OVERVIEW – Information on leasing loans in Canada, including issues such as sale leaseback, appraisals, etc. Lease finance has pitfalls that need to be avoided when considering asset financing strategies
Leasing loans often come with issues that can’t be overlooked by the business owner/financial manager. Let’s pull back the curtain and expose some issues that must be dealt with properly to maximize the benefits of lease finance in Canada. Let’s dig in.
It seems simple, right? We’re referring to the basic concept of financing your assets via equipment leases. But simple calculator keystrokes (by you or the leasing company) can dramatically affect how much you pay as well as determining your rights and obligations under the lease contract.
We would point out also that many clients we talk to interchange the words ‘ lease ‘ and ‘ loan’ although they are somewhat different. In the clients eyes they are simply ‘ borrowing funds ‘!
Leasing companies in Canada ‘ structure’ transactions. That’s the term for helping you match the benefits of the useful life of the asset to your cash outflow – aka the monthly payment.
Instead of waiting for a lease offer to be presented it is important for the business owner/financial manager to proactively think about some key issues in advance. Factors that should be considered are pricing vis a vis your company’s credit quality, what type of lease you want or need ( there are two types ) , what you want to happen at the end of the lease, , and how long you wish to spread out the payments for – known as the lease term or amortization.
TIP –Ask you lessor if payments under your lease were calculated in ‘advance’ or ‘ arrears ‘. This can change the profit made by the lessor and of course that implies the overall rate you are paying.
The huge amount of competitiveness in Canadian lease financing puts the borrower, that’s you, into the driving seat when it comes to getting an overall structure that makes sense for your firm.
Did you know that your payments under a lease don’t necessarily have to start when the equipment is delivered? In some cases special needs or complexity around the purchase of an asset can have your vendors paid, equipment delivered, and payments deferred. The industry calls this an ‘ interim rent’ issue, and allows your suppliers to be paid promptly while your asset gets installed, etc.
A common example would be a larger project your business is undertaking, requiring multiple suppliers to deliver products, get paid, etc. While the lease company earns a bit more finance interest profit on this type of transaction the ability for you to defer payments under a project is usually valuable.
TIP –Used equipment can easily be financed also. Issues that need to be thought out in advance and presented to your lessor are the age of the asset, long term ‘ shelf life ‘, determining the actual market or liquidation value of the asset, replacement cost, , as well as the ability of a used asset to generate sales and profits for your firm .
Don’t forget to think about these, as well as possible other issues relating to the overall benefits of lease financing in Canada. 80% of business leases assets as a cost effect way to run and grow your business.
Avoid any ‘ deadly sins’ in asset acquisition by seeking out and speaking to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you in your lease 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 :
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