This week I wrote a post for Up and Running Blog on “7 Things Businesses Need to Know About Earnest Money Payments in Lease Transactions” In the post, I wrote about pitfalls businesses should be aware of regarding earnest money payments.
Here are four highlights from that post.
- An earnest money payment is sometimes required by an equipment financing company (lessor) from a lessee equal to a fixed amount or one month’s rent as a refundable application fee. The earnest money payment can be called an application fee, deposit, due diligence fee, etc.
- On receipt of a signed lease proposal and the earnest money payment, the financing company (lessor) works with the lessee to gather all the required and requested financial and equipment information, writes an internal credit request memorandum, and submits the lease transaction to the credit department for approval. This information is submitted along with the signed lease proposal, the payment, and any application fee.
- If the lessor approves the lease transaction, the earnest money payment is applied to the first or last rental payment due under the lease. If the lessor declines the lease transaction, the earnest money payment is refunded.
- If specifically agreed in the lease proposal, regardless of whether a lease is approved or declined, a small portion of the earnest payment will be retained as an application or processing fee. Remember not all lessors require an earnest money payment. Be sure to understand any lease proposal you sign.
If you have any questions regarding leasing or earnest money payments, please contact us.