Content area
Abstract
Lessors have to work closely with vendors to ensure information and support if a lessee defaults. They should enter into a lease only when the vendor's responsibilities are defined in advance in some form of recourse agreement. Under a recourse agreement, the seller of the equipment agrees that, if the customer defaults, the seller will make the bank whole. A standard recourse agreement provides maximum protection for the lessor. Limited recourse, which restricts the term of the vendor's guarantee, is available for only a defined period of time, usually at the beginning of the lease. Typically, the first-loss agreement allows the vendor 90 days to sell repossessed equipment and remit the balance to the lessor. Limited recourse pools cap the vendor's liability. In shared-loss agreements, the lessor and the vendor share the loss. Documentation for shared loss varies with each application, vendor, or type of equipment.