What You Need To Know About Equipment Lease Rates and Interest Finance Charges In Canadian Lease Finance

Are You Getting The Best Lease Finance Rates ?


Information on equipment lease rates and finance interest charges in Canadian leasing and financing . Factors and issues to consider for a transaction that makes sense for your business .



Although the Canadian equipment finance industry is very competitive many Canadian business owners and financial mangers don’t fully understand how equipment lease rates and interest finance charges are calculated... how they can be managed, and what issues affect your ultimate monthly pricing. Let's examine some ' need to know ‘points that will allow you to fully maximize the benefits of lease financing assets in Canada.

We don't blame clients for always wanting ' the best deal ‘... the ' lowest rate '... the ' smallest monthly payment ‘. Some of the variables that go into those issues are controlled by the lessor; some can easily be managed by you.

Asset quality is often a factor in Canadian lease finance. The ability of either yourself of the lessor to understand the ongoing value and the final residual value of the asset you are financing plays a key role in equipment finance pricing in the Canadian marketplace. A win win situation exists of course when both you and the lessor have a transaction that meets both of your needs.

Lessors refer to their profit on a transaction as their ' yield '. Many lease finance firms strive to earn a certain constant yield on their lease transaction they finance for Canadian business. It’s simply their ultimate profit for putting funds out on your transaction.

Canadian business mangers choose from only two basic lease types when acquiring and asset via a lease finance strategy. Its as simple as that, you are either selecting a capital lease, which is a ' lease to own ' strategy, or alternatively you are choosing and operating lease .The operating lease is a transaction wherein you have a stated intention to return or upgrade the asset during or at the end of the lease term . The true beauty of the operating lease is that it also gives you still the right to purchase the asset, even though that might not have been your original intention.

Put yourself in the eyes of the lease company, and let’s use a simple example of a 1000.00 transaction. If the final residua value of the asset at the end of the term of the operating lease is 100.00 and the lease firm estimated this as , lets say 50.00 then they have just realized a further 50.00 profit on the asset .

So who is the best to understand the actual true value of the lease at the end of the term? Quite frankly, sometimes its you, who understand your business only too well. Alternatively many lease equipment finance firms have significant expertise also. It depends,

The type of lease company you choose to work with also has a significant effect on your interest finance charges. Bottom line, your lease firms borrow funds also. In Canada that’s typically done through insurance companies and banks. So a general rule of thumb is that if your lease finance firm is larger, well funded, and well managed... the bottom line is that your chances of more aggressive lease rates increases.


We hate calling them ' games ' but the industry uses many nuances in pricing and structure and terms that significantly affect your overall finance charges . What are some of these?

A good example is advance payments you are asked to make, or security deposits. If you are asked me make a significant security deposit ensure interest accrues to your security deposit, at a rate commensurate with the size of the deposit.

Many assets are acquired on an interim rent basis... that has the lessor outlaying cash before you actually sign off on the final acceptance of the asset. It could be a complicated computer project that is being funded, or perhaps a production asset that is being assembled by your vendor in stages.

We've highlighted just a few of the basic issues that should come into consideration by your firm when you are concerned about getting those ' best ' equpment lease rates' in the Canadian marketplace . There are others.

If there is a bottom line here it simply that it’s worth it to take some time and understand how some up front knowledge and consideration at the start of your lease finance process can positively impact interest finance charges in your favor as the lessee. Speak to a trusted, credible and experienced Canadian business financing advisor who can guide you to the appropriate lease finance pricing for your ongoing equipment needs.


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 7 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 :


http://www.7parkavenuefinancial.com/equipment_lease_rates_finance_charges_interest.html

Not Getting The Best Canadian Equipment Lease Interest Rates in Commercial Leasing ?

Looking for the best deal in town on Equipment lease rates in commercial leasing asset acquisition ? Our clients ' interest ‘in getting those best rates is always somewhat amusing to us. Why? Simply because the ability to understand how lease pricing is derived is not always clear to Canadian business owners and financial managers.

Lets examine some of the key factors that drive your final pricing and how you can have a very direct effect on the assets you finance and the price you pay - as always it seems to always come down to that ' monthly payment ' - so lets demystify that process .

First of all many business owners never take the time to look at their alternatives when it comes to equipment leasing of their fixed assets. Two key issues come into play here, one is simply they type of lease they enter into (there are two types - do you know which is which) and the second is understanding what the 5 (yes five!) components are of a very simple lease calculation.
Back to point # 1: When you are making that lease versus buy decision make sure you evaluate your alternatives.

The key alternative to lease finance is one in which you might consider a bank term loan, or alternatively purchasing the asset out of your operating cash flow based on existing credit lines that are in place. But quite frankly the reason you are reading this in the first place is that you have already decided that commercial equipment lease financing is in fact the best method of asset acquisition - at this point you just want a good deal . So we're assuming you have done your lease vs. buy analysis and are focused on our core subject today - a great lease rate and structure!

Getting back to those 5 key elements in lease financing pricing - what are they? They are simply as follows - the term of your lease, the interest rate being charged by the lessor, the value of your transaction, the future value of the lease, ( i.e. what happens at the last payment ) and out of that falls nicely # 5 - your monthly payment .

Many business owners, and are we say, financial managers don’t use a financial calculator. If you have access to that type of calculator you can simply input either your data, or assumptions on any of those 4 critical data points and out will pop the last piece of data that completes the commercial leasing pricing and structure.

Quick example - lets say you are leasing an asset for $100,000 - you want a 5 year lease, you think your lease interest rate should be about 8%, and you want to own the equipment at the end of the lease. Congratulations, you have just quantified 4 out of the 5 data points - Enter those into your lease calculator and you will see that the monthly payment is 2014$.

But wait, let’s say you can only afford 1500$ a month and you have done your analysis on the payback of the asset. Enter 1500$ into your lease calculator and it will show you that to achieve that lease payment the term must be 88 monthly, not 60 months .
Getting the point - its a simple one - understand that if you know the key elements of your lease inputs you can manipulate that info to achieve either the best rate, the best monthly payment, the optimal term of the lease, etc .

The type of analysis we have just done relates to a capital lease transaction - remember we spoke of two types of leases. If you want an operating lease (i.e. use, but not ownership of the asset) our data elements are just the same but you'll find that your overall interest rate on the amount financed will be much lower, because the lessor and you have opted to have the lease company own the asset.

Do we even have to mention that the key driver in the actual interest rate charged is very simply the overall credit quality of your firm when it comes to borrowing.

So what have we covered - simply that you have the ability to manipulate key lease elements to drive a final pricing and structure that works best for your firm. Is there a quicker way to ensure you have all the points covered - there is! Speak to a trusted, credible and experienced Canadian lease financing advisor who can ensure you the final deal is the best deal in commercial equipment leasing in Canada.



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 7 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/equipment_lease_rates_interest_commercial_leasing.html