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Equipment Lease Financing in Canada
Information on equipment lease financing in Canada, Critical information regarding financing assets for your business
We can summarize those items as follows:
Know the type of lease you need – there are several types, and the wrong pick in this area can nullify the benefits you are seeking in a lease financing strategy
Focus in on what advantages of leasing are important to yourself and your firm – Not all advantages will usually apply to everyone
It’s not a perfect world, there might be disadvantages to lease financing in your particular case – Understand what those might be.
Let’s elaborate on those key points. First of all there are two types of leases in the Canadian marketplace – you can answer which one is best for yourself by simply asking the basic question – Do I want to ultimately own the equipment, or in fact do I simply want to use the equipment. There a big difference there that affects both the overall pricing of your transaction, and how it is structured financially on your books.
The two types of leases in technical terms are capital leases, and operating leases. In a capital lease transaction you make fixed payments over a period of time and then gain ownership of the equipment. The payments to the lessors cover the cost of the equipment and the interest or financing charges. Again, the bottom line is that you retain ownership at the end of the lease.
In an operating lease scenario you pay for the equipment and its use for a specified term, the most typical rate we encourage clients to enter into on an operating lease is 3 years. These types of leases have significant cash flow and balance sheet advantages and make sense when leasing items such as technology, i.e. computers.
Let’s focus in on critical factor # 2 – what leasing advantages are important to your firm. There are several very obvious ones which include:
Cash flow and working capital conservation
Higher loan to value financing – usually only a nominal down payment is required
Your other credit facilities remain untouched – we strongly recommend to clients that they match long term asset acquisition with a long term lease financing strategy, You don’t want to purchase assets with your revolving credit line or receivables financing facility
In 90% or more of lease financing deals the only collateral is the asset being financed
Your accountant will advise you that you have a number of tax, write off, and investment tax credit scenarios which may further maximize your transaction.
Let’s close off now and move to final critical item # 3 which we can simply start out by saying – It’s not a perfect world! No single financing strategy is beneficial for all firms. Some of the potential and that’s important, potential disadvantages are that leasing in some cases has a real or perceived higher cost. Also, if you are doing a sale lease back financing in some cases if your asset is below the sale price there might be a capital gain tax to pay. Although they aren’t ‘ disadvantages’ per se, you should also thoroughly understand insurance, install, purchase options, and any restrictive covenants that might come into play in a lease financing strategy .
Leasing continues to be one of the most important sources of long term working capital .Don’t over look it, but do clearly understand how our 3 factors can assist you in making an informed equipment financing decision.
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
