Buy Back Guarantee
Residual value protection provides mitigation to exposure for the respective manufacturer, equipment vendor or participating finance company. Residual value protection effectively becomes a Buy Back Guarantee program, meaning this guarantees the owner of leased equipment a particular value at a specified future date, usually the termination of the lease. It covers the difference between the actual liquidated value of property returned to the insured lessor and the expected value of the property.
It is a flexible tool with benefits that range from simple risk mitigation to complex financial objectives such as capital optimization. Finance leasing agreements are provided by finance companies to encourage buyers to invest in new equipment. This agreement sets out the various obligations of both parties: the lessor (typically the finance company); and the lessee (the buyer).