Equipment Financing Leasing Lease Finance 7 Park Avenue Financial

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AND CAPITAL LEASING OPTIONS! 

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Equipment financing decision in the New Year - but the good news is that lease finance may well be one of the easier finance decisions you might have to make in Canadian business financing choices.  The trick - be well informed. Let's dig in

Naturally you don't have to finance the new assets or technology that your company requires. That situation brings up the issue of what is known in business as the 'lease vs. buy' conundrum.  In some cases you want to own the equipment at the end of your lease - other times it's all about using and returning it.

Those two scenarios - owning or renting the asset are in effect the two 'flavours' of lease financing in Canada - capital leases and operating leases respectively.

Operating leases tend to be very attractive to your firm if your overwhelming desire is to 'use' the asset, not to 'own' the asset.

Equipment leases and equipment financing in general is clearly the alternative to bank financing or taking out a term loan for the equipment. Most businesses in Canada time and time again tend to utilize equipment financing in many cases simply because it is easier to get approved as well as you tend to be in a position to close the financing in a much shorter time frame .

While banks offer lease financing through their 'leasing' divisions, or even simple term loans for asset finance the general consensus is that  bank financing takes longer to approve, and may well come with some restrictive covenants.

The true power of leasing equipment comes from the fact that companies of all credit quality qualify for approval. And by the way, even used equipment can be financed. Firms that might not have stellar credit still utilize lease financing - in most cases the rate might be higher or the transaction will require some 'structuring'. In certain cases certain assets may be better leased/financed via a firm that specializes in that type of equipment or industry.

We should also mention that almost any asset in Canada can be financed, from high end costly industrial equipment leasing all the way to something more esoteric as computer software.  The fundamental precept of lease equipment financing is that the asset itself is the main collateral for the loan.

Key in presenting your lease application is the ability to demonstrate how the asset will benefit your business and that your firm can handle the monthly payment obligation that comes with the lease.

The two concepts that a lessor looks at is primarily cash flow and your overall debt position versus equity. This basic concept is known as sale leaseback financing.

Much is written on the key advantages of leasing - at the end of the day they can be summarized as follows:

-           Your ability to acquire the asset you need while removing the key obstacle of 'cost’

-           Term - You want to be in a position to match the term of the lease with the expected useful life of your asset acquisition

-           Tax advantages - talk to your accountant, as in many cases it is more advantageous to lease rather than purchase or take out a loan

- Payment flexibility - payments can very often be matched to the seasonality and cash flows of your business

Is there a bottom line for your asset acquisition plans in the new year? It is simply that you should consider lease financing as a key component of your Canadian business financing toolkit.

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your asset financing needs.

Stan Prokop