YOUR COMPANY IS LOOKING FOR FINANCE LEASES AND EQUIPMENT LOANS!
EQUIPMENT LEASING
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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EMAIL - sprokop@7parkavenuefinancial.com
Yes, in the case of Finance Leases in Canada resistance might be in fact futile, but unlike the movies where this term seems quite ominous, it’s a fact that equipment loans and lease financing in Canada is, in fact, a valuable resource to Canadian business.
EQUIPMENT FINANCING IS NOT COMPLEX
While many Canadian business owners and financial managers might view this form of finance as complex it sure doesn't have to be. Do you have to be an expert or have access to an expert to achieve the benefits of leasing? Yes, it sure helps, but it’s certainly not required. Your business needs to simply know all the advantages that come with this form of financing, and when you don't understand which advantages relate directly to your situation it’s difficult to benefit from the right decision. When you purchase the equipment the leasing company will pay the vendor directly - if you have already purchased it a sale-leaseback transaction might be required.
Over the years we met hundreds of companies/business owners/managers who actually employ a leasing strategy for equipment needs and probably overlook a lot of other positive aspects of this method of asset acquisition simply because they were uninformed, or misinformed.
What could be the reason for ignoring finance leases? One of them simply might be that from the outside it looks a bit overwhelming. Why? Because the decision to finance assets has a blend of legal documentation, financing and accounting inputs, as well as general common business sense!
HERE'S YOUR ROADMAP TO BUSINESS LEASING
Are we able to set out some sort of basic roadmap when it comes to this well used (80% of all business lease assets) Canadian business financing strategy? We think it’s possible.
First of all, you have to know the general lessor market in Canada. Who are the players, and which ones should you focus on for your specific needs. In truth the market is quite segmented - there are larger Canadian and U.S. corporations doing business in Canada ... Canadian banks also participate, and then there are tens of independent commercial finance firms. These firms focus on different asset categories, and yes, even deal sizes. This is clearly a time when it sure helps to have an expert guiding you through the above maze.
THE INTEREST RATE ISSUE IN EQUIPMENT FINANCING
Clients we talk to are, unfortunately, focused on the implicit cost of the lease, in layman's language this equates to ' What's my rate?".
LEASE DOCUMENTATION / ACCOUNTING/ TAX ISSUES
Documentation and addressing the previously mentioned tax and accounting issues (there are numerous tax benefits in leasing ) in a lease are also critical to success and benefits achieved. Simply speaking, just choosing the right type of lease and lease structure, as well as whom to deal with can save you many thousands of dollars. We can't count the times a client has asked us to help them get out of lease transaction ( you basically can't), or to help them in addressing a risk or cost issue associated with the wrong type of equipment lease transaction they entered into.
The type of lease you enter into as well as other factors including your overall credit profile will ultimately affect the monthly payment on a lease. The lease payment is a factor of interest rates and the residual value of an operating lease or the term on a capital lease in the lease agreement. A good leasing company will provide you with a clear explanation of how interest rates and payments were arrived at!
Knowing how your lease company profits (everyone is entitled to a reasonable profit for risk/reward, right?) alone allows you to better address those finance needs. Issues such as lease term and how you intend to use/dispose of the asset at the end of the lease are key preparation issues in lease finance. Understand and take time to review the useful economic life of the asset and equipment at the end of the transaction term.
ARE OPERATING LEASES THE RIGHT CHOICE FOR YOUR ASSET FINANCE DECISION
Some owners may choose to use an ' operating lease ' which allows you to fully return the equipment at the end of the lease term, it is a classic ' use ' of an asset versus a desire to own the asset, determined by the cost of the equipment and it's intended use / Understanding the fair market value of what the asset might be worth at the end of the transaction is key to entering into a ' lease to use ' type transaction. That residual value will affect your interest rate in the transaction. The capital lease is typically the type of lease most firms choose, as then intend to ' own ' the asset at lease term. A capital lease will have often a purchase option at the end of the lease, also affecting your monthly payment!
CONCLUSION
So, yes, according to our buddy DARTH VADER in Star Wars, resistance might be futile, but the better plan of action for business owners is to embrace lease financing in Canada with a positive attitude toward achieving the best benefits and lowest risk based on your firm's needs for acquiring assets through equipment leases. Extra help? Speak to a trusted, credible and experienced Canadian business financing advisor who can ensure you're a ' deal maker ' when it comes to asset finance and the decision to lease equipment for small businesses and larger companies in Canada.
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Stan Prokop
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