Three Traps to Avoid When Financing or Leasing Equipment for Your Company or Business
Author: Thomas Tolman
"Trap One" is commonly referred to as the “proposal fee”. This is usually collected at the beginning of the transaction along with an application and/or financial statements are submitted for approval unless there is a clear understanding in writing, as to the disposition of these monies, a customer should never, I repeat, never give money to a leasing company BEFORE they are approved, in writing. Is the message beginning to reflect a trend? This is probably the biggest area of abuse by leasing companies in the industry. For reasons best known to the customers, they consistently give money up without having a firm commitment in writing. Let me pose this question. Would you make a house payment to a mortgage company until/unless you were approved for the loan, in writing? Enough said on this one. "Trap two" is unwittingly or unknowingly being forced to do business with a leasing company that cannot accommodate your type of transaction because of its unique nature, i.e., credit requirements; equipment type etc. It never hurts to ask a company for referrals BEFORE the process begins. In all likelihood, you will end up with “good” referrals; at least you can get an idea of whether the company has done a transaction similar to yours. It’s easier to do this initially rather than “midstream”. An example of this would be if the requirement was for a “software only” transaction. Not every funding source can accommodate these and it’s good to know in advance if they can or cannot. "Trap Three" involves the use of a proposal letter as a marketing tool by the leasing company. Frequently, and particularly on larger transactions, a leasing company will indicate that they cannot or will not process a new application without a signed proposal letter and/or proposal fee. This letter will frequently spell out proposed terms as well as request supplemental information needed in an attempt to gain approval. It’s critical for a customer to realize that it is a proposal as opposed to a commitment which is exactly that. Many companies represent a set of terms or an “offer” in order to entice you to conduct your transaction with them. And yes, they may even want you to give them money in advance of the approval (please see my advice on this above) which outlines what the final terms of the transaction will be.
About the Author:
Tom Tolman has worked for such major companies and institutional lenders
As Avis, U.S. Leasing International, Xerox Credit Corporation, Ford Financial
Services, Inc., and HSBC Business Loans, a subsidiary of Hong Kong
Shanghai Bank. Involved in various upper level sales, marketing and credit
Management capacities, he has been directly responsible for the financing and leasing of over 100 million dollars worth of equipment in his career.