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8 Things to Know About Medical Equipment Leases

8 Things To Know About Medical Equipment Leases

There’s certain situations in life where, looking back, you wish you knew more than you did before taking action.

Entering into a medical equipment lease is one of those life situations. It is a good idea to be well equipped with information before signing on the dotted line.

What is one thing companies should know about medical equipment leases?

We asked experts and people who have “been there and done that” for their insights. Here are eight things to know about medical equipment leases.

  • Involvement of MD (Medical Doctor)
  • Know That Your Capital Can Be Reinvested
  • Basic Lease Conditions
  • Long Term Contracts
  • Risk of Loss Clause
  • Required Collateral
  • Down Payment Alternatives
  • Purchase Options

Involvement of MD

When we are asked to finance a piece of medical equipment, the lender always asks if a medical doctor (MD) is involved in the operation of the medical equipment. The MD does not have to be an owner of the business, but it’s helpful when the MD is involved in the operation of the business.

Carey Wilbur, Charter Capital

Know That Your Capital Can Be Reinvested

The one thing that companies should know when it comes to equipment leases is that your capital can be reinvested. Lower initial costs associated with leasing means more capital. Instead of an outright purchase that leaves you with negative returns in the short term, leasing medical equipment allows you to avoid a down payment, thus conserving capital that can be reinvested back into your business!

Chris Dunkin, Portable Air

Basic Lease Definitions

Understanding the definitions of terms in medical equipment leases is a necessary starting point when considering leasing equipment. Educating yourself about terms like a “fair market value lease” or a “project financing lease” will help you understand the basic terms of the lease, and may inspire you to ask better questions throughout the process.

Megan Chiamos, 365 Cannabis

Be Aware of the Long Term Costs

In general, there are a lot of similarities with leasing a car. For example, the lease allows you to procure and use up-to-date and maintained equipment, without the initial substantial outlay in cost. However, you also need to be aware of the long term costs of financing your equipment this way, which can substantially exceed the cost of owning in five to ten years.

Michael Alexis, Teambuilding

Risk of Loss Clause

Many leases contain a risk of loss clause that holds the lessee responsible for all risks of damage or loss to the equipment – even those not covered by insurance. For example, if a non-covered natural disaster or event (such as a riot) damages the equipment, the lessee must replace it. Likewise, if a third-party contractor damages the equipment, the lessee must replace it even though it can be years before the contractor’s legal liability is resolved. With many medical equipment devices costing in the millions, this can be financially detrimental to a lessee. Unfortunately, too many businesses mistakenly assume that insurance will cover all losses. This is not true and lessees must carefully consider and negotiate this clause.

Christine Kuntz, Concerto Law

Collateral Isn’t Required

Companies thinking about medical equipment leases should know that collateral isn’t required. Borrowers don’t need a personal guarantee. Instead, the equipment they plan to lease can be used as the collateral. This is important to note because some physicians want to avoid having to put up personal assets as a security. Understanding medical equipment can be leased without risking repossession of personal property can help private practice owners make financing decisions they’re comfortable with.

Nishank Khanna, Clarify Capital

The Down Payment is Lower Than you Think

Concerns over the capital needed to finance equipment that you’ll eventually own is something we hear a lot, leading folks to go the leasing route. The problem is with leasing, you miss out the fact that owned medical equipment counts as a taxable income generator, meaning you may now be eligible for tax deductions, write-offs, and other incentives. This is only possible via financing for equipment ownership though, not leasing or purchasing in full, which few can afford anyway.

Furthermore, you’re building your business’ equity with every payment made. That’s also impossible with perpetual leasing but carries with it all sorts of long-term benefits. So while you court higher up-front costs with leasing, you’re likely making a smarter long-term investment.

Jim Pendergast, altLINE

Purchase Options

The end of a lease typically presents an opportunity to purchase the equipment. The more specific you are up front about the purchase options, the less surprises you’ll have at the conclusion of a medical equipment lease. Make sure you have the option to purchase, renew, extend, or return the equipment at the conclusion of the lease.

Brett Farmiloe, Markitors

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New-Vs.-Used-Business-Equipment-Financing

New vs. Used Business Equipment Financing: 8 Things To Consider

The decision to finance equipment must address one key decision: new or used?

Every business owner evaluates the pros and cons of new versus used equipment. But, every business owner isn’t an equipment financing expert.

To help in making the decision of whether to buy new or used equipment, we turned to other business owners and equipment financing experts for guidance.

Here’s what they had to say about new vs. used business equipment financing.

Low Financing vs. Overall Less Expensive

This is up to the business owner. Sometimes if you purchase new equipment, the manufacturer will offer 0% down or very low financing. The benefit is new equipment at a very low financing cost. Used equipment has its own benefits as well. It’s likely going to be much cheaper than new equipment and even though the financing cost will likely be higher, the savings between buying new vs. buying used could outweigh the financing cost.

Carey Wilbur, Charter Capital

Consider Safety Aspects

Consider any and all safety aspects of the equipment including regulations your company may be required to follow. If it is safer to obtain new equipment, such as vertical transportation like an elevator or lift, then that is the smart choice. However, used equipment may be sufficient for other purposes if you are looking to cut expenses.

Pete Newstrom, Arrowlift

Length of Time

Consider the length of time that you will need the equipment. The longer you will need it, the higher the likelihood that you will require new equipment. Though there are always exceptions. The opposite is also true–the shorter you will need the equipment, the more that used equipment will likely fulfill your needs.

Rex Murphy, American Pipeline Solutions

Determine the Purpose of the Equipment

Consider whether new or used equipment will satisfactorily meet your needs in terms of safety, useful life, and quality. There isn’t a clear answer to this question, so you must understand that each choice has its own pros and cons. If you need equipment solely to get the job done, used equipment could be your ideal choice to cut costs, but safety standards change frequently and may require the financing of new equipment instead.

Peter Babichenko, Stomadent Dental Lab

Account For The Unexpected

I purchased new Herman Miller Aeron chairs for our entire office last year. The purchase was the largest investment in equipment that we made as a company. Flash forward a few months after the purchase, and we go remote for the foreseeable future. After that experience (and selling several of our new Aeron chairs on OfferUp), I’ll always consider used equipment first before new equipment. Account for the unexpected when considering new versus used equipment.

Brett Farmiloe, Markitors

Ask For Money Back Guarantee

European Denture Center operates one of the largest denture laboratories in the state of Idaho, allowing us to provide our patients with a selection of state-of-the-art dental materials. Each of our appliances comes with a money-back guarantee, which means that investing in new equipment is critical to making sure we are offering dental appliances made using the latest dental technologies and materials. If you base a business on the quality of products, then financing new equipment typically tends to have more “pros” than investing in used equipment.

Henry Babichenko, DD, European Denture Center

Consider the ROI

How long will it take for the equipment to pay for itself? Is the equipment essential to business operations, or is it merely an accessory or a convenience? It also depends on the level of risk you are taking. If your business is experimental, you may want to consider leasing equipment until you are established.

Anna Caldwell, Accredited Debt Relief

Older Equipment is Difficult to Have Serviced

I prefer purchasing brand new equipment because even if it comes with a higher price tag, it is worth the expense in many circumstances. Your business should consider certain options for buying new equipment:

  1. Older equipment is difficult to find parts for or have serviced
  2. The new equipment will deliver a strong return on investment
  3. The equipment will suit a range of requirements
  4. An extended warranty is available
  5. You know the product will be reliable and long-lasting

Bryan Kesler, CPA Exam Guide

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7 Things to Know Before The Paperwork

Small Business Equipment Loans: 7 Things To Know Before The Paperwork

For many entrepreneurs, it can be overwhelming to think about all the elements needed to get your business off of the ground. Oftentimes, things like rent, furniture, technology, etc. add up and require a huge initial investment on the owner’s part. Because of this financial burden, many look to small business equipment loans to help give them a boost!

Although these financing options may seem tempting, it is important to ask the right questions before signing any paperwork. That is why we sat down with seven small business leaders and asked them what you should know before moving forward with any equipment loan. Keep reading to learn the tips and tricks from people who were once in your shoes!

Early Payoff Language

You’re going to pay more for the equipment when you finance it than if you paid for it out of pocket. This is obvious and every small business owner knows this, but it can be a mental challenge for a small business owner that is used to having no debt and paying for everything up front. For a small business owner that typically pays cash for equipment, when signing equipment finance paperwork, you should know what the early payoff language is. Make sure you know what the calculation will be should you decide to pay the loan off early.

Carey Wilbur, Charter Capital

Exhaust All Other Resources

Before signing the dotted line on an equipment loan, business owners should make sure that they have exhausted all other resources. While getting an equipment loan can be a good financial option for some, equipment leasing may be a better choice, especially for those who are just starting their business adventure. Equipment leasing will allow new business owners to avoid a large down payment and ease the struggle of getting loan approval. Leasing means that business owners can get to using their equipment right away without having any holdups or having to put down a large sum of money.

Rex Murphy, Montauk Services

Research Given Interest Rates

Before signing off on an equipment loan, make sure that you have done thorough research on the interest rate you are being offered. Be sure to look into how close that number is to the median percentage for an equipment loan and also check in with other lenders to see what they are offering. Interest rates make a huge difference on a loan and it is crucial to make sure you are being given a fair rate.

Vicky Franko, Insura

Terms of Agreement for Damages

Understand the terms of the agreement when it comes to any damages. While not common, severe damages to equipment do happen and you must know how they impact your agreement. What are the terms of the warranty? Are you eligible for repairs? Do you need to replace the equipment? Conditions for situations like these tend to be an afterthought but could end up costly if you don’t understand them. No one should enter into an equipment loan without proper legal review of the loan documents.

Dan Reck, MATClinics

The Marketing Plan

The marketing plan after the paperwork is something that often gets overlooked by business owners financing new equipment.

“Great, you’re now the proud owner of XYZ equipment! How are you going to produce a positive ROI on your new investment?”

Having a marketing plan to execute after receiving equipment can help justify a deal and align your expectations with realities.

Brett Farmiloe, Financial SEO Company

Early Payoff Penalties

Know the terms of your loan and don’t be afraid to ask a lot of questions. If possible try to secure a better interest rate by putting money down and find out if there are penalties for paying off the loan early, should you be in a position to do so.

Anna Caldwell, Accredited Debt Relief

Net Present Value of Equipment

Each piece of equipment costs something. You need to figure out if a $100 purchase will make you more than $100 in the future. How much time will it save you? How many more orders will you be able to fulfill if you get one more machine? How much profit are you going to get? Answer these questions and you can figure out if you are making a smart decision.

This can be done by using Net Present Value, or determining how much money you are going to make in the future and subtract the cost of the purchase today from that number. For example, $100 equipment that lets me make 1 more order each month for $10 in profit will be a good purchase if my equipment lasts longer than 10 months ($10*10 = $100 total profit. $100 cost – $100 profit = $0 Net Present Value).

Layton Cox, Marketing Consultant

9 Things Small Businesses Can Finance With an Equipment Loan

9 Things Small Businesses Can Finance With an Equipment Loan

When you think of financing equipment, what do you think of? Forklifts? Cranes? You probably consider all kinds of heavy machinery, but there are other types of equipment you can finance that a small business may use.

To understand what some practical pieces of equipment are that small businesses can finance with an equipment loan, we’ve asked 9 thought leaders to share their recommendations.

Computer Hardware and Software

My company has financed computer hardware and software as well as furniture.  We are not an equipment intensive business, so there are not a lot of opportunities for us to finance equipment.  We have paid cash for computer equipment and furniture in the past, but decided to finance the last time around.  Financing made the decision to go with higher end computers and furniture an easier choice. Of course they are more expensive, but financing them allowed us to spread the cost out over time. 

Carey Wilbur, Charter Capital

Office Furniture

Startup companies supporting remote workers or in-office employees need comfortable office chairs and technological equipment. For our company, we made the decision to equip all employees with Herman Miller Aeron chairs to support our belief in workplace wellness. Yes, it was our largest purchase ever made. But, we invested in an undervalued element of a workplace so employees could literally and figuratively feel the support. 

Brett Farmiloe, Carpet Cleaning SEO

Heavy Machinery

Given our industry of work, we frequently use several types of heavy machinery. Equipment loans have proved helpful when a water pump used for pigging has completed its useful life and we need to replace it. The key here is to finance equipment that is crucial to your business operation rather than equipment that just makes you “look good.” 

Rex Murphey, Montauk Services

Inflatable Obstacle Course

We see interesting requests come through all the time. It inspires me to see entrepreneurial creativity going on in this country every day. One of the most interesting finance requests I remember seeing was for the purchase of an inflatable obstacle course. This thing was huge, the gentleman applying wishes to set it up as a tourist attraction on his backyard lake. Last time I checked, the business was booming and it had been a massive success.

Ethan Taub, Loanry

New Products for More Market share

We have recently financed the purchase of a new product which we anticipate will enable us to capture more market share in our second largest customer segment. We took into account the projected impact of this product and weighed it against cost before making the decision to pursue an equipment loan. Ultimately, we believe that this investment will be well worth it.

Chris Dunkin, Portable Air

Printer

A perfect item to finance at the moment is a large scale and professional work printer. They are the needed item that you don’t want to buy at the moment because of the simple fact the world is moving towards being paperless in a bid to be green and stop global warming. Printers do have a limited lifespan left, so why not invest in financing while you work out how and when your business will go fully paperless so that when the time comes, you can just return it, instead of being lumbered with an out of date piece of equipment

Andrew Roderick, Credit Repair Companies

Dental Equipment

Equipment loans can be extremely helpful when you are trying to get your business off the ground. Using the loan for big ticket items, like the machines we used to create our dental prosthesis, is a smart way to help your business move forward. The loan can also be used for scanners and technological equipment that would otherwise take a business months to save for. 

Henry Babich, Stomadent Dental Laboratory

Laptops and Software

In today’s society, it is important to give the customer the best experience from the start of the sale up to the end. Therefore it is good to invest in quality laptops and software to make the customer more inclined to purchase our product. It is important to use high quality video presentations, and graphical information to better explain to the customer the capacity of our product. People are visually oriented, no matter how little we change our methods and tactics, every little bit counts to ensure that a deal is made at the end of the day.

David Meltzer, East Insurance Group LLC

Lab and Medical Equipment

The basic necessities that businesses need don’t come cheap. It is critical that a startup business be sufficiently capitalized that it can invest the required money to get off the ground. There may be some items, however, that are suitable for leasing or funded through an equipment loan. We have avoided purchasing some expensive lab equipment by entering into leasing agreements with vendors. Ultimately, it comes down to the cost of borrowing versus the opportunity cost of the capital that could be used elsewhere.

Dan Reck, MATClinics

 

10 Equipment Financing Tips For Startups

10 Equipment Financing Tips For Startups

Running a startup is, in itself, a challenge. You might have minimal experience or be low on funds. You might even need to purchase equipment for your startup. Being new to the world of equipment financing can be daunting, with so many different options and risks to take. How do you know you’re making the right choice?

We asked ten business execs, “What is your best tip for startups who seek financing for equipment?” Below you’ll find advice to guide you in the right direction in the world of equipment financing.

 

Be Prepared to Share

Be prepared to show lots of information, both personally and on the business. Even the most well thought out startup businesses are risky. Lenders have historical data that shows that most startups don’t make it to year two. A good credit score won’t get you all of the way there. If you can show past, current, and future financial information, budgets and a well laid out business plan, you’ll help to put a lender’s mind at ease.

Carey Wilbur, Charter Capital

 

Find Someone Who Actually Wants to Help

When researching financing companies for business equipment, search for a company that will give you a dedicated account manager that will work with you to find the best option for your startup. This will ensure that you receive the equipment leasing solution that makes sense for your unique situation. In addition, do what you can to avoid a personal guarantee. If the equipment has the value the salespeople suggest, they should be able to finance it on the back of the equipment value and not based on your personal balance sheet.

Dan Reck, MATClinics

 

Utilize Your Personal Credit Score

If your brand new business doesn’t have a credit history of its own yet, you can use your personal credit score to qualify for an equipment loan. As with most types of lending, a better credit score usually entails better loan terms.

Denise Gredler, Best Companies Arizona

 

Develop a Reasonable Revenue Forecast

Equipment leasing is always a viable financing option. Purchasing an expensive piece of equipment might not make sense for your startup. Try to forecast the amount of revenue you will realistically generate before signing on the dotted line. Sometimes it will make more sense to rent the equipment or lease. In an equipment lease, you pay rent to the equipment over an agreed-upon duration of time. At the end of the leasing term, the equipment is returned to the owner if you decide to end the lease.

Rex Murphey, Montauk Services

 

Create a Rock-Solid Financial Plan

You will need to present this plan to the lender for an assessment of the financial viability of your business. The plan should include the startup’s future growth potential, and projected annual revenue. You should also include how many years you have been in the industry as this demonstrates your understanding of the industry. Lenders are more likely to fund equipment for startups with leaders that have experience in the particular field.

Joe Bailey, My Trading Skills

 

Learn the New System Fast

Get a good lawyer, a good banker and find out how to play within the new system fast. The money that’s being handed out is flying off the shelves and oversight will be hindsight. Work with people who have proven results in helping clients get financing, especially on a short timeline.

Noah Wisnia, Head of Talent

 

Be Resourceful and Go Without It

Do you really need it? Can you solve your problem another way? If you take on a few hundred thousand or million, it’s your problem when it doesn’t work out. If you take on a few hundred million or billion, it’s their problem if it doesn’t work out. Since most startups are the former, not latter, I would avoid it and go without. Be resourceful. Find another way or find another idea worth doing that doesn’t require it.

Chris J Snook, Launch Haus

 

Borrowing Too Much or Too Little Can Break You

Small business owners need to be very careful with the amount they are seeking to borrow. You want to borrow the amount you feel is necessary to accomplish your goal with a reasonable margin of safety to account for the chaos happening in the world right now. Trying to borrow too much will make it harder to get a loan and cost you more in interest. Trying to borrow too little can put you in a dangerous position months from now when you need more money but can’t obtain it.

Adam Sanders, Successful Release

 

Build Your Startup’s Business Credit

Though it might seem like a no-brainer, the better your business credit, the better the terms you’ll be able to secure when you’re looking to finance essential equipment. After your business has been established as a separate legal entity, you can build credit with financial tools like trade lines and business credit cards. Be sure to manage all forms of business credit wisely, keeping up on all loan payments and knocking out your credit card balances in full each month in order to help maximize your business credit scores. Plus, avoid using too much of your credit lines to help keep your overall credit utilization low.

Sean Messier, Credit Card Insider

 

Lean on Your Local Community

When seeking financing for equipment, lean on your local community. More often than not, other local businesses would love to help you get that financial boost. Asking for sponsors in your surrounding area will normally generate some sort of financial help and you can always ask those who do help you to spread the word and see if they know anyone else who is also willing to help. 

Alexes Jones, Startup SEO Company

8 QUESTIONS TO ASK EQUIPMENT FINANCING COMPANY OTHER THAN, “WHAT’S THE RATE?”

8 Questions To Ask Equipment Financing Company Other Than, “What’s The Rate?”

Are you looking to take out an equipment loan? Financing equipment can be a challenge. Between finding the right equipment and dealing with contracts, there are so many options to choose from. Before you do so, it’s important to have the right information.

We asked eight thought leaders to share which questions should you be asking your equipment financing company other than “What’s the rate?” to ensure you get the best possible deal for your business.

 

Look at the Monthly Payment

In addition to the rate, the monthly payment is as, or more, important.  Rate is an obvious question and no one wants to pay a higher rate than they have to, but Cash Flow is King.  If the monthly payment works for you, and your ROI is satisfactory, then the financing will make sense for you regardless of what the rate might be. The buyout is very important as well. Is my last payment really my last payment or is there a buyout I have to make after my last payment?  Better to know now vs. knowing later.

Carey Wilbur, Charter Capital

 

What Size Companies Do They Support?

If you are a small business owner, make sure you ask “Do you support small and mid-sized businesses?” Some equipment financing companies only prefer working with large enterprises, because they are generally less risky and more profitable. Do your research beforehand to find a company that best fits the size of your business. 

Blake Murphey, American Pipeline Solutions

 

What’s Their Average Turnaround Time? 

Make sure you are not going to work with a company that will drag their fit and continuously put off deadlines. After meeting, they should commit to evaluating your application within a day, and upon approval, they should have the funds in your account within a few weeks. 

Jonathan Cohen, Generated

 

What Information Do You Need to Provide?

Ask your financing company upfront what kind of information they need about your company to move forward in the process. This will give you time to collect documents such as profit and loss statements, balance sheets, and bank statements to make sure there are no bottlenecks holding up the process. 

Ryan Nouis, TruPath

 

Know Who You’re Dealing With

Lots of equipment leasing companies will go on at length about the number of satisfied clients they’ve serviced but will be unable to provide actual concrete references to that effect. Protect yourself and your business by requesting the contact information for a cross-section of their current and former clients. Once the information is provided, contact the names and determine for yourself their level of satisfaction with the company. Don’t be afraid to look up the company name on review sites and other internet sources. Doing thorough research now is preferable to paying through the nose on an equipment lease or loan with unfavorable terms or services.

Blake Taylor, Synergy Business Brokers

 

Ask About Their Qualifications

You should be asking about their credentials and skills. Ultimately, you should be paying the best people to work with who know exactly what they are doing. Their rate may be reasonable but always dig deeper.

Andrew Roderick, Credit Repair Companies

 

Be Aware of Financing Limitations

It’s important to make sure you’re aware of any limitations on the financing you’re seeking, including if you’re able to purchase from the vendor of your choice, as not all financing companies allow this. You should also inquire about the repayment options, such as how long they’ll allow you to make the repayment in full, ensuring that this is in your best financial interests.

Anna Barker, LogicalDollar

 

Understand The Loan Guarantee

It’s important to fully understand the terms of the loan. The most important loan term to understand is the loan guarantee. Some lenders will only use the equipment purchased as collateral. However, some may ask you to secure the loan with other business assets or even with your personal assets.

Axel DeAngelis, NameBounce

 

Always Ask for Options

Never let anyone convince you that you only have one choice in financing your equipment. There are a variety of plans, leases and loans available for businesses with a variety of needs. Make sure you don’t pick an option that’s apparently “one-size-fits-all.” This will help you make the best choice for your company’s needs with the means you have and avoid spending too much.

Aidymar Berrios, Financial Services SEO Company

 

equipment financing definition

WHAT IS EQUIPMENT FINANCING AND LEASING?

Unsplash

When a small business wants to obtain new equipment, there are a couple of different ways to do so. You have the choice to either lease or finance an equipment acquisition.

For many years, the two methods were very different from an accounting standpoint. However, due to recent changes to the Generally Accepted Accounting Standards, financing and leasing are now quite similar. Although the differences are subtle, understanding them allows you to make the best decision when your business needs equipment.

For an equipment financing definition that’s straightforward and relevant to your business, take a look below!

What is Considered Equipment for a Business?

Now that we’ve established a foundational understanding of business equipment, we can discuss the different ways to obtain it. One option is to finance the equipment. So what is equipment financing?

Equipment financing is a process in which a business takes out a loan to purchase a piece of equipment. When the business enters into the loan agreement, they agree to make periodic payments on the equipment (including interest) until the full amount is paid. Once the loan is paid, the business owns the equipment outright.

The company providing the equipment financing loan will mitigate the risk of lending by requiring some form of collateral. In some cases, the equipment will suffice. So, in the event that you cannot make payments on the loan, the lender will take back the equipment. In less common cases, lenders may require you to put up a business or personal asset as a form of collateral.

The equipment financing definition above is helpful, but it’s easier to understand in terms of a real-world example.

Many businesses don’t have the ability to pay large sums for the necessary equipment. Equipment financing lets a business secure the tools they need and break payments up into manageable amounts that it can pay back over time.

What is Equipment Leasing?

With a solid equipment financing definition down, let’s turn our attention to another common question: what is equipment leasing?

An equipment lease is similar to equipment financing. The major distinction between the two is who owns the equipment.

When you lease, the leasing company owns the asset and allows you to use it for a monthly fee. Generally, at the end of the initial term of the lease, the asset ownership converts to you for a nominal fee, usually $1.00.

In other words, with a loan, you are paying back the money you borrowed to purchase the equipment. The equipment is yours. With a lease, you are paying the owner of the equipment who is allowing you to utilize it. The equipment is not yours until you pay the full amount to the company that you’re leasing from. However, not all leases guarantee transfer of ownership over to you.

If you choose to lease, be sure that you carefully read the document that pertains to ‘equipment ownership’ and what you must do to advise your leasing company of your intent to buy the equipment at the end of the lease term.

After decades in the industry, we have seen many leases and financing agreements play out. In our opinion, financing is much cleaner and safer than leasing. However, each business is different. We can help you understand the benefits and risks of each option as they relate to your company.

Simplify Your Equipment Search at Charter Capital

Both equipment financing and equipment leasing accomplish the same thing; they allow you to add the equipment you need to grow your business or simply replace an asset for a fixed monthly expense. Charter Capital provides businesses in a wide range of industries with access to the financing and leasing agreements that work for them.

Let us put our decades of experience to work for you. If you would like more detail on this, reach out today. We’ll gladly answer your questions.

FEES, FEES AND MORE FEES

Today there are fees for just about everything we do and in the business environment many are justified and many are simply a way for a company to make extra revenue. Banks and other commercial lenders are notorious for their fees, many of which are not disclosed to a borrower until they are signing loan documents.

We believe you should know what fees are being charged and what they are for. We’ve compiled the fee list below so the next time you apply for a commercial lease or loan you’ll be a little smarter.

• Documentation Fees – this is a fee most commercial lenders charge for preparing a set of documents. Most lenders will charge between $150 and $200 and sometimes higher due to the complexity of a specific situation. Some commercial brokers double or triple this and keep the difference.

• Inspection Fees – this is a fee for doing a physical inspection of the asset once it is in place in a customer’s facility. It protects the lender and the customer and generally costs between $150 and $200. Some commercial brokers increase this amount and keep the difference.

• Application Fees – only a few companies charge Application Fees and it’s simply a way to make more money.

• Search Fees – if you are financing a piece of equipment that was acquired from a private party seller rather than an equipment vendor or if you have had possession of the asset for more than 15 days a Uniform Commercial Search is generally required to verify the lender’ lien is a priority and not subject to any preexisting liens. The cost of such a search can vary from state to state and on the number of pages in the resulting search.

• Credit Checking Fees – only a few companies charge Credit Checking Fees and it’s simply a way to make more money.

• Success Fees – this is a fee that is negotiated between you and the lease/loan broker and generally represents his fee for finding you a lease or loan. It is generally dependent upon the amount of the asset cost and should normally range from 2% of the equipment cost for transactions over $500k to 5% of the equipment cost for transactions under $500k. Remember these fees are negotiable.

• Commitment Fees – this fee is given to a commercial lease or loan broker or lender to insure that you will accept and complete a lease or loan under a specific set of terms. This is generally accompanied by a Commitment Agreement which is a document that states the amount of the borrowing, the repayment terms, who will guaranty the obligation, and any contingencies. If the broker or lender performs and provides an approval in accordance with those terms and you decide not to proceed with the lease or loan the Commitment Fee will be retained. If you are not provided with an approval as detailed in the Commitment Agreement your fee should be returned. READ THESE DOCUEMTNS CAREFULLY.

• Titling Fees – these fees are usually reserved for the financing of titled vehicles. Amounts depend upon the type of vehicle and the state in which titling takes place

• Processing Fees – only a few companies charge Processing Fees and it’s simply a way to make more money.

• Miscellaneous Fees – which can be almost anything and it’s simply a way to make more money.

When applying for any lease or loan ask the lender to enumerate any and all fees or charges. Remember fees and charges are generally negotiable.

We offer this informational document as our opinion based on over 40 years of experience in the commercial finance industry and suggest that you to use it as a part of your decision making process. As with all important decisions, especially financial decisions, we also suggest that you consider all aspects carefully and consult with your attorney or accountant or other party who is knowledgeable about financial matters when considering entering into a legally binding agreement.

INTERIM RENTS

Interim rent was originally conceived to compensate commercial lenders for the time their funds were invested beyond the traditional 30 days for the next first scheduled monthly payment of a lease. This concept is also employed in consumer real estate loans when ‘extra interest’ is charged for the days between an existing loan being paid off and the new loan becoming due. At its core this concept makes sense. Let’s assume a lender funds a loan or a lease on the first of the month and the next payment is scheduled on the 15th of the following month. Most lenders’ original calculations assume that payments will be made every 30 days and in the scenario above the first payment was actually due in 45 days. There are 15 days that the lender does not have the use of their funds and for which time they are not being compensated. So the logical solution is to pay the lender ‘interest’ at the same rate as the loan or lease is structured at for the extra 15 days. Seems fair but that’s not what’s being done by most commercial lenders.

Most commercial lenders will charge a proportional percentage of the full monthly payment (including interest AND principal) that corresponds to the percentage of a month the extra time the funds will remain outstanding. In the example used above the 15 days is one half of a month (30 days) so the lender charges an additional one half payment which not only includes interest but principal as well.

Example;
• 36 month loan for $100,000
• At 6% the repayment is $3,042 per month
• 6% interest for 15 days on a $100,000 loan is ¼% or $250.00
• The typical interim rent charged is ½ of a monthly payment or $1,521.00

And that’s an extra $1,271.00 out of your pocket and into the lenders pocket and rather than paying 6% for the extra 15 days you are really paying 36%.

We offer this informational document as our opinion based on over 40 years of experience in the commercial finance industry and suggest that you to use it as a part of your decision making process. As with all important decisions, especially financial decisions, we also suggest that you consider all aspects carefully and consult with your attorney or accountant or other party who is knowledgeable about financial matters when considering entering into a legally binding agreement.

EVERGREEN CLAUSES

When you enter into a leasing agreement or other financial contract, it’s crucial to know exactly what you’re signing up for. While an evergreen clause may look standard and harmless, it is a loaded financial tool that can potentially harm your finances.

Protecting yourself and your business from detrimental financial deals begins with getting informed. That’s why we’re discussing what an evergreen clause is and how to examine evergreen contract language before signing on the dotted line.

Read on to learn about evergreen financing and how it affects a business.

What is an Evergreen Clause?

The evergreen clause is a masterpiece of deception used by some leasing companies, brokers and commercial lenders. Unlike a typical contract that expires after a certain date, an evergreen clause ensures that the agreement is automatically renewed after each completion maturity period until one of the parties terminates the agreement.

Each party that enters into the contract must fulfill its obligations for as long as the contract remains active. Because evergreen clauses can last for an indefinite amount of time, they pose a significant risk to the parties entering. Still, these clauses do appear in certain equipment leasing contracts.

For a deeper look into how an evergreen clause works, read below.

How Does an Evergreen Clause Work in Equipment Leasing?

In equipment leasing situations, a lender will provide the customer with a fixed price option to purchase the asset being leased once the contract’s initial term has expired, and the customer has made all payments. In other words, the customer has the option to buy the equipment once the lease period is over.

This is usually negotiated before the customer has committed to the lease and is generally part of the customer’s economic evaluation and ultimate decision. The customer is even given a separate document demonstrating that they have the right to purchase the asset for a specific price, usually $1.00.

At the end of the initial lease term, the customer will either remit a check for the additional $1.00 or other fixed-price purchase option and send it with their final payment or inquire what they must do to obtain a clear title to the asset.

This is when the BAD NEWS is usually disclosed. In either situation, they may find that buried in the fine print are requirements that the customer should have NOTIFIED the lessor of their intent to exercise their option and that notice should have been made in a very specific way and within a very specific time period.

So, a customer that believed they would be walking away owning the equipment after the leasing period is shocked to find out that they still do not legally own the equipment. But how can this happen? Let’s examine the contract language below.

Examining Evergreen Contract Language

The agreement language usually requires the customer to send a CERTIFIED letter to the lessor notifying the lessor of their intent to exercise the option. That letter must be received by the lessor less than 90 days and not more than 120 days prior to the lease’s expiration.

Typically this language is ‘hidden’ in one or two separate sections of the lease, and only when read in conjunction with each other does it become clear what must be done to exercise the option. If the customer fails to do any of those things exactly as outlined in the lease, the lease automatically renews for an additional 12 months and the customer is legally bound for 12 more payments than they originally contracted for.

Assuming the lease’s original term was between 36 and 60 months, the customer can end up paying between 26% and 38% of the original asset cost in additional payments. THAT’S IN ADDITION TO ALL THE INTEREST AND PRINCIPAL THE CUSTOMER HAS PAID FOR THE LAST 3 TO 5 YEARS.

How to End an Evergreen Contract

If you are poring over evergreen contract language and trying to find a way out of your agreement, there are a few options open to you. For details on canceling an evergreen contract, read on.

Utilize Renewal Periods

Each evergreen clause includes a renewal period that ranges from 30-90 days. During this time, a party can move to terminate the contract. However, if neither party cancels the contract during the renewal period, then both are locked in for the set length of time that the contract lays out.

In other words, the renewal period is the brief window in which an unsatisfied party may make a change. If they miss the deadline, they’ll have to wait until the next period rolls around.

It is a possibility that the other party may not agree to the cancellation. This complicates matters and may result in a legal battle to end the contract.

Work Out a New Contract

An alternative way to end an evergreen contract is to renegotiate the terms. In this case, both parties must agree to new contract terms. Then, the new contract nullifies the old one. The likelihood of negotiating more favorable terms depends on your unique financial situation.

Nevertheless, this is not a guaranteed way of getting out of the contract. If an agreement to amend the terms is not reached, the original contract will still be in effect. In the case that each party approves a new contract, you’ll still be in a binding agreement with the other party.

Risks of Evergreen Financing

Exiting a contract with an evergreen contract is seldom as simple as it seems. It is not uncommon for parties to forget the renewal period date and miss their window to exit completely.

For example, suppose the evergreen financing agreement specifies two years of enforcement before a renewal period opens. In that case, a business may file the contract away and forget when the two year period comes to an end. The business then misses the window to terminate the evergreen contract and must abide by the contract requirements for the next two years.

Another risk of entering into an evergreen financing agreement is not being aware that it is in the contract. As discussed in the previous section’s example, a business owner may believe that they own the equipment after the lease period. Unfortunately, they find out all too late that the lease automatically renews based on their failure to follow the contract’s fine print.

With so much at stake, steering clear of evergreen clauses altogether is a safe option.

Have a Financial Expert on Your Side

Finding the ideal financing solution for your business requires knowing what to look for in a contract and avoid. Evergreen clauses are one of many tools that lenders have at their disposal to rope businesses into undesirable agreements.

Fortunately, you have a valuable tool in your reach as well. Charter Capital has over four decades of experience in the equipment financing industry. Our family-owned and operated business works for you, not for the banks and lenders.

Connect with us today to discover new financing options from trusted lenders across the country. Let us put our expertise to work for your business.


We offer this informational document as our opinion based on over 40 years of experience in the commercial finance industry and suggest that you use it as a part of your decision-making process. As with all important decisions, especially financial decisions, we also suggest that you consider all aspects carefully and consult with your attorney, accountant or other party who is knowledgeable about financial matters when considering entering into a legally binding agreement.