In 2004 I founded 7 PARK AVENUE FINANCIAL. At that time I had spent all my working life, at that time - Over 30 years in Commercial credit and lending and Canadian business financing. I believe the commercial lending landscape has drastically changed in Canada. I believe a void exists for business owners and finance managers for companies, large and small who want service, creativity, and alternatives.
Every day we strive to consistently deliver business financing that you feel meets the needs of your business. If you believe as we do that financing solutions and alternatives exist for your firm we want to talk to you. Our purpose is simple: we want to deliver the best business finance solutions for your company.
Tuesday, November 8, 2011
Which Of The 3 Equipment Lease Rates Would You Choose ? Canadian Capital & Operating Lease Payments Explained!
Canadian Equipment Lease Rates – the truth!
Information on equipment lease rates in Canada . How are lease payments calculated on both capital and operating lease scenarios . Which type of transaction has the best payment structure for your firm?
OK. Quick test. Here we go. Let’s test your knowledge about equipment lease rates, payments... as they appear to be, and how those payments look in capital and operating leases in Canada.
Let’s assume you have a $ 150,000 transaction - you are looking for a 4 year lease term, and you are being offered three lease payment choices. Those choices are:
So, now the test. Are you ready. Which payment do you choose? The answer. All three transactions are essentially the same! Its just that the type of lease you choose and how Canadian equipment lease finance companies show you that payment is really where you can save, ( or by the way , lose) thousands of dollars . Let’s explain.
First of all, threes a huge difference in the types of leases being offered to Canadian business owners and financial managers in Canada. We're actually quite lucky because the U.S. leasing industry is populated by all sorts of leases, the names even make our eyes roll, and we think we're somewhat of an expert. They include Trac leases, synthetic lease, non leveraged lease, etc.
But, we're Canadians, eh?! So we keep it simple, and for the most part you only have to choose between two types of leases in Canada, capital and operating. Its the equipment lease finance industry in Canada that sometimes tries to make even these two scenarios complicated - its our job to keep clients decisions simple, and, oh yes, understandable !
Once you have a handle on the two types of leases, and some of the ' games ' albeit legitimate that lessor tend to play you should consider yourself fully armed with respect to getting leasing payment and equipment lease rates for those two basic scenarios ; capital, which is ' lease to own', and operating, which we call ' lease to use'!
When you enter into a capital lease you have made the decision to own an asset at the end of a typically longer lease term. In Canada that is anywhere from 2-7 years, although the most typical lease terms are three years and 5 years.
Operating leases on the other hand tend to be 2-3 year terms, and the reason why is that some of the technical and accounting calculations needed to make an equipment finance lease work from an operating perspective require the calculations to be on a shorter term. But that’s ok, because its assets in an operating lease that tend to be upgraded, returned, remarketed by you or the lessor, etc.
We encourage clients to think of their lease financing needs in terms of both financial reasons and operating policy reasons. All sorts of issues come to mind when you are leasing assets in Canada, not the least of which is getting approved! Other issues such as budgets, payment flexibility also come to mind.
Oh, and back to our opening question, which would you choose again. The first calculation is a standard lease with no obligation at the end of the 48mo term. The 2nd transaction is a slick trick, and actually useful financial strategy, which is providing you with a purchase option at end of term. You can pay or extend typically. And the final is an operating lease, same asset and term, but with a 15% residual investment by the lessor.
A bottom line? As always, speak to a trusted, credible and experienced Canadian business financing advisor who can help you wade thru the myriad of equipment lease rates and structure in a common sense manner that benefits your company.
Stan Prokop - founder of 7 Park Avenue Financial -
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing .Info re: Canadian business financing & contact details :