Your Guide To Equipment Financing In Canada

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You've seen the sign - it reads 'Danger Ahead'! No, we're not talking about a curve in the road but rather discussing 5 key areas where Canadian Business makes thousands ( or millions ?) of dollars in poor judgment around critical areas of financing equipment via a third party finance company - and our discussion covers all assets from machinery to technology.

Let's review 5 key dangers areas in equipment financing in Canada and provide you with solid real-world tips on how to successfully navigate these areas to better enhance your company’s ability to maximize on lease finance company benefits.

Danger Item #1 - Structure - Lease financing is all about structure. Unfortunately most clients we deal with only always focus on 1 of the 5 elements of a lease transaction. (By the way, those are: term of lease, lender interest rate, value of transaction, payment, and obligation at end of term)

Let's use a quick example - we'll take a sample 100,000$ transaction. On a 3 year capital lease to own scenario your monthly payment at an assumed rate of 8% is 3112$. However, if you chose an operating lease (i.e. use equipment and not own it) your payment would come in at around 2490$/mo. And if you took our first example, and either was required or voluntarily put down 10% the monthly payment is now 2801$. Same deal, different payments. Which one is best? That is only for you to decide based upon your unique asset acquisition situation.

So interesting calculations, but what’s our point you say? Simply that by understanding how the finance company utilizes structure to provide you with a 'monthly payment' can arm you with knowledge that will ultimately translate into a payment scenario that works for your firm. Bottom line - understand how the lender views and utilizes the five elements of your final lease calculation.

Danger Item #2 - Pricing! We suppose that the late famous Vince Lombardi might say 'Lease pricing isn’t everything, it’s the only thing!' Sorry, Vince, we couldn’t disagree with you more. Your ability to match the right term of the lease with the right finance company and type of lease you choose (there are several) can pay for itself many times over. It's now always about rate and pricing because if it was always about the price we would all be driving low-end compact cars - many of us don't, because we have financing options and alternatives. And by the way, it's a competitive market, so by positioning your firm's credit quality properly you will always receive a competitive rate.

Danger Item #3 - Credit approval. Most clients simply aren’t aware of how to position their financials properly in financing equipment. Whether you are acquiring heavy machinery, construction equipment, or high-end software applications you need to understand what drives credit approval. Those factors are the asset you are financing, your historical cash flow, your current and sustainable cash flow, and your ability to work with your finance company to structure a deal via down payments, outside collateral, etc. that make the transaction a win-win for yourself and the finance company.

Danger Item #4 - Conditions. It's all about the fine print, but many customers don't read the fine print, As a result, they are subject to thousands of dollars in miscellaneous administrative fees, renewal fees, possible appraisal requirements, and most importantly early pay or termination fees. Ask your finance company or Canadian business financing advisor to ensure you understand who is paying what.

Danger Item #5 - Our last danger point! What is it? Simply that financing equipment is great, but in many cases are you sure you understand all your alternatives to this type of financing. They might include an asset based loan or even a temporary bridge loan on the asset.

In summary, financing equipment in Canada occurs every day, from assets from 5k to 50 Million dollars. Understand the hot points of what a finance company focuses on when they are leasing machinery, business equipment, or any type of business asset you need to acquire. Unsure of that Danger Sign in the road ahead? Speak to a trusted, credible and experienced Canadian business financing advisor for navigational assistance!

' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

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