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.

---

True Tenant Tales, Volume One

Working with tenants can be an amazing experience. (Owners and... Read More

Lease Contracts - The Meaning of Joint and Several

When you see the phrase "joint and several" in a... Read More

Ten Ways Start-ups Use Venture Leases And Loans To Generate Millions

The rise of venture leasing and lending has created an... Read More

Getting Your Venture Lease Approved

Each year venture capitalists fund more than 2,500 start-up companies... Read More

The Lease And Purchase Option

If you have an investment property, should you rent it... Read More

Dodging Leasings Grim Reaper: Navigating a Payment Default

In her third Harry Potter novel, ?The Prisoner of Azkaban?,... Read More

Using Equipment Leasing as a Competitive Weapon

Most great generals know how to design winning battle plans.... Read More

Smart Car Leasing for Beginners

Car leasing is extremely popular because it provides an attractive... Read More

How Venture Leasing Added Millions To A Startups Equity Value

Craig Berman beamed noticeably after completing his board presentation. Berman,... Read More

Equipment Leasing Blunders That Can Cost Your Firm a Mint

Rod McHenry, the financial vice president of a document imaging... Read More

Leases And Tenants - The Spooky Tenant

You, Mr. Landlord are pleased to find qualified tenants for... Read More

Terms to Know Before Leasing A Vehicle - Leasing Jargon Simplified

So, you've decided that you want to lease that next... Read More

Venture Leasing: Startup Financing On the Rise

According to Pricewaterhouse Coopers, investment by institutional venture capitalists in... Read More

What Happens When the Anchor Tenant Moves and You Are On a Ten-year Lease?

Recently there was an article in the Houston Business Journal... Read More

Landlord Tips And Tricks

Every real estate investor dealing in rental homes has done... Read More

Increase Your Business Growth and Cash Flow Through Equipment Leasing

"If it can be manufactured, it can be leased." For... Read More

Pricing Your Apartments

How do you fix a price point for an apartment?... Read More

Interim Rent: Equipment Leasing?s Trap Door

Many lessees enter into lease transactions that they believe are... Read More

How To Choose An Equipment Leasing Company

Leasing has become a preferred form of equipment financing, accounting... Read More

With a Lease, The Devil Is In The Details

In the last article we looked at a few of... Read More

Basic Things You Should Know About A Lease Purchase Contract

What exactly is a contract?By definition, a contract is an... Read More

Explore An Effective Revolutionary Approach To Traditional Business Financing

For business owners who need working capital now there is... Read More

Ten Ways to Save a Bundle on Your Next Lease

According to the Equipment Leasing Association ("ELA"), U.S. businesses lease... Read More

Venture Leasing - A Smarter Way To Build Enterprise Value

In 2003, venture capitalists and investors dispensed over $18 billion... Read More

So You Want to be a Landlord?

The residual income from owning rental properties may bring more... Read More

The Leverage of the Lease

In today's rapidly changing business environment it makes sense to... Read More

Warning - This Lease Might Explode Any Minute

Mike Caringi, owner of a small New Jersey business that... Read More

What to Consider Before Leasing a Car

Some people choose to lease a car rather than buying... Read More

Lease or Buy? That is Always the Question with Car Financing

Leasing is a perfectly viable and legitimate way to finance... Read More

Ten Equipment Leasing Tips - Save a Bundle on Your Next Lease

According to the Equipment Leasing Association ("ELA"), U.S. businesses lease... Read More

Insiders Guide to Snaring the Best Lease Deal

Every year, thousands of business owners and financial managers are... Read More