OVERVIEW – Information on equipment leasing rates in Canada . Lease costs and the interest rate are dependent on a number of factors – Here’s what you need to know
Interest rate and equipment lease costs seem to be a major mystery 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 cost!
Lease costs are dependent on a number of clear factors that seem to be 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 need to understand what’s behind the pricing. Let’s dig in
There are a number of factors in lease finance costs – as we’ve said too many owners/managers focus solely on the ‘ interest rate ‘ which is rarely the most important part of a lease, especially as the size of your assets grow in $ or numbers.
At the heart of any transaction is understanding the actual calculation of a lease rate. They are: term, financing rate, asset cost, monthly payment, end of term obligation. When you know any 4 of those you can pretty well calculate the missing piece of the puzzle. In fact most lease companies in Canada quote only monthly payment, not the interest rate. And to add to the confusion the way in which 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 ‘)
We’ve advised in the past that the owner / manager has two choices in 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.
The term of the lease will of course drastically affect the monthly payment – being approved for a longer term (amortization) will in fact lower the monthly payment – that longer term of course increases the finance profit for the leasing company.
Credit quality drives the majority of lease costs rates in Canada. Rates are very competitive if you are dealing with lessors that directly compete with each other. Financing approval is often as important as the ‘rate ‘ to many clients we meet and work with.
We mentioned that interest rates aren’t the be all and end all in asset financing. That’s because lease documentation, financial statement impact and tax impacts are a key part of a true lease financing deal.
Understanding the terms and conditions in your equipment lease transaction is also critical – end of term obligations, maintenance issues, and other ‘ nuances ‘ affect your ultimate cost to finance.
If there is one way to step delicately through the lease costs minefield in Canada its to seek the services of a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assure you that your next lease finance transaction will just get better.
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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