The Secrets Behind Equipment Financing In Canada

Information on equipment leasing in Canada. Asset financing strategies and decisions almost always include lease finance solutions. Here’s why !

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When Canadian business owners and financial managers realize that the core of their business is often the acquisition of capital assets, they need to investigate equipment leasing in Canada. Why do they wish to lease? Necessity, convenience, risk shifting, and tax and financial statement advantages. Let’s dig in.

Depending on what industry you Canadian company is in you potentially have a large need for capital equipment. Capital expenditures, capital equipment they are simply the business ‘buzz words’ for assets that you need to run your business – it might be a new computer system and software ( yes software can be leased and financed!) , plant machinery, or additional office equipment such as copiers, etc . All of those assets can be financed.

As your company has grown it has potentially grown more debt at the same time! The bankers and financial analysts of course refer to that as potentially ‘over leveraging’ your company. You are of course repaying that debt from your cash flow and profits, and most business owners and financial managers do not wish to hinder their bank arrangements. In certain cases based on the current economic environment you might even be looking at an acquisition , which is another very solid reason to avoid ‘ senior debt ‘ –  bank and mezzanine or subordinated debt that you have in place .

So what’s the solution? You might be saying, ‘… well leasing isn’t necessarily the solution because that’s more debt right?  And the answer is: ‘maybe’!  The reality is that by carefully structuring your capital asset acquisitions as operating leases you avoid some of those balance sheet issues which may have, or could become, a concern.

Canadian business owners might be thinking that the same challenges they faced in obtaining that ‘senior debt’ we spoke of might in fact come into play with lease financing. The reality is that equipment lease financing, particularly when structured properly by an advisor or lender who is credible is in fact very asset focused and places significantly less reliance on the traditional metrics imposed by banks.

As in every aspect of business you should be partnering or consulting with someone who is a recognized expert in equipment lease financing and who will maximize flexibility and take the time to understand your business.

The internet might be a very reasonable choice to find such an expert partner, and of course referrals from your trusted sources are worth their weight in gold also.

In Canada, if you are choosing to enter into lease financing and you do not understand:

The industry players
Credit and documentations issues
Types of Leases
Rates structures based on your credit quality

Etc, then you potentially are at a very significant disadvantage with respect to maximizing the best type of lease financing that your firm can achieve.

Competitive pricing and Approved Financing – those are advantages of Canadian equipment financing!

Most Canadian business owners and financial managers understand the basics of leasing and equipment financing, as the industry had flourished and grown for decades. The basic premise is simple, your Canadian firm wants to use an asset, but not necessarily own it, and, more importantly, you don’t want to pay for it all up front and receive the economic benefits of that asset over a number of years. Lease transactions can typically e three to five years, but some assets have much longer terms, and of course much longer useful economic life.

What can get confusing for some business owners is, on occasion, the various terms around the concept of leasing, you may have heard them many times before. They are terms such as financial lease, capital lease, full payout lease, operating lese, and finance lease. All of these terms refer to the general concept of leasing, and specifically to the types of leases then your firm can enter into. You clearly want to know what type of lease you are entering into!

Why does Canadian business choose to use lease financing as an alternative financing vehicle. We will discuss four of them –

The need to finance

Flexibility and convenience

Risk (asset)

Accounting and tax reasons

So let’s recap a bit about those issues. When we say ‘ need to finance’ your Canadian company has a need for assets and capital expenditures, but you either do not have the cash to purchase those items, and probably if you did you would want that free cash to run your company from an operating perspective, i.e. buy inventory, etc.

With respect to convenience your firm may require the latest technology for, say, computers, or plant production equipment. You certainly don’t intend to purchase an asset for a short time, take the depreciation hit, and then sell it. That would not make business sense.

We alluded to ‘risk ‘as a key concept in lease financing.  By that we meant there are risks associated with many asset types, think computers as an example. New computers and technology come out it seems almost every day – why would we pay full price for an asset that won’t be producing to industry requirements in a year or so, and furthermore, what would we do with that asset after its no long ‘ leading edge’ technology.  That is where lease financing in Canada makes perfect sense.

And don’t forget when we said flexibility is a key concept in leasing. It’s never a perfect world with perfect timing in business. Let’s say, using our computer example, that your firm invested in computing technology, or telecom for example, and you structured a lease to use operating lease for 2 years.

Now we come to the end of that 2 year term and what do we find?  The asset seems to still be fairly leading edge, and we are receiving fairly good economic benefit. But our lease is up. What do we do? Here comes the flexibility – we call our lessor or trusted leasing advisor and negotiate a 6 or 12 month extension to our lease. Savvy business owners will also ask the lessor to reduce the monthly payment, as the lease company has generally recovered all its initial investment.

Canadian lease financing and equipment financing – is it your only business financing option? No.  Should you consider it as one of your financing alternatives – most certainly! Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with your asset finance needs.

Stan Prokop
– founder of 7 Park Avenue Financial

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years – Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :

7 Park Avenue Financial

South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Office = 905 829 2653

‘ Canadian Business Financing with the intelligent use of experience ‘

Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.

Stan Prokop
7 Park Avenue Financial
Canadian Business Financing