Lease vs. Buy . Are You Considering The Right Things In Equipment Leasing Financing Decisions In Canada

Equipment Leasing For The Right Reasons


Information on the lease vs buy decision faced by Canadian business. Here’s help on how to make right decisions in equipment leasing financing and its alternatives .




When it comes to a lease vs. buy decision is the Canadian business owner or financial manager considering the right issues when it comes to equipment leasing financing for his or her asset needs?

There's a general sense that equipment financing is in fact the best option when it comes to acquiring assets of all types in Canada. That fact becomes even more pronounced when you business is in a constant upgrading requirement based on either useful life or perhaps technology needs. Computer and telecom assets are a great example of that.

Is your own firm’s specific requirements different than others, so it’s good to establish a set of rules and criteria that work for you?

The two main benefits around lease financing are cash flow preservation and the flexibility that comes with a lease. It's that lower cash outlay that attracts most business to equipment finance. Even if a modest down payment is required its still cash flow preservation in the long run.

We're certainly not intending this to be an accounting lesson today but the reality is that the accounting aspects of the lease require some attention and can bring you some solid advantages on your income statement and balance sheet. One of them is you ability to make lease payments tax deductible when your lease is constructed properly. This therefore, in the long run can actually reduce the total cost of the asset and its acquisition.

We've mentioned the other perceived benefit in lease finance is the cash flow savings - we'd have to say the other key benefit is the fact the leases are usually much easier to obtain. It’s a highly competitive industry, and unlike term loans from Canada’s handful of chartered banks the reality is that hundreds of lease companies all across Canada are ready to compete for your business.

Many firms that are financially challenged in areas such as a financial loss or other issues will find that equipment leasing financing option still exists for them under a lease approval.

Are there though some disadvantages to the lease vs. buy decision? The two key areas to consider are overall cost and the fact that ownership of the asset is held by the lessor for the term of the lease. Of course properly structured capital and operating leases can address both of those issues nicely, and you should input capital and operating lease calcs into your lease vs. buy decision.

In summary the key things you need to address are your financing alternatives, the aspect of debt in your company, tax implications, and the effect of the lease on your balance sheet and income statement. Other issues to keep in mind are off balance sheet financing possibility, down payments, and your ability to work with a solid lease finance partner.

At the end of the day the time you take to both analyze your lease needs, and then structure them properly will make you an overall winner. Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with the proverbial lease vs. buy decision when it comes to equipment lease financing.

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_vs_buy_equipment_leasing_financing.html

What You Must Know About A Lease Vs Buy Business Finance Decision For An Equipment Lease

Business owners and financial managers in business finance are always faced with the same decision in acquiring an equipment lease, namely should we buy or lease. Technically this is referred to in the finance books as the infamous ' lease vs. buy 'decision.


Let's examine some of the key points and facts you need to consider in that decision. Naturally the good news is that an equipment lease can be used to acquire almost any type of equipment or asset - that includes equipment, machinery, buildings, etc. More often than not it pays to seek a business financing advisor who is well versed in the benefits and nuances of equipment finance.

Working capital and cash flow tend to be the main drivers of the lease vs. buy decision when we talk to clients. It goes without saying that most Canadian leasing companies probably have a lower cost of capital then your firm based on their borrowing capacity and the way they are funded. Therefore that lower cost of capital becomes a positive advantage in the lease vs. buy decision.

In many cases the lease vs. buy decision will be very close and the actual non financial benefits of an equipment lease will drive your final decision. For example, although you might be in a position to construct a favorable buy versus leasing model you might not want to use business lines of credit to access the cash needed to acquire the asset.

Also one of the key tenets of finance is that you should use long term funds to fund long term assets - that just makes common sense. Simply speaking you don’t want to purchase an asset as opposed to l easing it and find out you might not be able to make payroll on Friday because your line of credit is maxed out!

As we said, some of the pure mechanical decisions around the lease vs. buy tool (there are numerous on line calculators which are references as lease vs. purchase analysis tool) can often be over ridden in your analysis by non financial considerations. For example, let’s say you clearly don’t want to keep the asset at the end of the term of its useful economic life. That’s where an equipment lease makes total sense, as it gives you the ability to return, extend, or even purchase the asset if in fact you end up deciding to purchase and keep it if your circumstances change.

Business owners might want to consider talking to their accountant or a business financing advisor on larger capital asset acquisitions. Some of the inputs required in the lease versus buy model include items such as the actual interest rate the lease company is charging you, your tax rate, the projected increase in profit via use of the asset, the depreciation expense you can take on the asset and your overall cost of capital which is calculated by analyzing your debt and equity in the business. Whew!! That’s some fancy accounting and it can best be left to your accountant or advisor on larger asset financing acquisitions. However the good news is that a simple computer spreadsheet handles all this for us nicely!

In summary the leasing versus buy tool in business finance can be a great asset in your financing decisions for new assets. Adopt Warren Buffets key approach, which is simply to determine if the asset financing opportunity delivers a solid return on equity for your business.

Yes our tool we outlined is important, but at the end of the day use business common sense to analyze the equipment lease opportunity and blend it into your overall business financing strategy .

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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 6 years - has completed in excess of 45 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details:
http://www.7parkavenuefinancial.com/business_finance_lease_vs_buy_equipment_lease.html