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Need Help for Equipment Leasing Decisions ?
Information on the equipment financing in Canada and the business owners' lease versus buy decision - Make the right equipment loan or lease decision is the key acquiring and financing business assets
Let's examine some of the key points and facts you need to consider in that decision. Naturally the good news is that an equipment lease can be used to acquire almost any type of equipment or asset - that includes equipment, machinery, buildings, etc. More often than not it pays to seek a business financing advisor who is well versed in the benefits and nuances of equipment finance.
Working capital and cash flow tend to be the main drivers of the lease vs. buy decision when we talk to clients. It goes without saying that most Canadian leasing companies probably have a lower cost of capital then your firm based on their borrowing capacity and the way they are funded. Therefore that lower cost of capital becomes a positive advantage in the lease vs. buy decision.
In many cases the lease vs. buy decision will be very close and the actual non financial benefits of an equipment lease will drive your final decision. For example, although you might be in a position to construct a favorable buy versus leasing model you might not want to use business lines of credit to access the cash needed to acquire the asset.
Also one of the key tenets of finance is that you should use long term funds to fund long term assets - that just makes common sense. Simply speaking you don’t want to purchase an asset as opposed to l easing it and find out you might not be able to make payroll on Friday because your line of credit is maxed out!
As we said, some of the pure mechanical decisions around the lease vs. buy tool (there are numerous on line calculators which are references as lease vs. purchase analysis tool) can often be over ridden in your analysis by non financial considerations. For example, let’s say you clearly don’t want to keep the asset at the end of the term of its useful economic life. That’s where an equipment lease makes total sense, as it gives you the ability to return, extend, or even purchase the asset if in fact you end up deciding to purchase and keep it if your circumstances change.
Business owners might want to consider talking to their accountant or a business financing advisor on larger capital asset acquisitions. Some of the inputs required in the lease versus buy model include items such as the actual interest rate the lease company is charging you, your tax rate, the projected increase in profit via use of the asset, the depreciation expense you can take on the asset and your overall cost of capital which is calculated by analyzing your debt and equity in the business. Whew!! That’s some fancy accounting and it can best be left to your accountant or advisor on larger asset financing acquisitions. However the good news is that a simple computer spreadsheet handles all this for us nicely!
In summary the leasing versus buy tool in business finance can be a great asset in your financing decisions for new assets. Adopt Warren Buffets key approach, which is simply to determine if the asset financing opportunity delivers a solid return on equity for your business.
Yes our tool we outlined is important, but at the end of the day use business common sense to analyze the equipment lease opportunity and blend it into your overall business financing strategy .
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
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
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