As a Canadian business owner and financial manager you want to ensure you can obtain best prices for equipment leasing, and at the same time maximize other benefits under the entire lease financing proves. How do you address these issues with equipment leasing providers, and who are these firms and how do you locate them?
There are a number of considerations when you choose to acquire assets through the lease financing process. There are consequences to each decision with the business equipment finance process. And then there are those benefits we mentioned – what are they and which ones should be maximized by your firm. Let’s explore some basics on these critical financing points.
We have of coruse assumed you have made the decision to enter into an equipment financing arrangement. We should say however that hopefully you have also evaluated the alternatives, such as a bank loan or term loan, and, dare we say it, paying cash for the asset. While lease financing is often deemed a bit more expensive than those two options in the long run at the same time it is in many ways the ultimate cash flow conservations strategy when acquiring new assets for your firm, so any perceived or real additional cost has to be factored against that point .
That analysis we referred to above can be performed by yourself, or your accountant or business financing advisor with a simply template known as a ‘lease versus buy ‘template. It takes into account key aspects of the lease such as the term of the transaction, i.e. how many years you want the lease for, the interest rate, and also factors in as an example what you could do with funds based on the return on equity that you traditionally achieve for your firm .
You also want to carefully consider the type of lease that you require – there are two key asset financing strategies, and the ultimate answer to each is simply achieved by asking yourself on key question – is your focus owing the asset or using the asset . If you want to focus on using the asset then look at what is known as an operating lease. This gives you maximum flexibility, and quite frankly usually has the best cash flow analysis because the lessor retains ownership of the equipment. However, at the end of the lease operating leases give you some great flexibility – those flexibilities include returning the asset, buying it for an agreed upon fair market value, or simply extending the lease, which usually also has a lower monthly payment at that time.
The key really to all pricing for equipment leasing is to ensure you have a competitive rate, and one that affects your overall credit quality. The beauty of equipment financing in Canada is that financing is available for all credit types and asset categories. Your overall credit quality as perceived by the lessor dictates your price, with other key factors being the size the transaction, the asset quality and remarket ability , and , unbeknownst to many business owners, the ownership and structure of the lease provider you are dealing with . Lease financing firms have different asset appetites, some prefer small leases, some only do multi million dollar leases, and they in turn have their own funding and capital structures which dictate pricing to you.
We tell clients that as a general rule they should expect the best pricing when they are established businesses, are profitable, and have positive cash flows and clean balance sheets and income statements. Unfortunately not all our clients fall into that category, but as we said, the good news is still that equipment leasing providers for all credit quality and asset types and deal sizes exist in Canada .
Speak to a trusted , credible, and experienced lease financing advisor who will guide you thought the process of how the lease marketplace works, which firm is the best partner for your specific financing needs, what economic advantages you can hope to achieve, and how do you do a true benefits assessment for this valuable type of business financing in Canada .