Recourse vs. Non-Recourse Vendor Leasing - Is Your Company At Risk?

It is extremely important that every equipment vendor understands the difference between a recourse vendor leasing program and a non-recourse vendor leasing program. It is even more important to examine the impact that each program could have on your company – both now and in the future.

A recourse vendor leasing program is an agreement with an equipment vendor whereby the vendor agrees to purchase the lessor’s remaining financial interest in a lease originated by the vendor, usually upon demand by the lessor, after the lessee has defaulted on the lease.

A non-recourse vendor leasing program is an agreement with an equipment vendor whereby the vendor is NOT required to purchase the lessor’s remaining financial interest in a lease as a result of a default. In other words, the lessor is totally responsible for any losses that are realized from a default -- not the vendor.

A recourse program may result in a higher percent of your prospects’ credit applications being approved and funded, thereby generating incremental profits. However, these profits are not all gravy. A recourse program will also create a future liability for your company that could gobble up those additional profits. Furthermore, this liability can be greater than expected for an equipment vendor that sells their equipment through an independent sales office (ISO). In this case, the vendor has to recover the lessor’s profit as well as the ISO’s profit in the event of a default.

A recourse program also creates a further liability in addition to the obvious loss that may occur as a result of the lessee’s default. The recourse amount may have to be listed as a contingent liability on your corporate accounting statements. The recording of this additional liability could limit your ability to borrow future funds for corporate growth, thereby negating the benefits of generating the incremental profit in the first place.

There is absolutely no question that equipment manufacturers, distributors and resellers should use non-recourse vendor leasing programs as a strategic device to help stimulate sales. However, a recourse program might be needed by a vendor on a limited basis as a tactical tool for a specific situation where there is a sound business reason for assuming the additional liability. In an effort to meet either of these requirements, Capital Resources designs both strategic and tactical vendor leasing programs that satisfy the specific needs of our vendors while eliminating or reducing any future vendor liability.