Equipment Leasing Lease Financing Asset Leases Solutions

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Equipment leasing in Canada. Ever made a big mistake in lease financing of asset leases in Canada? We're going to take a wild guess and say that mistake may have in fact involved the documentation on your transaction.

For those new clients at 7 Park Avenue Financial asking ' what is an equipment lease ' we keep it simple - if only because it is. It's an agreement between you and the leasing company allowing you to use the asset until you have paid for it, at which point typically the ownership of the asset returns to your company , having used the asset of course for the duration of the lease term.

12 months of a lease term are recorded as a current liability, and your account may choose to depreciate the asset also.

How does equipment leasing work? The actual 'papering' and documentation around your lease is a lot more important than many Canadian business owners and financial managers might think when considering equipment leasing in Canada.

THE PITFALLS OF ENTERING INTO THE WRONG KIND OF LEASE

Let's take a short, but much needed walk down the path of types of equipment leasing helping you sort out the pitfalls of entering into the wrong type of lease issues. The reality is there is a standard process pretty well around every asset lease you enter into.

PICKING THE RIGHT LEASE OPTIONS FOR YOUR COMPANY

We're assuming you have picked the type of lease you feel best suits your transaction - that might be a capital, operating, or short term rental transaction. The lease process simply involves ensuring that the purchase of the asset is properly done by the lessor and your vendor. In some cases, it might be that you are the vendor, that situation of course revolving around a ' sale leaseback ' scenario .

The whole process of equipment leases is completed by payment for the asset by the lessor, execution of the documents and commencement of payments. Lessees can quickly confirm lease payments via an online leasing calculator

That all sounds pretty basic right? The reality though is that there are three types of lease financing companies in Canada. Their type of operation depends really on their size and market focus. In general, they can be called: small/medium and large ticket firms. And depending on which type of firm you are dealing with a whole separate level of documentation and issues need to be addressed.

SMALL TICKET LEASING IS ALSO AVAILABLE

In today’s case, small is good, that’s because small ticket equipment leasing in Canada is simple and efficient. It generally consists of one or two-page lease documents and covers assets under 25k size. More often than not the simple lease document covers off the rights and obligations of each party - That’s you and the lessor, as well as incorporating your acceptance of the asset for lease commencement. Nothing could be simpler.

Small ticket leases tend to be capital leases, ie a lease to own strategy while operating uses are typically used when considering large assets under a lease to use type concept. Lease payments tend to be very manageable and fit into your firm's capital budget and cash flow processes. The lessor will typically purchase the equipment and pay your vendor, and monthly payments under leases commence when you acknowledge receipt and acceptance of the product.

When we travel up the lease 'food chain' and enter the mid ticket asset leases category we're talking about a different kettle of fish. Oh, and by the way, general this category caps out at 500k to 1 Million dollars, depending on whom you are talking to. Small business is a high user of lease financing in Canada.

USING THE CONCEPT OF A MASTER LEASE

Many firms you deal with in this 'mid' ticket area prefer a single Master lease, at which point individual schedules can be added later. As challenging as it might seem some time we do in fact recommend that to clients because it simply becomes much easier to add other leases down the road - in effect you have already agreed to all the key terms and conditions and don't have to renegotiate them.

DO YOU NEED A LAWYER TO REVIEW YOUR LEASE? SPOILER ALERT - MAYBE!

Is there a lawyer in the house? We're referring to the fact that when it comes to large ticket transactions you can assume a very 'custom' approach. This is not cookie-cutter leasing and we typically see both the lessor and your firm having lawyers negotiate some of the critical terms of the lease, for the obvious reason that it's often a multi-million dollar transaction that presents a potential risk to both the lessor and you the lessee. The' end of the lease' issues is always a key consideration that should be contemplated at the start of your leasing decision.

CONCLUSION

All types of assets can be leased - that includes technology, software, rolling stock, machinery, construction equipment, office equipment, etc. Capital leases, aka ' lease to own' transactions are recorded on the balance sheet and payments are expensed under normal accounting rules in lease accounting.

While some point out some potential disadvantages of lease financing such as cost, the interest rate, and the potential to obtain a loan instead of a lease history has pointed out that over 80% of companies in North America lease assets for a variety of benefits including cash flow management, conservation of existing credit lines, and fighting the risk of obsolescence in assets beyond their useful economic life. No company wants stranded assets on the balance sheet.

Don't underestimate the need to understand the types of leases available when leasing equipment in Canada, as well as the type of lease you are entering into, and the documentation that comes with that transaction.

Speak to a trusted, credible and experienced Canadian business financing advisor for help in lease financing in Canada.