equipment? The notice period generally ranges from one to six months, with three months being typical. If you violaterepparttar 112234 notice period,repparttar 112235 lease kicks into an automatic renewal period, usually one to six months. You should seek notice and automatic renewal periods that are short, to avoid unintended additional lease charges. Ifrepparttar 112236 lessor is unwilling to negotiate this provision, you can managerepparttar 112237 situation by making surerepparttar 112238 notice requirement is fulfilled withinrepparttar 112239 allowed time.

Look For Competitive Lease Pricing

Lease pricing is a function of many factors, including: market rates, perceived lessee credit risk, lessor competition, equipment collateral quality and equipment re-marketing prospects. Get at least three lease bids, if possible. Atrepparttar 112240 end ofrepparttar 112241 day, lease pricing is market driven. A properly completed present value analysis will bring into focus comparison of diverse proposals otherwise difficult to make. Make assumptions aboutrepparttar 112242 equipment residuals and incorporate all anticipated costs and fees. Take into accountrepparttar 112243 amount and timing ofrepparttar 112244 periodic rental payments, any advance rental payments, security deposits, cash collateral, interim rents and commitment fees. To achieve an accurate analysis of cash flows, you should incorporate any tax charges/benefits as they are to be realized.

If you are concerned aboutrepparttar 112245 impact ofrepparttar 112246 lease transaction on your firm’s financial statements, comparerepparttar 112247 impact of each proposed lease onrepparttar 112248 balance sheet and income statement (if lease accounting is not your forte, get a qualified accountant involved). For example, if your company is sensitive to adding additional debt to its balance sheet, a capital lease should probably be avoided. As you can see, there are several ways to evaluate lease proposals and to compare lease pricing. The important thing is to use an analysis method with consistency and to chooserepparttar 112249 method that best fits your company’s priorities.

Understand All Fees and Penalties

Leasing proposals vary inrepparttar 112250 types and amounts of fees and penalty charges. Some common lease charges include: commitment fees; documentation charges; charges for attorney fees; and charges for UCC financing statements. Additionally, some leases might contain penalty charges for late rental payments or early lease termination. These are only a few ofrepparttar 112251 possible fees and charges. It is important that you go throughrepparttar 112252 lease proposal and lease agreement to identify likely charges. If fees or charges are significant and likely, you should incorporate them into your pricing analysis.

Understandrepparttar 112253 Lessee’s Major Responsibilities and Obligations

Most lease proposals coverrepparttar 112254 basic terms ofrepparttar 112255 lease, but are silent regarding many ofrepparttar 112256 obligations and conditions normally included inrepparttar 112257 lease agreement. Lessors usually will not negotiaterepparttar 112258 lease agreement before receiving a signed proposal letter. While negotiating lease terms might not be customary or practical atrepparttar 112259 proposal stage, requesting a copy ofrepparttar 112260 lessor’s standard lease along withrepparttar 112261 proposal letter is a good idea. In their standard agreement, look for any onerous or non-standard terms that would otherwise eliminaterepparttar 112262 proposal from consideration.

There are lease provisions that are common to almost all ‘net’ lease agreements, including: 1) prompt payment of rent, taxes and other required payments; 2) equipment & liability insurance; 3) equipment maintenance and upkeep; 4) tracking and reporting relocation of equipment; 5) freedom from any liens or other encumbrances againstrepparttar 112263 equipment; and 6) return of equipment. Less common lease provisions, such as financial covenants or requiring personal guarantees might not be competitive or might result in you rejecting a proposal that is otherwise attractive. Reviewrepparttar 112264 proposal letter andrepparttar 112265 lessor’s standard lease agreement to insure that they are free of provisions that are problematic.

In all cases, it is important that you haverepparttar 112266 right to terminaterepparttar 112267 proposed transaction if you andrepparttar 112268 lessor can not come to terms onrepparttar 112269 lease agreement, especially if onerous terms appear inrepparttar 112270 lease that are not covered inrepparttar 112271 lease proposal.

Conclusion

Snaringrepparttar 112272 best lease deal and relationship need not be like getting a root canal. With a dash of advance planning and a few well defined objectives, you can find a good match. Remember to establish your priorities in making a decision on lease proposals and allow enough time to go throughrepparttar 112273 proposal, lease approval and documentation phases. Also, while lease pricing is usually of utmost concern, make sure you consider other factors that can increase costs or create problems.

George Parker is a Director and Executive Vice President of Leasing Technologies International, Inc. (“LTI”). Headquartered in Wilton, CT, LTI is a leasing firm specializing nationally in equipment financing programs for emerging growth and later-stage, venture capital backed companies. More information about LTI is available at: www.ltileasing.com.


Ten Ways to Save a Bundle on Your Next Lease

Written by George A. Parker


Continued from page 1

6. Manage Equipment Returns

Save a bundle on your lease by managingrepparttar equipment’s return. Although you may not anticipate returningrepparttar 112198 equipment torepparttar 112199 leasing company at lease end, it can be costly if you do. When equipment is returned, most lessors care about and will hold your firm accountable forrepparttar 112200 equipment’s condition. Equipment should be properly maintained and returned in good condition. Make sure that you understandrepparttar 112201 return provision ofrepparttar 112202 lease and that you have good internal controls to adhere to these requirements. Ifrepparttar 112203 lease contains an ‘all or none’ return provision, one strategy is to subdividerepparttar 112204 lease into several smaller lease schedules onrepparttar 112205 front end. Place equipment you are most likely to keep onrepparttar 112206 same schedules. Try to negotiaterepparttar 112207 right to return up to 20% ofrepparttar 112208 equipment (based on original value) atrepparttar 112209 end ofrepparttar 112210 lease, as long as you agree to renewrepparttar 112211 lease or purchaserepparttar 112212 balance ofrepparttar 112213 equipment. Track and save all equipment accessories and documentation.

7. Match Lease Term with Projected Equipment Use

The term ofrepparttar 112214 lease should matchrepparttar 112215 expected use ofrepparttar 112216 equipment as closely as possible to save money. Ifrepparttar 112217 term is too short, cash outlays forrepparttar 112218 equipment might exceedrepparttar 112219 expected equipment benefits overrepparttar 112220 term. Ifrepparttar 112221 lease term is too long, you might loserepparttar 112222 flexibility of upgrading to newer more desirable equipment. Notwithstanding your preferences,repparttar 112223 term allowed byrepparttar 112224 leasing company may depend on their perception of credit risk andrepparttar 112225 expected economic life ofrepparttar 112226 equipment. Any mismatch between your preference and lessor’s can be managed by obtaining favorable end-of-lease options.

8. Identify and Understand All Potential Fees

Leasing proposals vary inrepparttar 112227 types and amounts of fees and penalty charges. Common fees and charges include: commitment fees; non-use fees or facility fees; per schedule documentation charges; attorney fees; UCC financing statements; penalty charges for late rental payments; and early lease termination charges. These are only a few ofrepparttar 112228 possible fees and charges. You can save a bundle by carefully going through each lease proposal and lease agreement to identify and compare likely charges. If fees or charges are significant and likely, they should be incorporated into your pricing analysis. Where possible, especially where one proposal contains fees/charges excluded fromrepparttar 112229 other proposals, try to negotiate these fees/charges.

9. Offer Credit Enhancement to Reduce Lease Rates

In some cases, you can trim lease pricing substantially by offering credit enhancements to improve your firm’s credit profile. Enhancements can include: shorteningrepparttar 112230 lease term, cash or other assets as additional collateral, personal or corporate guarantees, advance rentals payments, and security deposits. Since most credit enhancements involve giving up something of value, do a cost/benefit analysis to determine whetherrepparttar 112231 net benefit is in your favor. If your firm has assets that are not working for it why not put them to work inrepparttar 112232 leasing arrangement. The value of credit enhancements can differ from lessor to lessor, so identify and discuss possible enhancements upfront. Try to assess whether your firm’s credit will improve significantly by credit enhancements and get lessors’ pricing with and withoutrepparttar 112233 credit enhancements.

10. Request Several End-of-lease Options

Ifrepparttar 112234 lease contains a nominal purchase option, there is little need for additional end-of-lease flexibility. Otherwise, flexible end-of-lease options can save you a bundle by preventing you from incurring extra expense. One ofrepparttar 112235 most cost-effective options isrepparttar 112236 ability to returnrepparttar 112237 equipment atrepparttar 112238 end ofrepparttar 112239 lease. If you no longer needrepparttar 112240 equipment, why incur additional charges? Additionally you should haverepparttar 112241 ability to purchaserepparttar 112242 equipment at a fair or reduced price andrepparttar 112243 right to continue leasingrepparttar 112244 equipment at a fair or reduced rent. As discussed, use of caps in fair market value purchase or rental options can greatly reduce potential costs at lease end.

Conclusion

Saving a bundle on your next lease is a cinch if you know where to look. By focusing on a few key areas, you can wring huge savings out of your lease. Remember to set your priorities in evaluating lease proposals and to chooserepparttar 112245 right leasing partner. Also, while front-end lease pricing is usually a high priority, evaluate each lease carefully to sniff out hidden fees and expenses. Don’t be bashful about negotiating points inrepparttar 112246 lease that haverepparttar 112247 potential to save you a bundle.

George Parker is a Director and Executive Vice President of Leasing Technologies International, Inc. (“LTI”). Headquartered in Wilton, CT, LTI is a leasing firm specializing nationally in equipment financing programs for emerging growth and later-stage, venture capital backed companies. More information about LTI is available at: www.ltileasing.com.


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