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  • Writer's pictureRaptor Financial Group

Advice on selecting a lessor

The best advice for selecting a good lessor is to examine the company with the same level of scrutiny that you and your business are subjected to. Give priority to those who are willing to collaborate with your company. This could be reflected in their level of knowledge and experience in your industry, or their willingness to work with you on specific terms.

Depending on the lessor, some fees listed under the lessee's responsibilities, such as application fees and late fees (at least on the first late payment), may be covered or waived entirely.


Also, spend some time learning more about the lessor.


Business information: Look into the lessor's payment history, credit history, business summary, corporate relationships, financial statements, and any public filings.

Pending litigation: Look through public records for any notices of pending litigation.

Payment system: Is it simple, or does it necessitate mountains of paperwork?


Inquiries to Make with a Dealer


Get price quotes from at least three companies before deciding on a dealer, and ask all of the dealers on your list these questions. Half of the battle for getting a fair deal for your company's services and goods is asking the right questions.


  1. How much cash is needed up front? In many cases, lease financing covers the entire cost of an equipment purchase. Loans, on the other hand, frequently require a down payment of up to 20% of the total amount. Consider reallocating capital to cover any upfront costs if a down payment is required.

  2. Who is taking advantage of the tax breaks? Depreciation can be claimed through a loan structure. You will, however, be required to make a down payment, and the interest rate will be higher. The lessor claims depreciation under a lease. It does so in exchange for a lower APR, which is often half that of a loan. If you still want to lease but want to take advantage of the depreciation credit, inquire about financing or capital leases.

  3. Is there any flexibility in the financing terms? When compared to loans, leasing is often seen as the most flexible financing option. You can start with low payments and gradually increase them over time (known as a "step-up lease"), defer payment to give yourself an extra window before the first payment is due, and even add more equipment to an existing lease under a "master lease" structure, depending on the lease structure.


Agreements for lease-to-own


Consider a lease-to-own option if you want to keep the equipment you lease for your business but don't have the cash or credit to buy it. Lease-to-own agreements obligate companies to make regular payments for a set period of time before gaining ownership of the equipment.


There are four main components to a lease-to-own agreement:

  1. The lessee signs a lease agreement with the option to buy the equipment at the end of the term.

  2. The lessor deducts a percentage of each payment from the purchase price of the equipment.

  3. The lessor pays the remaining balance to gain ownership of the equipment at the end of the contract.

  4. Payments and equipment are forfeited to the lessor if the lessee decides not to purchase the equipment.

It's worth noting that if you sign a lease-to-own agreement, your company will almost certainly pay more than fair market value for the equipment. On the other hand, once the payments are made, your company owns the equipment outright.

Lease-to-own contracts typically last the same amount of time as other equipment leasing contracts. The main difference with equipment leasing is that a percentage of your payments are applied to the purchase price of the equipment. If a company cannot afford to buy the equipment at the end of the contract, the lessee can usually request an extension, renewal, or return the equipment.


While many small business owners find lease-to-own arrangements to be convenient, they are not without risk. If your company is unable to purchase the equipment at the end of the contract, you will forfeit the equipment as well as all payments, which can be a significant financial loss for a small business. The most important aspect of this type of agreement is to communicate with your lessor on a regular basis and, if necessary, renegotiate timeframes.

Heavy machinery, production equipment, and any other type of equipment that would normally require a traditional loan are ideal candidates for lease-to-own agreements.


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