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Equipment Finance Companies: A Comprehensive Guide for Canadian Business Owners
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INTRODUCTION
In the vibrant economy of Canada, business owners often face a pivotal question: to purchase an asset outright or to delve into the arena of equipment leasing?
This seemingly straightforward choice is riddled with layers of complexity, especially given the country's evolving landscape of equipment finance. This guide aims to unravel these complexities, offer insights into equipment leasing, and highlight the importance of making informed decisions or seeking expert advice.
When the Canadian business owner or financial manager looks to lease an asset instead of a purchase, it’s a great time to invest in some knowledge about which companies to approach for equipment finance needs.
But can you be expected to be a 'DIY' expert in this broad area of Canadian business financing? We are saying that it will pay you handsomely to either invest some time in understanding some critical fundamentals of equipment finance or work with an expert who can assist you.
Equipment Finance Companies: A Comprehensive Guide for Canadian Business Owners
Why invest some time in this type of business acquisition? The Canadian lease landscape has evolved significantly over the last couple of years. A combination of the economy in Canada, the lease industry players, new accounting rules and a myriad of product offerings can make it seem daunting.
By the way, we're quite sure any business owner can work with lease companies and enter somewhat quickly into a lease for an asset, but is it the right lease, and what are the financial implications and benefits or lack of benefits around that transaction? That’s the $50,000 question!
The Significance of Equipment Finance in Canada
Because almost 80% of all businesses utilize leasing in Canada - that’s why it sometimes is both easy and misunderstood. Many business owners don't understand the lease product/service offering or fail to recognize the benefits. Yes, it's only one method of financing an asset (you can consider a term loan)... but when a lessor/lease company recognizes that you know what you're talking about, you have increased your chances for success.
The Changing Landscape of Equipment Leasing
Lease and equipment finance doesn’t bring cash flow and working capital into your company, but it reduces the funds that go out of your firm! The ownership of the equipment by the lessor for the lease term allows you to structure payments, write off payments as an operating expense, and, more importantly, keep you 'nimble' when it comes to assets and technologies that you finance over short or long terms. (Typical lease terms in Canada range from 3-5 years).
The Risks and Rewards: Making the Right Lease Choice
Business owners might want to do the math, but we're pretty sure that if you work the numbers, it makes sense to enter into a couple of short-term equipment finance transactions rather than purchase/buy outright the same assets over several years.
Understanding the Benefits of Lease Over Outright Purchase
If you invest time in understanding some lease finance basics or work with an expert, you'll see that you can determine when it makes sense to upgrade, return, or renew any lease finance transaction.
Deciphering Lease Finance Basics: When to Upgrade, Return, or Renew
Can our DIY lease financing business owner affect the final credit and structure approval of his or her transaction? The reality is that stricter credit standards have existed since the 2008-2009 global recession and the recent COVID-19 pandemic. Therefore, the industry focuses on creditworthy lessees- but the good news is that some basic structuring around any transaction can still make your deal happen. Issues such as terms, pricing and down payment can be negotiated to the point where it makes sense for the lessor and your firm.
The Tax Implications of Equipment Leasing in Canada:
Companies considering leasing should consider the tax benefits and considerations when opting for equipment leasing. Explore how leasing can offer tax deductions, the difference between capital and operating leases from a tax perspective, and the impact of taxes on the overall cost of leasing.
The Value of Expertise: Working 7 Park Avenue Financial
Working with an experienced Canadian business lease financing advisor can ensure you get the best pricing and structure and achieve the benefits you're looking for.
CONCLUSION
So, everyone’s talking about 'DIY' these days. Why not invest some time in developing a solid relationship with a lease advisor? Success in asset leasing allows you to grow your company with the assets you require... today!
In a world where 'DIY' has become the mantra, understanding equipment financing holds a unique place for Canadian business owners. While leasing can offer numerous benefits regarding flexibility, cash flow, and staying updated with technology, making well-informed choices is imperative. Whether you invest time in mastering the basics or collaborate with a seasoned lease advisor, what's paramount is ensuring that your options align with your business objectives.
Remember, success in asset leasing isn't just about acquiring assets; it's about acquiring them smartly and strategically to fuel your business growth today and tomorrow. Call 7 Park Avenue Financial, a trusted, credible, experienced business financing advisor.
FAQ
What exactly is equipment finance?
Equipment finance refers to securing assets or equipment for business operations through leasing or loans instead of purchasing them outright. It's a financial solution that allows businesses to access essential equipment while preserving cash flow and potentially taking advantage of certain tax benefits.
Why would a business lease equipment from leasing companies rather than buy it outright?
There are several reasons:
- Cash Flow Conservation: Leasing can allow businesses to conserve cash, as it often requires a smaller initial outlay than purchasing, as well as tailored monthly lease payments for capital lease or fair market value leases that make good business sense
- Tax Benefits: Lease payments can sometimes be written off as operating expenses and business expense under equipment lease financing rules offering tax advantages. Companies should talk to a tax advisor on larger transactions to maximize benefits.
- Flexibility: Leasing can provide businesses the opportunity to upgrade to new equipment and newer technologies quickly once their lease term ends via customized solutions
- Preserve Credit Lines: Leasing doesn't tie up credit lines, preserving them for other business needs where traditional financing from banks might be more suited to grow your business - New or used equipment can be financed. A sale leaseback solution can be considered when refinance existing assets to improve cash flow.
How has the Canadian lease landscape evolved in recent years?
Over the past few years, the Canadian lease landscape has witnessed significant changes due to economic shifts in Canada, entrance and exit of lease industry players, changes in accounting rules, and a plethora of product offerings. Moreover, after the 2008-2009 global recession, credit standards became tougher, placing more emphasis on creditworthiness.
What's the typical term for equipment leases in Canada?
Typical equipment lease terms in Canada range from 3 to 5 years. However, the exact duration can vary based on the type of asset, the leasing company, and the specific needs of the lessee.
How can a business ensure it's getting the best deal when leasing equipment?
Businesses can increase their chances of securing the best leasing deal by investing time in understanding lease finance basics. It's also beneficial to work with an experienced lease financing advisor such as 7 Park Avenue Financial , who can provide insights, assist in negotiations, and ensure the lease terms align with the business's objectives.
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