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Leasing finance in Canada. Canadian business owners who are seeking rates, terms and structures for asses that generate (hopefully) revenues have a number of choices, one of which is the type of leases they enter into. The Operating and Capital lease is in fact the main choice or decision point when it comes to leasing types .
LEASE FINANCE STRATEGIES FREE UP BUSINESS CAPITAL
The ability to free working capital and not deploy it into the purchase of fixed assets is in fact a key benefit of leasing in Canada. And as most business owners hopefully know, you also have the ability to finance used equipment when it makes sense.
MATCHING LONG TERM CAPITAL NEEDS WITH THE RIGHT FINANCING IS CRITICAL
The concept of matching is very important when it comes to leasing finance in Canada. Your firm has the ability to use the asset to operate as well as generate profits, but cash outflows, i.e. the monthly payment are made over a pre-determined amount of time.
Getting back to leasing finance choices your ability to return, upgrade, or extend a lease is in fact the reason why most business owners choose an OPERATING LEASE scenario.
Operating leases are best thought of as leases to ' use' assets, not to 'own' them. Accounting rules have changed significantly, but in the past, these leases were referred to as off-balance-sheet financing as they did not impact balance sheet debt. Capital leases are recorded on the balance sheet as a long term obligation, other than the first 12 months of the lease which is a current liability. You can use an online lease amortization schedule to understand interest costs how interest is charged.
Does every business owner / financial manager know the benefits of leases? We're never 100% sure when we talk to clients, but the main benefits are 100% financing of the asset, although some firms we point out may be required on occasion to make a down payment of security deposit. Your overall credit quality will determine advance payment requirements, as well as your rate.
THE COST OF FINANCING / INTEREST RATE CONSIDERATIONS
Most clients who are concerned about the ' rate ' in the transaction are in fact surprised when we tell them the actual rate or pricing is in fact much more in control of the lessee - That's you !.. when you understand your firm’s credit strength and can demonstrate it. That's because leasing in the current 2012 Canadian business environment is in fact highly competitive.
Using the services, as an example, of an advisor you have the ability to access the right type of leases when it comes to price, term, etc.
Cash flow management is critical today to day business in Canada. Knowing your payments are fixed allows you to manage cash flow and be proactive when it comes to sourcing assets that make sense for your firm.
DON'T FORGET TO CONSIDER TAX / ACCOUNTING/ DEPRECIATION ISSUES
The world of tax, accounting and balance sheet implications can be somewhat ' murky ' when it comes to an operating or capital lease solution. Again, that advisor or even your external accountant can in fact help you in that regard, and that advice is usually free.
TECHNOLOGY NEEDS ARE EASILY FINANCEABLE WITH EQUIPMENT LEASES
Technology, as no other asset class is, makes a great case for leasing. Specific needs, obsolescence, off-balance-sheet financing, and reduced leasing costs play a key role in any aspect of tech finance.
CONCLUSION
Investigate the capital lease vs operation lease question to ensure you understand what type of asset financing is best for your businesses. Industries that are capital intensive make substantial use of equipment financing strategies. Don't get caught up in terminology confusion, as an example, a ' finance lease ' is another term for capital lease!
Speak to a trusted, credible and experienced Canadian business financing advisor when it comes to choosing an asset finance strategy that makes sense for your firm.
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