How Much More Can You Learn About Equipment Lease Finance ? Lots!
So what is important in getting a lease approval? Unfortunately most clients tend to focus on only one thing – the interest rate. The actual accounting reality around lease financing is that the interest rate is not even a rate per se as you are utilizing the equipment but not necessarily owning it. Anyway that point alone is a discussion for another day.
Naturally the financing rate attached to the lease is important, but face reality – your rate is always going to be commensurate with your overall credit quality – if your firm has excellent financials, is profitable, has good cash flow, is growing and is in a good industry sector we can assure you that you will always have a competitive rate within a ¼ point or so.
The lease credit decision actually plays a large part of the entire lease financing approval cycle. Factors that determine your overall final approval are as follows:
Overall credit quality of your firm – ( key factors include your balance sheet, are you profitable, years in business, and amount of financing requested
Type of asset you are financing
Dollar size of transaction
Special structuring requests
Traditional lease financing focuses on your ability to demonstrate you can make the payments – no surprise there of course. But how does your lease firm make that decision. Fortunately or unfortunately it’s a very mechanical decision – it’s a case of taking your cash flow from your financials - i.e. net income and depreciation combined together, and determining if that cash flow supports on an annual basis the next 12 months of payments .So there, we have just shown you how you can influence and present your cash flow repayment ability.
In many cases, certainly in the current more challenging business environment your financials might not be in a position to meet these cash flow calculations. That is where extra skill on your behalf (but more probably and properly achieved with a leasing advisor) is required to present what I have called ‘the weight of evidence ‘that you can make those payments and are worthy of an approval. Additional factors might include some potential restructuring of the lease term – i.e. a shorter term, or accelerate payments . Although many firms stress leasing as 100% financing the reality is that for the transaction to work for yourself and the lessor you should be expected to offer up a 10- 15% (sometimes more) down payment.
Typical other factors to be taken into consideration are your payment experience reports at a Commercial Credit bureau or Dun and Bradstreet, and miscellaneous factors such as years in business, cyclicality of your industry etc. In some cases offering up some additional equipment that isn’t financed as collateral will get you to the goal line.
In summary, lease financing approvals in Canada is a bit of both an art and a science .A proper presentation of your ‘weight of evidence ‘around your ability to pay should ensure you receive a satisfactory rate, term, and structure. And remember, it’s not always about the rate – pick a solid lease partner and work towards a long term relationship which will pay off ten fold over time relative to your lease financing needs.
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
http://www.7parkavenuefinancial.com
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 100 Million $ of financing for Canadian corporations .
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
Stan Prokop
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.