Make sure the equipment you are financing is good quality

By | April 8, 2014

financing collateral in good conditionI’ve recently talked about rates and levels of credit risk, and how those levels of risk can affect the rate a person or company pays. But there’s another “risk” that an equipment financing company like mine takes when we finance any type of equipment – what if the equipment is a piece of junk?

Thankfully, that doesn’t happen very often, but I have seen times when a company finances an item, receives it, starts using it, and then they find out what they bought isn’t the quality they expected.

This can be a pretty ugly situation for everyone involved, especially if the equipment manufacturer / seller isn’t very responsive. Because here’s exactly what happens:

Let’s assume company A is the buyer, company B the seller, and company C the equipment financing company.

1)      Company A buys an item from company B. They use company C for financing

2)      Company A, after using the item for a while, discovers it’s not what they expected, or it breaks, or whatnot. They call company B.

3)      Let’s pretend for this exercise that company B is not exactly a bastion of customer service. They basically tell company A “tough – it had a 30 day warrantee – we’ll come out and fix it for a fee.”

4)      Company A yells and screams about this. Then they realized they are still making payments on the item. They retort with “fine, then we’re not paying for it”. But they don’t owe money to company B – they owe it to company C.

5)      Company B, having already been paid in full by company C, is unfazed by company A’s threats.

6)      Company C, who is out the money and is now not getting paid by company A, must clean this mess up. And, if they are anything like my company, they have bulletproof language in the finance deal for this very situation.

Here’s the end result – company A will certainly have their credit rating damaged, will lose the equipment, and may even get sued in collection court (a lawsuit they will almost certainly lose). Company B’s reputation is damaged. And company C (or any other finance company) will never deal with either one again.

Nobody wins. In fact, company A loses hard. When you borrow money from an equipment financing company (or the bank, for that matter), you have to pay it back, even if the equipment isn’t what you expected. The legality of this is clear.

So when you are looking to finance or lease equipment, make sure what you are buying is of sound quality, and the company you are buying it from is one that stands behind what they sell.

More on this next post.

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