Would You Use A Bank To Finance Equipment Loans and Leases ?
The leasing industry in Canada has historically been dominated by a number of different types of entities that provide equipment and lease financing to Canadian business.
The types of firms that are the key players in lease financing in Canada can be broken down into the following categories:
Life Insurance Companies
Credit Union leasing firms
Third party Independent Finance Companies - Canadian owned
Third party Independent Finance Companies - Subsidiaries of American firms
Captive Leasing Companies
Bank Leasing entities - Subsidiaries of divisions of Canadian banks
We would venture to say that probably 90% of Canadian business owners and financing managers think of ' Third Party Independent Finance Companies ' when they are looking to source lease financing for their equipment and capital expenditure needs.
Canadian chartered banks have moved in an out of the Canadian lease financing industry over the years. Currently several Canadian banks have full fledged separate lease entities that actively market lease financing to their customers. In our opinion the reasons customers choose bank equipment loans entity are as follows;
Pricing
Existence of a Current Banking Relationship
Dollar size of transaction
Let's elaborate a bit on those points. Because banks are in the position of having the lowest cost of capital in Canada for business financing rates on bank leasing deals tend to be excellent. On average we would observe that rates on larger deals tend to be 1- 2 % over the Canadian prime rate. This is excellent pricing, as independent firms tend to price several hundred basis points higher .. That is on average of course because every customer's credit quality and situation is unique.
Business customers have bank lines and term loan arrangements with their bank. So it is a natural logical extension that they would discuss their needs with their banker, who may, or may not be able to offer a lease financing solution. We indicated that only two of Canada's chartered banks have full fledged lease entities. Some of the other banks have leasing division, which are much smaller and more specialized in size, and some banks choose to ' partner ' with third party independent finance firms that are both Canadian or U.S.owned.
We also referenced dollar size as a key factor in a customer choosing a banking lease arrangement.
Banks in Canada have virtually unlimited capital, so they certainly can choose to finance any amount they choose. We say unlimited capital, that is a bit of an exaggeration but Canadian banks are currently viewed as some of the strongest in the world re their own credit ratings and capital ratios.
Banks are traditionally a bit slower to enter into the lease financing area, and banks use the function in some respects to develop new corporate banking relationships. In fact we have observed that in the 2009 and 2010 banking environment in Canada the bank lessor in fact attempt to develop a full corporate banking relationship with customers who approach them for lease financing needs.
Leasing is a good source of profit for the banks - the banks tend to make solid credit decisions on assets and corporate credit quality, and lease pricing provides some nice yields compare to some other parts of their business.
Some banks in Canada have, in the past, purchased some of the private independent Canadian lease companies that were getting large and successful or had a specialized market or geographical niche... Banks are often quick to sell portfolios and eliminate leasing divisions when they feel that market conditions suggest that.
In summary, the Canadian leasing landscape is made up of a number of market participants. Banks play a key role, but not a dominant role in the industry. Lease financing via a bank is often a relationship driven arrangement with the business customer's current incumbent bank.
Banks who participate in lease equipment financing have excellent rates but higher credit and asset requirements. Business owners are cautioned to source the assistance of an experienced leasing advisor to determine which leasing arrangement (bank or non-bank) is best for their needs.
Seek out and speak to a trusted credible and experienced Canadian Business Financing Advisor who can assist you with your equipment and lease finance needs.
7 PARK AVENUE FINANCIAL
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 10 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 :
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Stan Prokop
