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The difference between fixed term and minimum term business finance agreements

Guest post by: Al Shea

Article Overview: Are you confused by all the different types of lease agreements out there? This article covers off one very important point to most finance agreements, whether they are a fixed term or minimum term, and the associated differences.

The difference between fixed term and minimum term business finance agreements

The small print of a finance agreement can be several pages long, and it is very important that you take the time to read through the small print, as it details all the charges, notice periods, your obligations as the lessee and much more. Only sign the finance document if you are 100% happy with the terms and conditions, as once you have signed a finance agreement there is very often no cooling off period and you are then obliged to make your payments for the full duration. There are typically two types of term with a UK finance agreement, those being fixed term and minimum term.

Fixed Term:

This means that your lease document is for an agreed fixed period of time, after which point you will either return the equipment to the funder or you may be given the option to buy title to the equipment for an additional payment and that will complete the lease.

Minimum Term:

This means that your finance agreement runs for a minimum term and can continue after the minimum term if you don't give the required notice to the funder, typically 3 months in writing. This is where reading the small print comes in handy because if you don't give your notice the finance agreement can continue into a secondary rental period whereby you continue to rent the equipment from the funder at the same monthly payments until you give notice and then finish your payments in line with the notice period (if it's 3 months, that's another 3 months payments you'll need to make). You can't simply stop paying either, as that could then affect your credit.

So to be safe, read the small print, it may work out perfect for you that the agreement continues after its minimum term and you are happy to continue renting the equipment, but if you don't and 3 years down the line the member of staff who signed the paperwork has left and no one is on top of all the monthly payments coming out of your business account, you could find yourself out of pocket by needing to pay many months of extra rentals when you really didn't need to - just because you didn't give notice. Once these payments have been made, you cannot claim them back from the funder. Most funders use minimum term documents, so to avoid any issues simply make sure you give the required notice within the timeframe and all will be fine.

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Article Tags: business finance, finance agreements, important point, lease agreements, term business



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