If that last sentence confuses you (and it very well might), please read my previous post regarding blanket liens. And yes, I know you and I personally aren’t trading in our trucks (I rather like mine) but go with it.
Ok, we’re at the dealership, and find out the truck we thought we owned free and clear had a lien on it. So now what happens?
Well, first of all, whomever the dealership has financing your truck (let’s just say it’s the dealership itself to make it simple) needs to call the bank and ask permission to do the trade in. And the bank, depending on what other assets your company has, may or may not grant that permission. But let’s assume that yes, they grant permission. Yay, we’re done with the blanket lien now, right?
Nope. Because not only does the blanket lien cover the assets you had at the time of the Digital Super Widget lease, it also covers future assets. Like your new delivery truck.
But that presents a problem. See, the dealership was going to give you a nice rate, and to protect their interests, your new truck was going to be collateral. In other words, if you don’t make truck payments, the dealership comes and takes it (which is pretty normal, right?) But the bank that wrote your Digital Super Widget lease has first dibs. So the dealership has to agree to get the bank to give up interest in that asset. Or, the dealership needs to agree to get in “line”. In other words, if your company goes belly-up, the bank gets to sell your assets first until their loan is settled. Then the dealership comes in…
It goes without saying that the dealership is not happy about being second. So that’s going to affect the rate they give. Oops.
In my equipment financing career, I’ve seen these blanket lien lines go five, six, even seven companies deep. They all get in line for “dibs” to your assets, even assets totally unrelated to the original piece of equipment you purchased, and even future assets.
I’ll end this the same way I did my last post – it’s better to simply avoid blanket liens altogether. Go with an equipment financing company that doesn’t use them. Then, your unrelated (and future) assets are yours to do with as you please.