Equipment Financing Companies Canada – 3 Things You Must Know

Canadian business owners and financial mangers need to know a couple critical pieces of information when contemplating an equipment financing and leasing transaction in the Canadian marketplace. We tell clients that if you don’t have good info and insights into these three factor you are poorly equipped to enter into a lease financing strategy.

We can summarize those items as follows:

1. Know the type of lease you need – there are several types, and the wrong pick in this area can nullify the benefits you are seeking in a lease financing strategy
2. Focus in on what advantages of leasing are important to yourself and your firm – Not all advantages will usually apply to everyone
3. It’s not a perfect world, there might be disadvantages to lease financing in your particular case – Understand what those might be.

Let’s elaborate on those key points. First of all there are two types of leases in the Canadian marketplace – you can answer which one is best for yourself by simply asking the basic question – Do I want to ultimately own the equipment, or in fact do I simply want to use the equipment. There a big difference there that affects both the overall pricing of your transaction, and how it is structured financially on your books.

The two types of leases in technical terms are capital leases, and operating leases. In a capital lease transaction you make fixed payments over a period of time and then gain ownership of the equipment. The payments to the lessors cover the cost of the equipment and the interest or financing charges. Again, the bottom line is that you retain ownership at the end of the lease.
In an operating lease scenario you pay for the equipment and its use for a specified term, the most typical rate we encourage clients to enter into on an operating lease is 3 years. These types of leases have significant cash flow and balance sheet advantages and make sense when leasing items such as technology, i.e. computers.

Let’s focus in on critical factor # 2 – what leasing advantages are important to your firm. There are several very obvious ones which include:

- Cash flow and working capital conservation
- Higher loan to value financing – usually only a nominal down payment is required
- Your other credit facilities remain untouched – we strongly recommend to clients that they match long term asset acquisition with a long term lease financing strategy, You don’t want to purchase assets with your revolving credit line or receivables financing facility
- In 90% or more of lease financing deals the only collateral is the asset being financed
- Your accountant will advise you that you have a number of tax, write off, and investment tax credit scenarios which may further maximize your transaction.

Let’s close off now and move to final critical item # 3 which we can simply start out by saying – It’s not a perfect world! No single financing strategy is beneficial for all firms. Some of the potential and that’s important, potential disadvantages are that leasing in some cases has a real or perceived higher cost. Also, if you are doing a sale lease back financing in some cases if your asset is below the sale price there might be a capital gain tax to pay. Although they aren’t ‘ disadvantages’ per se, you should also thoroughly understand insurance, install, purchase options, and any restrictive covenants that might come into play in a lease financing strategy .

Leasing continues to be one of the most important sources of long term working capital .Don’t over look it, but do clearly understand how our 3 factors can assist you in making an informed equipment financing decision.

---

Stan Prokop - founder of 7 Park Avenue Financial - http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:

http://www.7parkavenuefinancial.com/equipment_financing_companies_canada.html