Lease Versus Buy : Hacking Into The Equipment Financing And Leasing Decision Business

The Subtle Science Around Lease Vs Buy Decisions And More….

OVERVIEW – Information on equipment financing in Canada and How Canadian business owners assess the lease versus buy decision when contemplating leasing new or used assets

Equipment financing decisions in Canadian business often start at the ' lease versus buy' decision point. Leasing business assets is a strategy used by the majority of Canadian businesses. We're examining that initial decision to finance as well as uncovering other information not generally understood. Let's dig in.

While business owners/financial managers, and rightfully so, reflect on the use of acquired assets and the profits or benefits they will generate it's also important to understand the financial impact on your financial statements.

What factors impact that initial decision to either buy the asset or finance it? They include:

Your ability to access financing approval

Any Tax issues that will play into the finance decision - as well the balance sheet effect of your transaction needs to be considered relative to any ratios and covenants that current senior lenders might require

Your ability to justify the cash flows on the transaction

Naturally if your firm has the available cash and is able to not impact your current credit lines negatively simply buying the asset is an option. Many business owners still hold onto the concept of ' pride of ownership' and do not wish to take on additional debt. They simply depreciate the asset over its useful life.

Businesses also have the option of financing assets under a term loan, and can deduct the interest on the loan on their tax filings.

Getting back to ' leasing ' though 2 key options remain. Companies can utilize an 'operating lease', or a 'capital lease ' to acquire the asset. Operating leases involve your lessor taking a position in the asset whereby when the asset is returned at the end of the term they will dispose of it for profit or refinance it with another client. This type of transaction reduces your overall cost and gives you of course full use of the asset during the lease term. Your actual lease payments are tax deductible

It should be noted that new accounting rules worldwide have somewhat discouraged the ‘off balance sheet ' aspect of operating leases.

By far the majority of equipment financing in Canada is done under a ' capital lease ' scenario. Here your company has ownership as well as use of the asset and you are in effect financing the entire purchase- unlike our operating lease scenario. Interest financing costs are deductible under the capital lease scenario.

The actual financing costs in leasing are dependent on your firm’s financial strength as well as the overall value of the asset.


While equipment leasing is utilized by many it is certainly not understood by all. Businesses lose a significant amount of money by not understanding their obligations during and at end of term. You should ensure the lessor contacts you prior to the end of the term and agrees on final disposition and termination of the lease. Otherwise a new lease term might begin with additional financial commitments by your company.

For those firms that have entered into operating leases they must carefully consider which of the three options they will choose under an operating lease that comes to full term. Those options are to return the asset, purchase it for fair market value, or agree to a defined extension of the lease. Even simple issues as the cost of returning and shipping the asset back to the lessor are often overlooked and can become costly. Miscellaneous charges such as admin paperwork and de-registration of the lessors security filing should also be considered and attended to.


The bottom line? The lease vs. buy decision should not be taken lightly. If you're focused on getting the proper information to acquire your business assets with the right finance solution seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with your equipment financing and leasing needs.



7 Park Avenue Financial :
http://www.7parkavenuefinancial.com

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 . Info /Contact :

7 PARK AVENUE FINANCIAL = CANADIAN EQUIPMENT FINANCING AND LEASING EXPERTISE



7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Office = 905 829 2653



Email = sprokop@7parkavenuefinancial.com


' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop

Lease Vs Buy Declassified : Addressing Equipment Finance Financing Considerations In Canada

Lease Vs. Buy Decisions Don’t Have To Be A ' Hair Raising' Question or Challenge

OVERVIEW – Information on how business owners and managers can address the lease versus buy question when addressing equipment finance and general financing needs for asset acquisition

Equipment finance poses an interesting and challenging question for Canadian business owners and financial managers. That question? Should we lease or buy the asset in question. Or should we care ? ( Answer – you should ) . Whether it’s a one time asset acquisition or if you company is somewhat ' asset intensive ' there are numerous ' repercussions’ (both positive and negative) around addressing that question properly .Let's dig in.

It's should be no secret that the lease industry touts the many advantages of equipment financing as beneficial to your business. Those benefits are real, but even more real is the fact that every company is somewhat different relative to its own needs and any peculiarities surrounding their business or industry.

What then are some of the key factors around your choice to finance, or buy an asset or technology? (Yes Virginia, your tech needs can be financed!)
And by the way, we're not trying to complicate the decision, but other alternatives to leasing do exist - including term loans, sale leasebacks of owned assets, and temporary bridge loans.

Back to the ' lease vs. buy ' decision though at the heart of that decision almost always is some cash flow analysis.

It's really the ' timing' of monthly payments and cash outflow that brings many owners to the decision to opt in favor of leasing. Some of those other issues that should be taken into consideration include tax issues that might well be discussed with your accountant.

In our own experience clients tend to consider balance sheet and, tax, depreciation and other issues in favor of... you guessed it... interest rate! If only we had a dollar for every time someone asked us ' what’s my rate ‘......

In some ways, primarily because the industry is very competitive and overall credit quality drives rate it’s really the least important issue in lease finance!

What are some key data points in managing your overall decision to purchase or lease an asset? They will include:

How the equipment will be used and maintained?

Is it advantageous to my business to include other miscellaneous costs tied to the acquisition in the financing - delivery, installation, service, etc?

Do I have ' wiggle room ' in getting out of a lease early (Answer - basically you do not!)

How can upgrades or add ons to the asset/assets in question be handled?

If you're looking for expert assistance in the lease versus buy conundrum seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you in ‘ declassifying ‘ data into asset acquisition financing that makes sense .



Stan Prokop - 7 Park Avenue Financial :

http://www.7parkavenuefinancial.com

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 90 Million $ of financing for Canadian corporations . Info /Contact :

7 PARK AVENUE FINANCIAL = CANADIAN EQUIPMENT FINANCE EXPERTISE



Have A Question /Comment On Our Blog Or Canadian Business Financing Alternatives ?
CONTACT:

7 Park Avenue Financial

South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Office = 905 829 2653



Email = sprokop@7parkavenuefinancial.com


' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop

Innovative Financing From Canadian Leasing Companies . Mastering The Lease Versus Buy Decision

Information for Canadian companies seeking financing from leasing companies . Master the lease versus buy decision and reap the financial benefits .



At one point or another Canadian companies of all size realize that financing new or existing assets via leasing companies in Canada works far better than buying those assets; in effect they have mastered and understood the lease versus buy decision.

It's never hurts for us to cover the basics with clients, so we constantly re-enforce the fact that equipment leases and loans allow you to stay ahead of the technology curve in your industry - in effect you have the ' latest and greatest ' with which to compete .

Conservation of capital is also a key point at the top of our list; in effect you don’t have to service a bank term loan for the asset. Bank loans for assets also have related issues that can significantly impact your firm, such as reduction in your overall borrowing arrangement, etc. It's no secret then that 80% of all North American businesses lease some assets they need for their firm.

Your monthly payment of course is dependent on the asset size and the structure of your lease or service agreement with leasing companies in Canada.

Innovation in financing via a lease often comes from the type of lease you enter into. In Canada two primary offerings are on the table - the capital lease, aka ' lease to own ', and the operating lease, which we can effectively call the ' lease to use'.

Innovation abounds in operating lease financing. It’s the ultimate solution for investments you make in areas such as technology, telecom, etc. Most borrowers, (and we definitely don’t agree with their focus) tend to hone in on the monthly payment. In an operating lease the monthly payment is significantly lower, anywhere from 5-20% depending on the asset size and type.

At the end of the term of your operating lease the equipment is not fully paid for. Don’t worry, that’s a good thing, because a properly structured operating lease via Canadian leasing companies allows you to at that point consider purchasing, returning, or continuing the arrangement. Those options are standard in a properly structured operating lease.

While payments on a capital lease are higher don’t forget that you own the equipment at the end of the term. This of course can be a double edged financial sword! , given that the equipment might have either significant value, some value, or no value. On balance we would say that the majority of companies that enter into a capital lease scenario do so mainly because they want to conserve cash flow.

We referenced the ' lease versus buy' decision. That’s the term referred to as the Canadian business owner or financial manager tries to decide whether he should lease or buy an asset.


Is any financial decision always 100% right? Of course not, so when it makes sense buying an asset gives you ownership of the asset, plus your ability to control the ultimate use and residual value. In some cases your accountant might be able to show you buying is less expensive than lease finance.


We tell client that in the financing decision process they should consider things such as the final monthly payment, related services to the asset that are financeable, their purchase options, as well as the cash flow effects of the transaction . Oh and by the way, most busines owners quickly realize that lease financing is easier to obtain and receive approval for. Leasing companies in Canada are thriving and want your business.

Speak to a trusted, credible and experienced Canadian business financing advisor on how innovative financing from Canadian leasing companies might make sense for your firm. You'll have mastered the lease versus buy decision!





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/lease_versus_buy_financing_leasing_companies.html