Interest rate will fluctuate from lease to lease depending upon a number of factors including: personal credit of borrower, dollar amount of equipment, type of equipment, the type of business applying for the lease and the time that the borrower (company) has been in business.
Personal Credit of Borrower
Everyone with a social security number begin establishing credit from the first time they use a credit card or sign a cell phone contract. One’s entire credit profile is easily accessible by creditors. As you might know, if a borrower has a poor credit history due to late payments, collections accounts, unpaid parking tickets, judgments, tax liens, bankruptcy, etc., they might be approved with limitations, high rate or not approved altogether.
Dollar Amount of Lease
Generally as the dollar amount increases, rates drop. Each funding source has its own rate chart. These charts display dollar amounts at which rates decrease. Typically the rates will drop at $15k, then again at $40k, and then again at $75k. This will vary from company to company.
The Equipment Being Leased
Equipment leasing companies have restrictions on certain equipment types; depending upon resale value of equipment, its life, etc. For example, forklifts and heavy machinery will last for 10 years or more, while other equipment such as computers are only valuable for 36 months before they are obsolete. Equipment that is over 7 years old usually will have a higher interest rate.
Type of Business Applying for the Lease
Equipment leasing companies also restrict certain types of business due to the nature of the industry. For example, leasing companies usually have difficulties finance health clubs and restaurants due to the high turnover and low success rate in the business. Therefore, these businesses and others that are similar pay higher rates when they do get approved for a lease.
Time in Business (TIB)
This is a huge factor in leasing. Most businesses must be in business at least two years to qualify for standard leasing interest rates. If they have less than 2 years in business, there are leasing companies that will still approve them. The lease approval for a startup business often commands a higher interest rate to offset the risk involved in funding a brand new venture.
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