Is credit important on a leaseback? Yes, credit is important for a leaseback. The vast majority of funding programs are concerned with the ability and the willingness of the borrow to repay.
Many times, potential borrowers ask, there’s enough collateral there, why do you need to look at my credit? On a leaseback, the collateral may even be Real Estate, or valuable Industrial or construction equipment. If the borrower defaults, what does it matter.
It is not the lenders desire for the borrower to default. In fact, it is typically the last thing they want. If the borrower defaults, now the lender has to reposes the equipment. Then they have to hire an outside vendor to liquidate the collateral. By the time this is all done, the lender has often taken a substantial loss. The lender would much rather the borrow simply repay the monthly payment. The lender earns their interest, the transaction is fully paid and the lender moves on.
These are the reasons why credit is looked at. If the collateral is valuable, weak credit may not be a make or break issue for the lender. With valuable collateral, the lender’s primary interest in looking at the credit is to make sure the potential borrower does not have current past due credit.
As a result, it is clear that credit is important on a leaseback. However the transaction may be approved and closed even if the credit is not good. The Equity in the Asset may override the need for good credit. These decisions are at the discretion of the Lender.
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