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Leasing Financing in Canada. It could not be any more popular than it is. In fact, a recent major study indicated the following:
Canadian business optimism is increasing
Canadian firms have challenges accessing certain types of finance (not leasing by the way!)
Access to asset financing was the 2nd largest concern expressed by the majority of business in Canada (No surprise that government bureaucracy was the largest concern
Canadian Asset lenders are the largest provider of debt asset financing in Canada behind the Chartered banks in Canada
84 Billion dollars of assets are under finance in Canada by asset-based lenders/lessors
Awhile ago, we wrote on 5 key documentation issues that Canadian business owners and finance managers have to ensure they address when it comes to leasing documents. We pointed out that often it’s the terms, conditions and documentation around equipment financing in Canada that makes or breaks a successful vs. non-successful lease transaction.
Those issues were master leases, warranties, ensuring you understand the difference between capital leases and operating leases, asset registration issues, taxes, and return requirements. So that's it right?
But wait, as the fellow on TV says, ' there's more! Let’s examine some other key issues you probably need to consider to ensure that confidence that comes with knowing you have entered into a win/ win transaction with a lessor of assets.
One of those is maintenance, meaning that you need to ensure you understand your written obligations on maintaining the asset in good working order. This becomes even more important when you in fact have the intention or obligation of returning the asset in question.
Insurance becomes our 2nd issue to ensure you consider. You will often be required to produce a certificate of insurance which names your lessor partner as beneficiary in case of loss, theft, damage, etc. That’s just common sense of course, given they are financing the asset.
Thirdly, in certain cases, you might want to ensure your lease specifies you have the right to assign the transaction to a third or related party. Naturally you want to ensure this right, if required, is not ‘unreasonably withheld ' as the lawyers say.
You may also wish to address the area of the location to ensure you have the right to move the leased asset to another location, perhaps a branch plant or other office, etc.
Finally, in the case of say technology assets, i.e. computers, telecom assets, etc. make sure you clearly understand what can be added to or removed from the asset. In our tech example, a good example might be software or additional disk drives, etc.
There you have it, 5 ' OTHER ' things to consider in the critical area of lease documents in Canada. Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in structuring a transaction that makes sense.
Stan Prokop
