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Leasing Payment Terms

“Depending On Your Business, There Can Be A Variety Of Payment Term Options”

The most common form of lease repayment,  similar to any type of loan or mortgage, is a monthly repayment of the principal and interest associated with the lease outstanding.

But there are also other potential payment options that can apply to your particular business.  The key is that they make sense to the lender as well as your own cash flow.

For instance, it is possible to get quarterly, semi annual, and annual lease payment schedules.

You may be able to arrange monthly payments for your “in season” period and no payments out of season.

Repayment terms other than monthly are most common with seasonal businesses such as farming, road construction, and so on.

From the lease company’s point of view, the most important thing they are going to be looking at when considering a payment term other than monthly is the historical proof of how your cash flow comes in.

This is typically done with bank statements showing large amounts of deposits in one part of the year than another.

This can also be supported by contracts and statements of account from customers that are paying you at certain times of year.

In addition to the timing of lease payments through out the term, there are also other payment aspects that can also be adjusted or modified as well.

For instance, when you first sign up for a lease, there may be options to delay the first payment by one or two months, assuming there is a rationale for doing this.

Also, during the lease term, if there is a cash flow crunch you may be able to defer one or more payments for a series of months with a plan to catch everything up in the near future.

The amount of the payment can also be adjusted by what we refer to as a balloon payment at the end of the lease.

Depending on the applicant, the amount of financing, and the asset involved, there are leasing companies that will allow 35% to 40% of the principal amount of the purchase price to be deferred for repayment until the end of the lease term.  Balloon payments are usually classified as operating leases if the balloon amount is at least 10% and capital leases if less than 10%.

This can potentially reduce the lease amount considerably during the term which will benefit the cash flow of the business.

Getting back to payment interval, if a leasing company is going to accept something other than monthly, its likely that the industry you are working in will also be factored into the equation.

For instance, if you are working in an industry where the standard for payment is throughout the year, then it’s very unlikely that a non monthly payment option will be extended.

 

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