Small-business owners often rely on leasing for the equipment they need, from trucks to restaurant ovens. It’s a way to get set up without having to pour in a lot of cash. The pandemic upended many of those small businesses’ plans. In the process, it has fueled bitter clashes between owners and leasing companies, the Wall Street Journal reported. The culprit is a provision in most lease and finance contracts that binds owners to make years of monthly payments, no matter what happens to their business and even if the equipment doesn’t work or is returned. The industry calls it the “hell or high water clause.” Equipment and vehicle leases totaled about $160 billion in outstanding balances in 2019, the newest available number, according to the U.S. Consumer Financial Protection Bureau. The volume of leases and finance transactions under $250,000 increased by nearly 15% in 2021 from a year earlier after dipping slightly in 2020, according to the Equipment Leasing and Finance Association, an industry group. Many leasing and finance companies are arms of equipment makers such as Deere & Co. and Caterpillar Inc. or of big banks. As of June 2020, about three months after the start of the pandemic, leasing and finance companies had deferred payments on 15% of their equipment-finance portfolio, according to an analysis of data collected by the Equipment Leasing & Finance Foundation. By September they had an average of just 4% of their portfolios in deferral, said the analysis, done by consultant Tom Ware. Comparable figures for bank lending are hard to come by, but many small-business owners say their banks showed more flexibility, as federal bank regulators urged. Bank of America Corp., for one, deferred payments on 20% of small-business credit-card balances and 14% of other small-business loan balances.
