Asset finance for equipment requires that business owners and financial managers look down the road at both the use of the asset or assets in question and the cash flow pressures that the need for new assets demands.
It seems only common sense for owners and managers to take a strong look at why 80% of Canadian business utilizes lease financing at one time or another, or … in some cases all the time! But hand in hand with that task requires looking at a number of issues, any of which could dramatically impact the true benefits of equipment finance.
Those issues? They include cash flow, impact on current credit lines and other lending agreements you have in place, depreciation, taxes, and the timing and ultimate disposition of the asset .
True power of leasing emerges when owners/managers acquire assets to produce revenues and profits. On the other hand these days such key assets such as technology are a must to stay competitive. The good news? Technology is made for financing these days, for everything up to and including software.
The term or ‘ amortization’ of the lease is an important consideration. Typical lease terms tend to be in the 2-5 year range – anything less than 2 years is quite frankly considered a ‘ rental ‘. By the way, while we are focusing on leasing assets can of course be acquired via term loans also. In some cases short term bridge loans of a year or so can aid a company when they are refinancing assets.
Some accountants and financial analysts argue on occasion that leasing is more expensive than term loans. While that might be the case based on factors such as rate, term, down payment etc the reality is that leasing assets becomes a much more simple process – and certainly credit approvals are typically 1-2 business days – often same day for smaller transactions.
Operating leases are less commonly used but provide tremendous benefits when you are considering financing tech assets. Changes, i.e. ‘ upgrades’ can very easily be made mid term, and options at the end of these transactions include return, extend, upgrade, purchase . That is flexibility.
Many assets that your business acquires include miscellaneous costs such as delivery, taxes, warranty, maintenance, install, etc. Those can almost always be included in your transaction. Remember also that if cash can not be expensed in your business (with leasing it does) it negatively impacts your owner equity.
In Canada the true popularity of leasing actual creates a problem. Who to deal with. Lessors are U.S. based, Canadian, divisions of banks, small tick oriented, or in some cases requires minimum deal size in the millions!
Additional lessors tend to be asset or industry focused, and even geographically challenged vis a vis where they can do business. A solution to that? Seek out and speak to a trusted, credible and experienced Canadian business financing manager who can assist you with your asset 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 :
7 PARK AVENUE FINANCIAL = CANADIAN LEASE FINANCING EXPERTISE
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