4 Things You ( Probably ) Didn’t Know About Equipment Financing Business Equipment Lease Financing In Canada

OVERVIEW – Information on aspects of business finance equipment leasing not always considered by owners/managers who are acquired fixed assets. Here’s what you need to know about some key leasing finance issues


As business equipment lease financing is used by over 80% of Canadian business borrowers one would think the business owner/financial manager utilizing leasing finance would pretty well know all there is to know about the popular financing vehicle. One would think… but that’s unfortunately not the case. Let’s examine some key aspects on that point. Let’s dig in.

A good start is to re enforce the fact that more than ever the advantages of leasing still remain pretty well constant. They include 100% financing ( in some cases a down payment might be required ) , as well as the cash flow savings inherent in the transaction – allowing your company to match cash flow to useful life of the asset. Knowing those fixed payments won’t change during the life of the lease allow the owner / manager to better handle cash outflows?

1. Accounting is critical to your lease transaction – the reason that is important is the flexibility that comes with this method of financing. Because you have two separate choices when you enter into a lease the way you account for the lease has implications for how that affects your balance sheet and income statement. The best way we explain this to clients is that you have to decide whether the lease you are entering into is a:

Lease to own

Lease to use

Respectively, the technical term for each of these choices is CAPITAL LEASE… or OPERATING LEASE.

The best way to think of that decision point is often referred to as ‘ risk and rewards of ownership ‘.

So bottom line, if you choose a capital lease as an example you have chosen to own and dispose of the asset and account for it in that manner.

What’s the deal on which of those two choices you choose? Typically lessees (that’s you) choose operating leases when they are focusing on using the asset but wanting to upgrade or return it at the end of the lease term. The capital lease denotes ownership, on the other hand.

When you enter into a capital lease you should be focusing on how long you are going to use the asset, and how you will dispose of it at the end. That can be via selling it yourself, or using it as a ‘ trade in’ of sorts on a similar use asset.

KEY POINT – During and operating lease you can modify payments via upgrades, lease extensions, etc. Capital leases have a ‘ hell or high water’ clause that specifies you’re responsible for all the fixed payments for the term of the lease. There is almost never ‘ no mercy ‘ on ‘ buying out’ the lease.

3. Residual Value – in both our lease examples it’s important for the owner /manager to focus on the value of the asset at the end of the lease term. For the capital lease that will involve how you handle the ‘ book value’ on your accounting records, as well as knowing what you might be able to get for the asset if you sell it.

The operating lease places even MORE focus on the residual or final value of the asset at end of term. That’s because with that lease you have the right to return, upgrade via a trade in, or simply extend payments for a mutually specified period of time.

4. SUBLEASING? In certain cases your firm as the owner of the asset can ‘ sublease ‘the asset to a third party. In effect your company becomes the lessor! While you are still responsible for the payments you are collecting all or a portion of those payments from a third party. In larger firms this might be to a subsidiary on an inter company transaction.

If you want to ensure you’re benefiting from all the positive aspects of acquiring assets through financing 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 you equipment finance needs.

Author: Stan Prokop 7 Park Avenue Financial :

Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 – Completed in excess of 90 Million $ of financing for Canadian corporations . Info /Contact :


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