How to Avoid Equipment Lease Scams

by Kit Menkin

(The National Federal of Independent Business requested a 400 word article on “…tips you have for how small business owners can avoid equipment lease scams.” Here is what I wrote.)

Most of the complaints received at Leasing News regard getting a deposit back when the lease does not go through. Most do not read the documents that have legal and not legal wordage such as what is retained in a lease when they cannot get you an approval “from their underwriter.”

My best advice: Visit their web site to see if they belong to a leasing association, then contact the leasing association to verify they are members. It is more than being a professional, it is having the ability to make a complaint, or perhaps the company was expelled from the associations and no longer belongs. If they don’t belong to any leasing association, don’t do business with them.

You should treat the leasing company as you would do a customer who wants credit from you: ask them who is going to fund the lease, and ask for a bank reference. If they say their own money, still ask them for a bank reference. If a large leasing payment (you decide what that is in your budget), have your attorney call them or review their proposal. It may cost you a few hundred dollars, but will save you quite a bit as you won’t chase $5,000 or even $10,000 out of state as the court and attorney fees will be higher than that, and most state attorney generals consider such claims from business people as “civil disputes.” A consumer complaint will get attention, but a business complaint will not.

Here are acceptable commitment letters:
http://www.leasingnews.org/Conscious-Top%20Stories/Engagement_letters.htm

The next biggest complaint is about the purchase option. Some companies change what they originally promised, even not providing the proper signed option, signed by both parties (yes, they send you the contract but the one you get back is different, especially the option not signed). If you don’t have it signed by them in writing, you are going to pay “fair market value.”

Third is the “Evergreen Clause,” which is legal in 45 states, that if you do not notify the leasing company, often by certified mail, 90 days before the expiration, the lease automatically continues for six months or 12 months. With ACH or those who don’t count payments, you could wind up paying 48 months for a 36 month lease, even with a $1.00 buyout or 10% or even an Equipment Finance Agreement.