Equipment lease financing is an alternative choice for firms who wish to acquire capital equipment and other assets. Typically the other two methods to acquire such assets are either a cash purchase, or a loan of some sorts, usually via a bank. The lease financing solution can frequently offer significant cost savings to the borrower, know as the ‘lessee’.
Equipment lease financing is an alternative choice for firms who wish to acquire capital equipment and other assets. Typically the other two methods to acquire such assets are either a cash purchase, or a loan of some sorts, usually via a bank.
The lease financing solution can frequently offer significant cost savings to the borrower, know as the ‘lessee’. However, this is not just an expense strategy; there are numerous other reasons why this type of financing should be considered.
As an example, a lease transaction that requires only a low down payment might assist the company who has a lot of working capital tied up in receivables and inventory. Receivables and inventory typically represent the largest components of a company’s working capital.
If a customer chooses to purchase the equipment instead they are in effect giving up certain key rights they have in a lease – for example, upgrading equipment, early cancellations, etc.
Normally when a customer considers either a lease or buy decision the business owner or financial manager would prefer to focus on ‘ hard dollar ‘ savings; while this is optimal of course many of the benefits of leasing in effect are intangible and should still be considered as part of the acquisition strategy. Let’s look at some of those intangible benefits.
1. Credit Power – many lease firms have less restrictive credit qualifications than banks or other financial institutions. This is more so the case when the lessor is actually the manufacturer of the equipment!
2. Final Disposition – the company avoids having to dispose of the assets at the end of the term of the lease
3. Timing is everything – Lease approvals tend to be faster to obtain than a loan or bank type financing
4. Payment alternatives – many lessor allow skipped payments, seasonal payments and structured payments – example: A snow plough operator might request lower payments in summer when business is slow, etc
5. Bank lines untouched – in the current economic and banking environment businesses find it more difficult to access, or even maintain their bank lines – leasing leaves those lines untouched
6. Budget issues – Leasing eliminates one the of largest obstacles to a customers ability to acquire equipment – the cost of the machine. Many firms have budget issues and the lease strategy allows them to in some ways circumvent that strategy and pay the lease through an operating budget, not a capex budget
7. When a customer is concerned about warranties or maintenance of the equipment he has significant leverage, via payments, to influence a high level of service from the manufacturer or lessor.
8. Use of asset – if a customer over uses an asset he does not necessarily have to reimburse the lessor
9. Down payment – Leasing requires only a small down payment
10. Balance Sheet optics – Properly structured leases can have the effect of enhancing the customer’s balance sheet as the liability does not appear on the balance sheet – Customers want to use equipment to generate profits, they don’t necessarily want to own it.
In summary, yes the business owner and manager would prefer a hard dollar evaluation of any asset acquisition, but we have shown that there are many intangibles to consider also, many of which could benefit the firm in a number of ways and have a significant impact on their business growth, financing, and profit.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Direct Line = 6905 302 4171
Office = 905 829 2653
Email = firstname.lastname@example.org
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 .
‘ Canadian Business Financing With The Intelligent Use Of Experience ‘
ABOUT THE AUTHOR
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.
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Canadian Business Financing