Financing Equipment

4. Which Deal?

Only when you have decided that you want equipment finance, and have some idea of the kind of contract you would like, should you start looking at particular deals. Doing it the other way round can prove expensive.

Although many finance companies - and the dealers they do business with - are highly respectable, some cowboys still operate in this area. If you fall into their hands, you could find yourself legally committed to paying well over the odds for years to come. So be careful.

4.1 Go for quality.

• Make sure the finance companies you deal with are members of the Finance and Leasing Association (see 5.1).Members are subject to a (voluntary) code of practice.
• Choose a company which specialises in financing for businesses like your own.
• You can expect the equipment financing subsidiaries of the big banks to play strictly by the rules. They have to guard their parents' reputations as well as their own.You may find it takes longer to get a decision out of them.
• Manufacturers' own finance companies also have an interest in playing strictly by the rules. But their rates may be less competitive than most.
• Smaller banks and asset finance companies may be more flexible about advancing credit, but some of them might also be less fastidious about the dealers they do business with.Even if the dealer misrepresented some terms of the agreement, the finance company will hold you to the deal.

4.2 Obtain quotes.

• Ask the right questions and get the answers in writing.
• Aim to get at least three comparable quotes before you make a decision.
• At least two should be from companies with a real reputation to lose (see 4.1).

4.3 Check the figures and terms.

• Ask your accountants whether they have expertise in this area and, if so, get them to give you an opinion on the best deal.Your accountants can also confirm whether the finance should be shown on your balance sheet.
• If you have a good solicitor, get him or her to look over the contract proposals, to help you find the most advantageous deal.
• Make sure the name of the leasing company is stated on the contract.
• If service is included it must be shown on the contract. If it is not shown, do not sign it.
• Check that there are no advanced or final payments hidden in the small print.

4.4 Do not sign anything until you are satisfied.

• Unincorporated businesses (sole traders and partnerships) are entitled to some protection from unscrupulous deals, on equipment worth up to £25,000, under the terms of the Consumer Credit Act. But the protection is limited. This protection was extended in April 2008 to cover all consumer credit agreements, regardless of their value.
• In general, the courts take a tough line with people who sign contracts without finding out what they are letting themselves in for. If you have committed yourself to paying too much, you could be held to the deal.

4.5 Be equally careful when it comes to renewals or upgrades.

• You are committed to holding the equipment for the finance company until the end of the arrangement.Before surrendering it for an upgrade or settlement, get the finance company to confirm the upgrade or settlement figure in writing.
• If service is included in the contract and the contract is upgraded there should be no settlement included for the service.
• Check the terms of any rollover or upgrade as carefully as you checked those of the initial deal.
• Make sure any settlement payments are paid direct to the other leasing company or to you, rather than through a dealer.If the dealer goes bust holding the money, you will still owe the finance company.
• Do not let the dealer remove equipment without written agreement from the finance company that owns it (see 2.1).