From Startups to Corporates: A Canadian Guide to Equipment & Technology Financing

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Navigating Equipment Financing: What Every Canadian Entrepreneur Needs to Know

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Finding the Right Lease: Equipment Financing Strategies for Canadian Firms  

 

Introduction: Understanding Equipment Financing in Canada

 

Canadian entrepreneurs and financial managers should be well-informed about essential factors when considering an equipment financing and leasing transaction for an equipment purchase within the Canadian marketplace.

 

Without adequate knowledge and insights into these crucial aspects, one might be unprepared for a leasing strategy. In this guide, we will explore the types of leases available in Canada, their advantages and disadvantages, and how to make an informed decision tailored to your needs at the most competitive interest rates.

 

 

Types of Equipment Leases in Canada / Capital Leases vs. Operating Leases: What’s the Difference? 

 

The Canadian market has two primary lease categories for funding equipment purchases: capital leases and operating leases.

 

Your choice between them depends on whether you aim to own the equipment eventually or merely utilize it. The choice significantly influences the pricing and financial structure of the transaction.

 

• Capital Lease: This option allows you to make fixed payments over time, ultimately resulting in equipment ownership. The payments cover the equipment's cost and financing charges, allowing you to retain ownership at the end of the lease.

• Operating Lease: Typically lasting around three years, an operating lease enables you to pay for equipment used over a specified term. It’s especially suitable for technology equipment like computers and offers significant cash flow and balance sheet benefits.

  

 

Advantages of Equipment Leasing for Canadian Businesses  

Key Benefits and Considerations

 

Leasing equipment offers various obvious advantages to Canadian businesses, which include:

 

• Cash Flow and Working Capital Preservation: Helps maintain liquidity.

 

• Higher Loan-to-Value Financing: Usually requires only a nominal down payment. 100% financing is often available

 

• Credit Facility Preservation: Long-term asset acquisition is matched with a long-term lease, preserving other credit facilities.

 

• Collateral Considerations: In most cases, the financed asset is the only collateral needed.

 

• Tax and Write-off Benefits: Consult your accountant to maximize your transaction using tax incentives and investment credits.

 

 Potential Disadvantages and Risks of Equipment Financing 

 

No single financing strategy fits all firms.

 

Leasing might have perceived or real higher costs. If undertaking a  sale-leaseback financing and the asset's value is below the sale price, you might face a capital gain tax. Understanding insurance, installation, purchase options, and potential restrictive covenants is essential.

 

Key Takeaways :

 

1. What is equipment financing?

   • A flexible business loan or lease to acquire equipment.
   • Payments made over time  to match the term of the lease with asset useful life
   • Avoids the need for hefty upfront costs and a down payment

2. What types of equipment can be financed?

   • Technology, machinery, vehicles, and more.
   • Includes office technology, medical equipment, and heavy construction machinery.

3. How does the equipment financing process work?

   • Efficient approval processes
   • The simple application process, prompt evaluation.
   • Funding is often disbursed within a day.

4. What credit score do I need to qualify for equipment financing?

   • Determined by multiple factors, not just credit score. The focus is on the asset

5. Can any industry get equipment financing?

   • Suitable for most industries, including healthcare, heavy equipment financing construction, IT, etc.
   • Tailored solutions are available for lease and loan repayment terms

6. What are the benefits of equipment financing for new or used equipment?

   • Preserves capital, increases cash flow, offers fixed low rates and flexible terms.
   • Potential tax deductions, no large down payments needed - allowing preservation of existing credit facilities

7. What is the difference between equipment leasing and equipment financing?

   • Leasing: pay to use without ownership.
   • Financing: purchase and own while repaying over time.

8. Can used equipment be financed?

   • Financing options for new and pre-owned equipment. Used assets must be commercial transactions at arm's length

9. What are the tax benefits of equipment financing?

   • May provide tax benefits under CICA accounting rules
   • Deductions for the full purchase price of qualifying equipment.

10. Can I pay off my equipment financing loan early?

• Early payoff allowed; specifics depend on the agreement terms of each lease

11. What types of payment plans are available for equipment financing?

• Tailored to business needs, including monthly, quarterly, and seasonal payments.

12. Why should I choose 7 Park Avenue Financial for equipment financing?

• Decades of experience, and quick approvals.

13. What happens at the end of an equipment financing term?

• Typically, ownership of the equipment and specifics varies by agreement.

 

  

Conclusion:   

 

Leasing remains a vital source of long-term working capital for Canadian businesses.

 

A careful understanding of the types, benefits, and potential downsides can guide you in making an informed equipment financing decision. Don’t overlook this significant option, but use the insights provided to tailor a lease financing strategy that aligns with your firm’s unique requirements.

 

At 7 Park Avenue Financial, our core competency lies in financing solutions for business equipment and technology, furnishing small and medium-sized businesses with the equipment, vehicle, and software financing they require at competitive rates, all while cutting out the frustrations typically associated with traditional bank loans or another conventional financial institution.

 

Our clients enjoy the simplicity of filling out a straightforward application without requiring tax returns and financial statements to finance equipment when not necessary-  receiving a decision promptly.

 

7 Park Avenue Financial provides customized solutions and extensive equipment finance solutions for rolling stock, furniture, and software lease and loan agreements at competitive interest rates ( fixed or variable ) unaffected by inflation. We make the process of getting started as uncomplicated as possible - whether its traditional financing or non-bank finance alternatives.

 

7 Park Avenue Financial has provided financing solutions for Canadian businesses for over 17 years by consistently delivering business financing solutions in areas such as business equipment financing and leasing solutions and cash flow financing funding that businesses like yours demand.

 

 

  

FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION  

 

What is equipment financing, and why is it important?  

 

Equipment financing for business funding of assets allows businesses to lease or purchase equipment without paying the full cost upfront. It helps conserve cash flow via structured monthly payments to match payments to cash flow, maintain credit lines, and enable growth. Often miscellaneous soft costs can also be bundled into the transaction. 

 

What's the difference between a capital lease and an operating lease?  

 

A capital lease leads to equipment ownership around equipment needs , while an operating lease/ fair market value lease is more like renting, allowing use without ownership. Both have different financial implications.  

Are there any tax benefits to leasing equipment in Canada?

 

Yes, leasing equipment can provide tax write-offs and investment credits, maximizing the financial benefits of your transaction.

 

What are the potential drawbacks of equipment leasing?

  

 

Drawbacks might include perceived higher costs or potential capital gain taxes in some sale-leaseback scenarios. It's essential to understand the specific terms and covenants.  

 

How does equipment financing affect my cash flow?  

Equipment financing lenders allow the company to conserve cash flow by spreading payments over time, which can be crucial for liquidity and financial stability.

 

  

Is equipment financing suitable for small businesses or startups?

  

 Equipment loans and leases can be tailored to suit businesses of all sizes, including small businesses and startups, providing flexibility in growth and operations. For small ticket transactions often only a one page credit application is required - Credit scores of owners do not significantly impact approvals in this method of asset financing and there is no minimum annual revenue requirement.

 

  

How can I determine the right lease type for my business?

  

 Evaluate your long-term goals, such as whether you want to own or use the equipment. Consulting with a financial expert such as 7 Park Avenue Financial for equipment financing needs can help tailor a strategy to your needs. Small transactions can often be approved same day or in just a few hours. 

 

What kind of equipment can I finance?

  

From technology like computers to heavy machinery/ construction equipment, a  wide range of equipment or technology for any business use can be financed through capital or operating leases.

 

  

How can I ensure I get the best equipment financing deal?  

 

Thoroughly understanding the types of leases, benefits, and potential downsides and consulting with a financial advisor can ensure that you choose the best financing strategy for your business.

 

Is equipment the only collateral required in leasing deals?

 

In most cases, yes. The   financed asset in the lease/loan agreement via equipment financing companies in Canada is typically the only collateral needed, making it a less risky option for many businesses.

 

 

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