Lease financing is one of the popular ways for businesses to acquire assets in modern times. The many benefits of lease financing, when compared to a cash purchase or even hire purchase, makes it a favorite among businesses.
Lease financing agreements are contracts where the lessor allows the lessee to utilize their asset over a given period. Lessor is the term used in these contracts to refer to the owner of the assets. The lessee is the party that is hiring the items. In exchange for the right to use the asset, the lessee is expected to make periodic payments. However, the lessor remains the owner of the assets. The lessor can even cancel the agreement in a case where the lessee contravenes the terms of the contract or engages in any illegal activity using the hired equipment.
Lease agreement guide – Things to look at
A good lease financing agreement will comprise certain terms as the basis of the agreement. Here are some factors included in a lease agreement.
1. Lease duration
The duration of the lease agreement usually depends on the assets, the hirer’s needs, and the cost of the equipment. If your needs are likely to change quickly, a short duration is desirable.
2. Financial terms
The lease financing agreement also needs to be specific on timelines of payments. This includes when the periodic payments are due and also the last due date for any late payments. Penalties also form part of the agreement.
3. Payment due to the lessor
As a business, before choosing lease financing, there is a need to check your financial health to determine whether you can afford the periodic interest as well as principal payments.
4. Market value of the assets
Before signing an agreement to acquire any asset, there is a need to check its market value. This helps you to assess maintenance or insurance costs to protect the equipment.
5. Cancellation provisions
As part of the lease agreement guide, there is a need to have guidelines for contract cancellation. In most cases, when you opt to cancel the lease agreement, there will be penalties involved.
6. Lease renewal
The lease agreement also ought to contain guidelines on the renewal process when the lease contract expires. In some cases, some contracts have a purchase option at the end of the lease agreement. This means that when you make the given payment you will acquire full ownership of the asset.