Information on asset financing in Canada. What are the advantages and manageable disadvantages of the equipment finance lease for Canadian business financing solutions
The equipment finance lease is by far the most popular method of asset financing in Canada. Although paying for an asset in this matter is ‘ cash going out ‘ vs. ‘ cash going in ‘ this method of finance allows businesses in Canada to acquire assets and technology needed to run and grow their business. ( Note – Businesses can achieve ‘ cash in’ status via a sale leaseback strategy )
While mostly positive, and we hesitate to use he word ‘ negative ‘ there are some issues that need to be understood by the owner/manager. It’s all about handling the truth we suppose – let’s dig in.
Unless your lease properly reflects the option to own the asset at the end of the term lease financing is all about ‘ using’ an asset. Small to medium size lease financings have some fairly basic issues attached to the documentation; if you don’t know the basics of these you can over pay / over spend on lease financing. And by the way, they are all negotiable!
For asset financings in the SME Commercial area documentation around lease contracts is fairly simple these days – lessors have strived to eliminate paperwork. Larger transactions and ‘ Master Lease ‘ agreements tend to be more complicated.
Many business owners and financial managers don’t fully investigate ‘ operating leases. A good way to understand these is to think of it as a lease for an asset where the life of the lease term is almost always shorter than the expected life of the asset. One of the most common asset classes financed by operating leases is ‘ Technology / Computers’
While the appeal of the ‘ off balance sheet ‘ aspect of operating leases has pretty well bitten the dust it’s still a great way to upgrade, replace and add on to existing tech assets.
While lessors in Canada scream ‘ benefits ‘ (flexibility, cash flow, alternate credit sources, tax implications) a more balanced approach is to ensure the potential downside.
Those ‘ downside’ issues include:
Potential non ownership of the asset
Termination costs if you are forced to exit a lease for business reasons
Cost (rates tied to leases are more often than not higher than pure bank loans/borrowings)
When we talk to clients about ‘ handling the truth ‘ in those downside issues it’s important to realize they are all manageable and hardly overwhelming if understood at inception.
If you’re looking for ‘ smoother waters’ in your equipment finance lease needs seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success
who can assist you in matching proper asset financing solutions to your 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 :
7 PARK AVENUE FINANCIAL = CANADIAN EQUIPMENT LEASE FINANCE EXPERTISE
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