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A Lease in Escrow is a situation whereby a Lease is established and set to become effective only upon the fulfilment of certain conditions by the equipment Supplier. There are two ‘flavours’ of Lease in Escrow: Letters of Credit and Progress Payments.
Letters of Credit
A Letter of Credit (LC) is the perfect instrument for those looking at imported equipment. It is a financing arrangement whereby The Leasing Centre establishes for our Client a Lease on the equipment to be imported. This Lease is used as security to establish an LC, which is effectively a ‘promise to pay’ the Supplier upon presentation of appropriate documentation.
The Client pays interest only charges once the LC is drawn down, until receipt. Upon receipt of the equipment, the Lease is called into effect and Lease payments begin.
This is an ideal situation for a client who is awaiting imported equipment – it provides the overseas supplier with the effective security to provide the equipment, and provides the Client with the knowledge that they will not be overly exposed to unfulfilled Supplier promises
Progress Payments
A Progress Payment arrangement is similar to an LC, except is used in situations where progress payments are required at certain milestones during the equipment manufacturing and supply process. This instrument is particularly relevant where the equipment is constructed within Australia.
With the Progress Payment product, a Lease in Escrow is established between the Client and The Leasing Centre. The Leasing Centre again uses the Lease as security, and upon completion of the agreed milestones (stages in the production, delivery and implementation process) we pay the agreed progress payments. Again, each progress payment attracts an interest only charge (not a full Lease payment). Upon completion of the agreed milestones, the Lease is called into effect and full Lease payments begin.
Again, this gives the Client the peace of mind that they are paying only a nominal interest charge rather than incurring the full progress payment, and the supplier has a payment guarantee.
An Escrow arrangement can be established for a Lease, Commercial Hire Purchase or Rental facility. The relevant benefits of each facility still apply.
Click here for a comparison between CHP, Finance Lease and Rental
The Leasing Centre's expert staff will work with you to build a solution to allow you to secure the equipment you need to build, modernise or revitalise your business. We tailor each equipment finance strategy specifically to the needs and capacities of each client - our solutions are designed to effectively help bridge the gap between needs and budgetary constraints.
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