Is it time to modify my equipment lease agreement?

One of the most important attributes your company can possess is an ability to remain flexible, respond to changing trends, industry disruptions and internal growth. In an ever-changing world, your business will need to follow suit or risk falling behind competitors.

Because of the constantly shifting landscape you operate in, it's a good idea to regularly review your financing options to determine whether it's time to modify any existing leases or other financial contracts. 

According to ELFA's 2016 Survey of Equipment Finance Activity, equipment financing increased 12.4 percent during 2015. Within this sector, construction represented 12 percent of all financed equipment, while agriculture accounted for 9 percent.

Captive financiers comprised 30 percent of funding sources, the second-highest draw in this category, representing a 3.3 percent year-over-year rise for this sector.

Further, new business volume growth surged in all market segments.

With so much growth underway, it means your company should also be capable of changing when necessary. Taking a moment to review your leases can potentially save your company money and keep operations flexible to respond to the ever-changing business cycle.

What can I modify within my equipment lease?

Equipment leases from a captive finance company are typically designed with built-in flexibility that benefits you.

You can buy a piece of equipment that allows for different end results - almost like a "choose your own adventure," story. For example, while you might sign a purchase agreement based off a 60-month finance lease, you are not always locked into this decision. As your business grows and adapts to the market, you might find that your needs have changed. After 36 months, you then have several options to pick from, including:

• Purchasing the machine outright
• Returning the equipment to the lessor
• Continuing with the current lease

This flexibility keeps you from being weighed down by terms that may no longer suit your business. After all, a lot can happen over the course of 60-, 36- and even 12-month periods.

In another example of the flexibility you get with leasing options, Early Purchase Options make it easy to modify your current agreement. This allows your company the ability to fully purchase the equipment and terminate the lease early. 

Other operating lease options include:

• Lowering your monthly payments by having a higher end-of-term purchase amount.
• Returning the leased equipment back before the predetermined date
• A TRAC lease that offers lower monthly payments through a higher end-of-term purchase amount.

Having a variety of options is crucial to ensuring your business does not get boxed into a corner and instead has the freedom to navigate with the best possible option. Discuss your options with your local dealer to better understand the flexibility within your current lease agreement.

How do I know when to modify my lease?

Unfortunately, there is no single answer for when to consider modifying your current leasing arrangements. However, there are several signs you can follow to help you determine when it is the best time to do so.

One indicator that it's time to review your lease agreements is on the anniversary of when you obtained the new equipment. Every 12 months, step back and review how the equipment fits in your current business model and whether it's helping you reach your next growth milestone. You might find that it would make more sense to alter your current arrangement, either by switching from a long-term lease to outright purchasing the equipment, or vice versa.

Another signal that might suggest it's time to modify is following a major upheaval in your company. Whether that involves moving into a new space, reaching a predetermined business goal or a management shake-up, rapid scaling or operational overhauls are the perfect time to review your current obligations and leases to see where it's possible to make changes that reflect the new reality.

Cat Financial offers you a wide range of equipment leasing options that provide the flexibility you need to grow your business at a rate that best suits your company. Check out our leasing options and request more information today.