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Warning - This Lease Might Explode Any Minute
Mike Caringi, owner of a small New Jersey business that sells
pumps, found himself facing a gut-wrenching dilemma last summer.
Should he continue paying $ 1,500 each month for essential
telecommunications services he no longer receives and for leased
equipment he claims was never installed? Or, should he stop
making payments and face a potential lawsuit from the firm that
financed the equipment under a 'hell or high water' lease? Mr.
Caringi's company is one of several thousand small companies
around the country reeling from the bankruptcy of Norvergence, a
reseller of telecommunications and Internet services. At the core
of the quagmire facing Mr. Caringi and others is that Norvergence
succeeded in getting customers to sign separate lease and service
contracts that provided its services.
When Norvergence abruptly shut its doors, it left thousands of
its customers scrambling to replace telephone and Internet
services while they were obligated to shell out over $ 200
million in lease payments to Wells Fargo Financial, CIT and 30
other leasing companies over the next five years.
How can you protect your company from being victimized in a
similar situation? Certainly, most transactions involving
equipment leased in connection with a related service carry some
degree of risk. You can reduce that risk by taking certain
precautions. First, where possible, avoid leasing equipment when
the equipment is proprietary to a service. The chances are that
you will be stuck with the equipment if the service provider
fails. Make sure that the leased equipment has an underlying
value that justifies the lease. By doing a present value
calculation of all payments owed under the lease agreement and
comparing that value to the fair market value of the equipment,
you can see whether the lease value is reasonable.
Check to see whether the equipment is used by similar service
providers, in case you need to switch services. Finally, make
sure you can resell the leased equipment in the after-market, if
necessary. As a last resort, you may be able to cut your losses
by having the ability to buy-out the equipment from the leasing
company to be resold to someone else.
Perhaps, one of the best protections against getting stuck
with service-related leased equipment is to thoroughly evaluate
the service provider before proceeding. Make sure the service
provider is financially sound and has a long track record of
providing excellent service. If possible, ask for and review
financial information on the service provider. Do an Internet
news search to make sure there are no troubling stories about the
service provider. Be partial to services that offer equipment
under contracts that tie service and use of the equipment
together, such that your obligation to pay is conditioned on the
service being provided.
Lastly, since these transactions always carry some risk, make
sure that an abrupt interruption in the service will not have a
material negative impact on your company or cause financial
hardship.
George Parker is a Director and Executive Vice President of
Leasing Technologies International, Inc. ("LTI"), responsible for
LTI's marketing and financing efforts. A co-founder of LTI, Mr.
Parker has been involved in secured lending and equipment
financing for over twenty years. Mr. Parker is an industry
leader, frequent panelist and author of several articles
pertaining to equipment financing.
Headquartered in Wilton, CT, LTI is a leasing firm
specializing nationally in direct equipment financing and vendor
leasing programs for emerging growth and later-stage, venture
capital backed companies. More information about LTI is available
at http://www.ltileasing.com.
MORE RESOURCES:
S&P keeping eye on US transit agency leasing dealsFXstreet.com The Foreign Exchange Market, Spain - Nov 5, 2008WASHINGTON, Nov 5 (Reuters) - Credit rating agency Standard & Poor's is keeping an eye on transit agency bonds, especially as some agencies are at risk of ... |
News Briefs - 11/10Daily Record (subscription), MD - Nov 11, 2008She “will be responsible for administering leases, leasing space to new retailers, supervising and directing personnel, and preparing the annual budget for ... |
Houston Chronicle |
US expands geothermal energy planHouston Chronicle, United States - Oct 25, 2008By H. JOSEF HEBERT AP Susan Walsh AP "Geothermal energy is replenished, is a renewable resource that generates electricity with minimal carbon emissions . ... |
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