As we all know, the economy has had its ups and downs (mostly downs). Well, these ups and downs may affect companies who have leased equipment and the equipment lease term is coming to an end. Perhaps when they signed the equipment lease a few years ago, they didn’t realize the economy and/or sales would be at the levels they are now. Which means owners of expiring equipment leases have a decision to make:
- Take the buyout. Depending on the equipment lease terms, there may be a buyout. The company takes the buyout, and they own the equipment. However, what may have been seen as a manageable buyout in 2007 might not be so manageable in 2009.
- Return the equipment. This is obvious, but can be difficult if you are using the equipment
- Lease new equipment. Ok, maybe you want to return the equipment and lease something newer. Fine…. but many companies don’t really want to replace something that is working fine. There are many companies caught up in this right now – they don’t want to return the leased equipment, but the lease buyout isn’t an option in 2009 either… what to do?
- Extend the lease. Many equipment leasing companies will be happy to extend your lease. This allows you to keep the leased equipment, and keep the lease payment you’ve been accustomed to.
However, with the above, I want to extend a note of caution – you do not want to extend the lease too far. That’s because the leased payment was based on the residual value of the equipment. If you can, try and negotiate a new payment based on the value of the equipment right now (not a few years ago).
Of course, the equipment lease company may not extend the exact residual value you want (after all, you have to understand that they are doing you a favor by extending the lease terms in the first place), but it warrants a conversation at the least.
Ok, I’ll be on vacation for a bit (going on a cruise). See you in a few weeks!