YOUR COMPANY IS LOOKING FOR LEASING EQUIPMENT SOLUTIONS
THE RIGHT WAY TO LEASE EQUIPMENT YOU NEED FOR YOUR BUSINESS VIA THE COMMERCIAL LEASING INDUSTRY
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Financing & Cash flow are the biggest issues facing businesses today.
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Unlock hidden savings and boost your business growth with smart equipment leasing strategies!
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Equipment Lease Financing and working capital solutions – Save time and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
LOOKING FOR THE RIGHT ANSWER ON A LOWER MONTHLY LEASE PAYMENT ON AN EQUIPMENT PURCHASE / TECHNOLOGY PURCHASE
EQUIPMENT LEASE RATES
Interest rates and equipment lease costs are significant mysteries to the Canadian business owner and financial manager.
That doesn't have to be the case. That type of confusion has left some business people cursing about leasing costs!
WHAT FACTORS AFFECT LEASE FINANCING RATES
Lease costs depend on several apparent factors that seem not generally known when companies use asset leasing to acquire assets.
If you want to take advantage of Canada's most popular method of acquiring business equipment, you must understand what's behind the pricing, including the capital equipment lease calculator. Current equipment lease rates are more competitive than ever for a leasing loan solution - Let's dig in.
There are some factors in lease finance costs—as we've said, too many owners/managers focus solely on the interest rate, which is rarely the most crucial part of a lease, especially as your assets grow in dollar size!
HOW IS A LEASE INTEREST RATE CALCULATED?
At the heart of any transaction is understanding the actual calculation of a lease rate.
They are :
Term
Financing rate
Asset cost
Monthly Lease Payment
End-of-term lease period obligation
When you know any 4 of those, you can pretty well calculate the missing piece of the puzzle. Most lease companies in Canada quote only monthly payments, not the interest rate.
And to add to the confusion, how the rate is presented may not always be the same! (Next time you are quoted a lease rate, ask the lessor if they have quoted you in ' advance' or ' arrears ‘)
THE CAPITAL LEASE VS OPERATING LEASE CHOICE
In the past, we've advised that the owner/manager has two choices in the types of leases offered - the ' CAPITAL ' lease to own or the ' OPERATING' lease to use.
Because operating leases are, in fact, rentals, many business owners may be surprised to know that the actual rate calculated may be negative - i.e. below 0! That's because the lessor is betting you will return the asset, and they can resell or refinance it again. Your lease options's down payment necessity is at the lessor's discretion.
Lessees will find a capital equipment lease calculator a handy tool to assess costs and calculate lease options down payment impact on a transaction.
BENEFITS OF AN OPERATING LEASE
The operating lease allows you to purchase the equipment at fair market value at the end of the lease, return it, and, in some cases, upgrade it.
Understanding your option to address the equipment at the end of the lease is critical in operating leases. Monthly lease payments will always be lower on an operating lease due to the residual position taken by the lessor or a third party.
Assessing the useful life of the equipment and its use and value to your firm is key in deciding whether to lease or buy the asset, given its purchase price.
Whether you return the equipment or buy it will affect the monthly lease amount—and if you choose to return the equipment, a shorter lease term is typically chosen. Take a holistic approach to the total cost of the equipment.
Of course, the lease term will drastically affect the monthly payment. Being approved for a longer term (amortization) will lower the monthly payment, and that longer term increases the leasing company's financial profit. The lessor often requests miscellaneous title transfer fees.
CREDIT QUALITY
Credit quality drives the majority of lease cost rates in Canada. Rates are very competitive if you are dealing with lessors that compete directly with each other. Financing approval is often as necessary as the ‘rate ' for many clients we meet and work with.
We mentioned that interest rates aren't the be-all and end-all of asset financing. Lease documentation, financial statement impact, and tax impact are key to a true lease financing deal.
Understanding your equipment lease transaction's terms and conditions is also critical - end-of-lease term obligations, maintenance issues, and other ' nuances ' affect your ultimate finance cost.
Of course, the business owner/financial manager also has the option to buy assets rather than take out a lease or a bank loan.
Long-term asset acquisition favours a capital lease when you intend to keep and use the asset. Technology lends itself to short lease terms or rentals due to quick depreciation and changing technologies. In other cases, different types of new equipment / expensive equipment will hold their value.
BUSINESS TIP - Use a capital equipment lease calculator to better understand lease pricing in your lease agreement. Your lease option's down payment will lower your monthly payment and outstanding loan balance.
KEY TAKEAWAYS
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Understanding lease types (operating vs. finance) forms the foundation of equipment leasing knowledge.
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Grasping the concept of residual value helps in evaluating lease offers effectively.
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Recognizing the impact of credit scores on rates enables businesses to negotiate better terms.
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Analyzing the tax benefits of leasing equipment can lead to significant financial advantages.
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Calculating the total cost of leasing versus buying provides crucial insights for decision-making.
CONCLUSION
Understanding current equipment lease interest rates is essential to business owners.
Equipment financing allows you to source any equipment you need for your business. Over time, leasing companies have become a resource for Canadian business owners.
If there is one way to step delicately through the lease costs minefield in Canada, call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assure you that your next lease finance transaction will get better for needs around capital leases or equipment loan solutions.
FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION
How are equipment leasing rates calculated?
Equipment leasing rates are typically calculated based on factors such as the equipment's value, lease term length, lessee's creditworthiness, and current market conditions. When determining rates, lessors consider the equipment's depreciation, residual value, and desired return on investment.
What factors influence equipment leasing rates? Several factors influence equipment leasing rates, including:
- Credit score and financial history of the lessee
- Type and age of equipment
- Lease term length
- Market interest rates
- Equipment's residual value
- Industry risk factors
- The dollar size of the lease
- Current economic conditions
Can I negotiate better equipment leasing rates?
Yes, you can often negotiate better equipment leasing rates. Strategies include:
- Improving your credit score
- Offering a larger down payment
- Considering a shorter lease term
- Leasing multiple pieces of equipment
- Shopping around with different lessors
- Demonstrating strong financials and business stability
- Negotiating during slower business periods for lessors
How do equipment leasing rates compare to loan interest rates?
Equipment leasing rates are generally higher than loan interest rates. This is because leasing includes additional services and benefits, such as maintenance and easier equipment upgrades. However, leasing often requires less upfront capital and may offer tax advantages. The total cost of ownership should be compared between leasing and buying with a loan to determine the most cost-effective option for your situation.
Are there industry-specific equipment leasing rates?
Yes, there are often industry-specific equipment leasing rates. Industries with stable equipment values or lower risk profiles may receive more favourable rates. For example:
- Medical equipment often has competitive rates due to its long lifespan and stable value
- Construction equipment rates may vary based on economic cycles and project demands
- Technology equipment might have higher rates due to rapid depreciation
- Seasonal factors and commodity prices can influence agricultural equipment rates. Rates can also vary within industries based on the specific type of equipment and its expected usage.
What factors influence equipment lease rates for companies?
Several factors can influence rates, including the lessee's creditworthiness, the type of equipment and equipment value, the lease term length as to when the lease expires, prevailing market interest rates, and the residual value of the equipment at the end of the lease term.
How can a company ensure they receive favourable lease financing costs?
Companies can maintain solid financial statements, build positive credit histories, negotiate lease terms assertively, and shop with different lessors to compare rates and terms. Working with a lease broker ensures industry expertise.
Why might two similar companies receive different lease rates?
Differences in credit histories, negotiation skills, relationships with lessors, and the equipment's specific intended use or customization can lead to varying rates.
How do soft costs factor into lease costs?
Soft costs, like installation, training, or software related to the equipment leases, can be financed as part of the lease. This can affect the lease cost and monthly payment amounts when businesses acquire equipment.
Do shorter lease terms always result in higher monthly payments?
Typically, shorter lease terms for leased equipment have higher monthly payments than more extended terms. However, the total cost over the life of the lease might be less due to reduced finance charges/cost savings.
How can changes in market interest rates impact lease financing costs?
If a lease rate is variable and tied to a market rate, it can fluctuate over time. In a rising interest rate environment, this could increase the cost of leasing.
What are some overlooked costs when considering equipment leasing?
Maintenance costs, penalties for early termination, fees for exceeding usage limits, and potential charges at the end of the lease (like equipment return or purchase) are sometimes overlooked.
How do tax considerations play into lease financing decisions?
Depending on the lease structure, companies can deduct lease payments as an operating expense, offering potential tax benefits. It's essential to consult with a tax professional to understand the implications fully. Companies can also analyze sale-leaseback opportunities, which may have tax implications related to issues such as book value.
Can the residual value of equipment affect lease costs?
Yes, suppose the equipment has a higher expected residual value at the end of the lease. In that case, the lessor may offer lower monthly payments, as they anticipate a higher value upon selling or re-leasing the equipment later.
How do the equipment type and industry specifics affect lease rates?
Equipment that becomes obsolete quickly or is specific to certain industries might have different lease rates than general-use or longer-lifespan equipment. The perceived risk associated with the equipment's future value and utility can influence rates.
Equipment leasing rates vs. traditional loans: which is more cost-effective?
Equipment leasing often provides lower upfront costs and more flexible terms than traditional loans, allowing businesses to preserve capital for other investments.
How can equipment leasing rates impact my company's cash flow?
Favorable leasing rates can improve cash flow by offering lower monthly payments and potentially 100% financing, eliminating the need for large down payments. Variable rate financing may also be available to lessees.
Is there a leasing tax deduction associated with equipment leasing rates?
Yes, leasing payments may be fully tax-deductible as a business expense, potentially offering significant tax benefits compared to purchasing equipment outright. Applicable sales taxes will always be added on to the monthly payment.
Can equipment leasing rates help me stay technologically competitive?
Leasing allows businesses to access the latest equipment without significant capital outlays, enabling them to stay technologically competitive at a fraction of the cost of purchasing.
How do equipment leasing rates affect my ability to upgrade equipment?
Favourable leasing rates often include options to upgrade equipment at the end of the lease term, allowing businesses to access cutting-edge technology without additional costs continually.
What is the difference between fixed and variable equipment leasing rates?
Fixed rates remain constant throughout the lease term, offering predictable payments, while variable rates fluctuate based on market conditions. These rates potentially offer lower initial costs but with less certainty.
How does the length of the lease term affect equipment leasing rates?
Generally, longer lease terms result in lower monthly payments but higher overall costs, while shorter terms have higher monthly payments but lower total costs.
Are there industry-specific factors that influence equipment leasing rates?
Yes, factors such as equipment type, industry volatility, and market demand can influence leasing rates. Some industries benefit from more favorable terms due to lower risk or higher equipment resale values.
Can my business history impact the equipment leasing rates I'm offered?
Absolutely. A strong credit history, solid financial statements, and a proven track record in business can lead to more favourable equipment lease rate and terms.
What happens if I need to terminate an equipment lease early?
Early termination in business equipment leasing often incurs fees, but some leases offer flexibility. It is crucial to understand the terms and potential costs before signing any agreement.
What role does equipment residual value play in determining leasing rates?
Residual value, the estimated worth of equipment at lease end, significantly impacts rates. Higher residual values generally lead to lower monthly payments, as the lessor can recover more value from the equipment after the lease term.
How do economic conditions affect equipment leasing rates?
Economic factors like interest rates, inflation, and industry health influence leasing rates. During economic downturns, rates may increase due to higher perceived risk, while strong economies might offer more favourable terms.
What strategies can businesses use to secure better equipment leasing rates?
Businesses can improve their chances of obtaining favourable rates by maintaining a strong credit profile, negotiating terms, considering shorter lease periods, and exploring multiple leasing companies to compare offers.
