The Subtle Science Around Lease Vs Buy Decisions And More….lease versus buy

OVERVIEW – Information on equipment financing in Canada and How Canadian business owners assess the lease versus buy decision when contemplating leasing new or used assets.


Equipment financing
decisions in Canadian business often start at the ‘ lease versus buy’ decision point. Leasing business assets is a strategy used by the majority of Canadian businesses. We’re examining that initial decision to finance as well as uncovering other information not generally understood. Let’s dig in.

While business owners/financial managers, and rightfully so, reflect on the use of acquired assets and the profits or benefits they will generate it’s also important to understand the financial impact on your financial statements.

What factors impact that initial decision to either buy the asset or finance it? They include:

Your ability to access financing approval

Any Tax issues that will play into the finance decision – as well the balance sheet effect of your transaction needs to be considered relative to any ratios and covenants that current senior lenders might require

Your ability to justify the cash flows on the transaction

Naturally if your firm has the available cash and is able to not impact your current credit lines negatively simply buying the asset is an option. Many business owners still hold onto the concept of ‘ pride of ownership’ and do not wish to take on additional debt. They simply depreciate the asset over its useful life.

Businesses also have the option of financing assets under a term loan, and can deduct the interest on the loan on their tax filings.

Getting back to ‘ leasing ‘ though 2 key options remain. Companies can utilize an ‘operating lease’, or a ‘capital lease ‘ to acquire the asset. Operating leases involve your lessor taking a position in the asset whereby when the asset is returned at the end of the term they will dispose of it for profit or refinance it with another client. This type of transaction reduces your overall cost and gives you of course full use of the asset during the lease term. Your actual lease payments are tax deductible

It should be noted that new accounting rules worldwide have somewhat discouraged the ‘off balance sheet ‘ aspect of operating leases.

By far the majority of equipment financing in Canada is done under a ‘ capital lease ‘ scenario. Here your company has ownership as well as use of the asset and you are in effect financing the entire purchase- unlike our operating lease scenario. Interest financing costs are deductible under the capital lease scenario.

The actual financing costs in leasing are dependent on your firm’s financial strength as well as the overall value of the asset.

While equipment leasing is utilized by many it is certainly not understood by all. Businesses lose a significant amount of money by not understanding their obligations during and at end of term. You should ensure the lessor contacts you prior to the end of the term and agrees on final disposition and termination of the lease. Otherwise a new lease term might begin with additional financial commitments by your company.

For those firms that have entered into operating leases they must carefully consider which of the three options they will choose under an operating lease that comes to full term. Those options are to return the asset, purchase it for fair market value, or agree to a defined extension of the lease. Even simple issues as the cost of returning and shipping the asset back to the lessor are often overlooked and can become costly. Miscellaneous charges such as admin paperwork and de-registration of the lessors security filing should also be considered and attended to.

The bottom line? The lease vs. buy decision should not be taken lightly. If you’re focused on getting the proper information to acquire your business assets with the right finance solution 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 equipment financing and leasing needs.


7 Park Avenue Financial :

http://www.7parkavenuefinancial.com 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 100 Million $ of financing for Canadian corporations . Info /Contact :

7 PARK AVENUE FINANCIAL = CANADIAN EQUIPMENT FINANCING AND LEASING EXPERTISE


7 Park Avenue Financial

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

Office = 905 829 2653

greg@7parkavenuefinancial.com


‘ Canadian Business Financing With The Intelligent Use Of Experience ‘

 

7 Park Avenue Financial

Canadian Business Financing