Canadian business owners and financial managers rely on asset finance and leasing as a key part of their overall business financing strategy. But what do you need to know properly access this type of financing and where do you source the financing? Those are the key questions we’ll discuss.
Canadian independent leasing companies provide hundreds of millions of dollars of business, asset, and equipment financing for business in Canada. They are a strong alternative to bank financing because they are very focused on their product and service delivery, and in many cases will always go the extra mile to ensure you have received a transaction that has the proper rate, term and structure. Because of the perceived, or real?
Complexity in asset financing us strong recommend to clients that you work with a trusted, credible and experienced advisor in this area. Your ability to even generate one major benefit on the transaction could save you thousands of dollars depending on your overall deal size. It is important to understand that these firms only finance the assets, they do not service them, and unless they are a captive finance firm , ( i.e. owned by a manufacturer) it is of course up to you to negotiate the sources and pricing of your acquisitions .
The key benefit of leasing finance is that the equipment you are looking for will be paid by the lessor – you receive the equipment, confirm it’s in working order, running, etc, and then you use that asst to generate hopefully profits and revenues.
One of the biggest decisions you need to make around an asset leasing scenario is simply the type of lease that you want to enter into – they are two types of leases, one is called capital lease, the other is an operating lease, and your decision should be driven around really one key question – do you want to own the asset ultimately, or do you want to simply use it and have the ability to return it at the end of the term. That latter type of lease is an operating lease – not all our clients are familiar with this type of leasing finance strategy – but it can bring significant benefits to your firm.
Other critical factors you have to focus on are the term of the lease, and special options you might be able to negotiate around payments. We spoke of the two types of leases, capital (lease to own) and operating (lease to use).
In Canada the major banks have a limited focus on lease financing. They certainly are also not able to offer operating leases, as their interest is certainly not to own assets at the end of term. Leasing finance through a bank is usually a much better overall rate to your firm, however you have to be in a position to meet the more stringent credit criteria that they require – Also it is our observation that banks that do lease financing in Canada will want to solicit all of your business financing – which may prejudice any other relationship you have in place.
So whats our bottom line – simply that asset leasing and lease financing in Canada is the proven alternative for your asset finance strategy. Speak to an expert, focus on your options, and know which type of lease makes the most sense for your firm. There is not panacea of perfect financing decisions in Canada, in fact it might make sense on occasion not to choose lease financing, but weight the advantages and disadvantages and you will be in a solid position to ensure that the proper evaluation of benefits will lead you to the right business financing decision.