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EQUIPMENT LEASING COMPANIES IN CANADA
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Equipment leasing in Canada. As a business owner or manager, you prefer to maintain or enhance liquidity, as opposed to cash outflow. Inflow is good, and that’s why asset financing via lease finance continues to be the Canadian business's method of choice for financing assets.
CONSERVING CASH WHILE FINANCING YOUR ASSET NEEDS
More sophisticated and larger companies spend a lot of time on areas such as 'cost of capital' and equity versus debt scenarios. The SME business owner in Canada, probably, on the other hand just wants to know that he or she is conserving cash when it comes to fixed asset financing. It's as basic as that.
While some analysis by either segment of business in Canada (smaller firms / larger companies) may show that a lease might have a higher financing rate as opposed to a loan or cash acquisition the focus preference of most is pretty simple - extra cash flow!
HOW DOES EQUIPMENT LEASING IN CANADA WORK?
Equipment financing and commercial equipment leasing cover the acquisition and lease of tangible assets, although we must point out that intangible assets such as software can be financed also. Companies typically choose to finance equipment through a lease, or sometimes a loan, in order to purchase assets and allow them to make payments over the useful life of the asset.
This type of financing conserves cash and allows a company to allocate cash and working capital resources to other parts of its business, such as funding daily operations.
Lease financing allows your commercial lessor / the leasing company or bank to buy the equipment on your behalf, and ' renting ' / leasing it back to your firm. Interest rates in lease financing are based on your overall credit profile as well as the quality of the asset.
Lessees have a number of options at the end term of lease which is typically negotiated upfront at the beginning of the equipment lease transaction. Whether your firm is leasing machinery for the shop floor or financing computers and software lease lending solutions are the answers to acquiring assets.
Businesses can choose to finance via a capital lease or an operating lease depending on the use of the asset and what lease term and structure best suits the transaction. Knowing end of the lease options is critical to be successful in equipment lease deals.
Operating leases are more focused on using assets, versus owning them. Capital equipment leases are for firms desiring to own the asset at the end of the lease term. Lease payments can still be structured under both scenarios to fit the corporate cash flow budget. The interest rate will dramatically vary on a transaction based on type and term of lease.
CASH FLOW AND WORKING CAPITAL SAVINGS
You certainly don't have to be a sophisticated financial analyst used by the larger corporations to grasp the fact that the extra cash flow and working capital you save by making a lease payment over time can be reinvested in your company to operate and grow your business. So, yes, if your bank line is at 6% and your lease rate is at 8%, as an example because your company can use funds not spent to maintain cash liquidity.
A typical lease payment in Canada via equipment financing has one or two payments in advance, sometimes called a 'down payment‘, or 'security deposit'. A loan scenario might easily involve a 10 - 20% deposit, while at the same time having potential negative tax implications for your firm.
And while yes of course it’s all about 'cash' being 'king’ other aspects such as a longer-term and residual lease structures also make asset financing via lease finance preferable.
Private, non-public companies need to always maintain a strong focus on their overall capital structure, but they don’t really have the same focus as public companies who are generally obsessed with debt to equity ratios because of their public persona and shareholder concerns.
PROPER LEASE STRUCTURING ALLOWS ALL COMPANIES TO GET APPROVED FOR LEASE FINANCING
We must also never forget that some companies simply can’t obtain proper asset financing because of their overall credit situation. That's where lease structuring comes in, and more often than not a transaction can be structured with some creative solution that ultimately leads to financing and credit approval.
CONCLUSION
Credit approval for lease transactions is much easier to qualify for as compared to a bank or term loans due to the competitive nature of the equipment leasing companies in Canada. Companies who take the time to understand all the features and benefits of a lease can utilize these to maximize asset acquisitions. Lease accounting/accounting for leases should be discussed with your accoutant to review various benefits and implictions of an equipment lease transaction.
The leasing industry typically touts ' no money down' for companies that have a solid credit profile - companies with less than perfect business credit can always still achieve lease financing albeit at higher rates or different terms. Numerous tax and accounting benefits come with the lease financing option. Small business and the largest corporations utilize this type of financing for their business capital needs. Although some firms choose to utilize a business loan to acquire assets that will often use up credit facilities that might be used for better utilization of cash.
It's no secret that over 80% of North American firms (we guess that includes Canada!) utilize equipment leasing for their business needs. Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your lease structure needs.
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