Charter Capital

Policies

Just about every leasing company has internal policies regarding how they treat Commitment Fees, Purchase Options, Early Terminations and other events that they perceive as non-origination income opportunities. Generally these policies are treated as confidential because they are not customer friendly and present a unique opportunity for leasing companies to earn extraordinary income.

We clearly state our policies because we believe that the more our customers know about us, the fewer surprises there will be and the better our chances of doing business together.

Nominal Purchase Options
Commitment Fees
Early Terminations
Advance Rents and/or Security Deposits

Nominal Purchase Options
Charter writes leases on two separate platforms, broker and discount. From the lessee’s perspective the platform we use should make little difference since we retain the residual rights to the equipment being leased in most cases.

In those instances in which we have retained the residual rights and have agreed to a nominal ($1.00 or $101.00) residual option, we require that the Lessee perform their responsibilities under the Lease agreement in accordance with the terms of that agreement in order to exercise that option. Simply stated, this means that the Lessee has the right to purchase the equipment being leased at the end of the initial lease term for $1.00 or $101.00 PROVIDED they make their lease rental payments when due and have not otherwise committed a default of the lease agreement.

If a lessee hits a bump in the road and made a payment or two a little late please don’t worry as we will honor our commitment to allow them to purchase the equipment for the agreed upon price. However, if the lessee has made several payments late or the account has required an unusual amount of collection activity then they are jeopardizing their residual rights and may, in fact, forfeit that right.

Why do we do this? Because we, and our lending partners, want our customers to perform in accordance with the terms they agreed to. This means, among other things, making their rental payments on time. Our lending partners evaluate our relationship, in part, on the overall performance of our portfolio. Every account that is delinquent or otherwise troublesome adversely affects that evaluation and may influence the rate we are charged on future transactions or that lending partner’s willingness to approve a wide range of credit profiles.

Commitment Fees
Commitment fees are charged in most cases to insure that a customer is serious about the transaction that they have inquired about and that if the transaction is approved under specific agreed upon terms, they will proceed to finalize the transaction through us.

Unfortunately, it is becoming increasingly more common for an applicant to shop approvals rather than doing their homework before making application. We object to this practice because we expend our time and resources to complete our credit investigation, our credit evaluation, our lender presentation and in some cases complete the Lease documentation only to have the customer use our approval to get a lower rate from another broker or leasing company or to simply change their mind about the acquisition.

Not only have we done a great deal of work we will not be compensated for but we have potentially wasted our lending partner’s time. Furthermore, our lending partners track the ratio of submissions to approvals and approvals to actual fundings. Every time we approve a request and fail to complete that transaction we are diminished in the eyes of our lending partner. This can affect the rates our lending partners charge us, the range of business they will actually approve for us and possibly whether or not they will do business with us at all.

Please note that if we proceed to approve and document a financing request and our customer authorizes the paperwork and returns them to us together with their check for the advance rentals, those funds are considered earned whether the lease is finalized or not.

Early Terminations
One of the most common questions asked by our customers is: “Is there a Pre-payment penalty if I pay my lease off early?” That’s a good question but it’s not really what the customer wants to know. The question they should ask is: “Will I get a rebate of unearned finance charges if I pay my lease off early?”

Our answer is: Maybe.

Most equipment leases are non-cancelable and require the lessee to make each and every payment in the amount agreed upon in the Lease, a legal and binding contract. Since Charter Capital is a broker we fund our leases with a variety of lending partners. The decision whether or not to grant a rebate rests with them and to a large degree depends upon payment history, the length of time the lease has been running, the length of time it has yet to run, and the overall rebate policy of that lender. Although these don’t differ greatly, there may be subtle differences in calculations. It is our policy to extend to our customers any and all benefits realized as a result of their early termination of a lease transaction provided the lessee has complied with the terms of the prevailing lease agreement. In simple terms, we will give you any rebate we receive relative to your lease if you pay it off early.

Advance Rents and/or Security Deposits
Typically a Lease will call for the first and last rentals to be paid in advance and in most cases even before the Lease is actually consummated. Sometimes these payments are characterized as Advance Rents and sometimes as Security Deposits. From the Lessee’s perspective there is little difference except they might benefit from a blind reduction in rate when these are characterized as Security Deposits. From the lender’s perspective there is a significant difference in the way they are accounted for. When the lender collects Advance Rents the funds are considered income and therefore taxable. When a lender collects a Security Deposit it isn’t income therefore the lender has use of the funds without any tax liability until the Security Deposit is converted to Rents at the conclusion of the initial lease term.