Delve Into Canadian Sale and Lease Back Financing – Benefits Of This Type Of Leasing Of Equipment

Is a sale and lease back leasing of equipment you own already a good financial strategy? We get that question from a lot of clients so let’s clarify some key issues around this type of equipment finance.

Equipment leasing in Canada seems to be on a tremendous upswing again, having been hit fairly severely in recent years. As a result the sale leaseback strategy we can say was somewhat out of favor in the last couple years, but the good news is, as we said, that times are changing and this finance strategy is back.

In a sales lease back scenario it’s all about the asset and various issues come into play.

Exactly what is the strategy itself though - it’s important for Canadian business owners and financial managers to ensure they understand the benefits of the transaction, how it works, and most importantly, how to get it done effectively.

The sale and lease back strategy is just a twist on normal leasing of equipment. That should be no surprise. Typically either you or the leasing company would purchase or order equipment, which is paid for by the lease finance firm and then leased back to yourself. That’s business equipment financing 101 right? and there's a lot of benefits to doing that .

However in our sale and lease back strategy you are already of course the owner of the equipment. So you are in a dual role of the seller of the asset, as well as the new potential lessee.

Let's utilize a short example. Let’s say you are a manufacturer and you have an unencumbered asset, typically perhaps production equipment valued at $ 300,000.00. You may have purchased the asset for significantly more, but the current value for our example discussion is 300k. You then enter into a lease back situation - you ' sell ' the equipment to your lessor and then lease it back.

So what just happened here? Let’s see. First of all, the equipment you already own never leaves your production floor. You also just got a cheque for $ 300,000.00 to be used for whatever corporate purpose you wish. The monthly payments on the lease would typically be in the 7000/mo range, using a 48 month term as an example.

Let's examine why a business would use this strategy. The right reasons are typically for additional working capital and the ability to grow the business further. In effect you have monetized valuable assets and are using them to grow sales and profits.

Are rates higher on sale and leaseback transactions? They might be a bit higher, but at the end of the day quite frankly its our experience that they will be commensurate with your overall credit quality of your company , as well as of course the intrinsic or appraised asset value of what is being re financed.

Lessees and business owners opting for a sale lease back strategy should ensure lease terms are kept realistic. If possible we try to ensure that clients aren’t required to also commit further collateral to the transaction if it isn’t required. Lease companies have a habit of trying to over collateralize on occasion!

In summary, as a source of working capital and cash flow for the right reasons the sale and lease back leasing of equipment is a solid financial strategy. Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in maximizing the benefits and avoiding the pitfalls of this strategy.




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 .Info re: Canadian business financing & contact details :

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

Top 4 Most Overlooked Benefits of leasing of equipment as a Business Finance Strategy

Most Canadian owners and business managers wouldn’t think of always paying cash for equipment and other capital acquisition needs. They also can’t imagine, in the current economic climate, paying cash for everything. Whether you are in an industry that is highly capital intensive, or if you simply on occasion need to upgrade or purchase new equipment the leasing of equipment should be considered as an effective overall financing strategy for your company

Naturally no form of business financing in Canada could be considered perfect and meet absolutely every one of your needs, but let’s examine what are considered to be normally the top four benefits of equipment leasing. Naturally you want to ensure you are dealing with the right type of lease firm and you have also carefully examined your rights and obligations under the business lease.

Anyway, benefit 1. Flexibility. The reality is that working with the right lease partner firm should provide you with the flexibility you want in your transaction. Flexibility is of course a broad term, but we are basically referring to the type of lease that works best - for your firm! Not everyone else’s. That flexibility comes in the form of low or no down payment, monthly payment structuring options ( here are possibilities abound!) , balance sheet optics around the amount of debt you can carry without getting your bank offside . Flexibility also comes in the form of the ability to return the equipment or extend the lease for a pre agreed period of time.

Benefit # 2 might well be called Cost efficient. The last thing you want to be doing is getting your firm locked into a long term lease on a depreciating asset - and the reason you lease financed the equipment in the first place is that you as a Canadian business owner and financial manager recognize that the equipment ultimately will probably have no value after its economic life is completed.

If the business world was slow moving and predicable you would never have to worry about competition, changing technology, etc- however things don’t work that way and as your needs change over time you can using equipment financing as the tool to address those needs .

Benefit 3- Tax benefits! We hate getting into long accounting and financial statement dissertations when we are lease financing info with clients, but the reality is that leasing of equipment as a business finance strategy has accounting and tax benefits re write off strategies around your payments .

Our final focused major benefit is simply Cash flow conservation. It's tough enough in today’s business environment to achieve positive working capital and cash flow for daily and long term needs. Utilizing lease financing as a tool to minimize cash outlay and reduced down payment requirements makes total sense. Choosing an off balance sheet operating lease strategy will also ensure your ratios and debt covenants stay intact.

In summary, as we stated, no overall business financing strategy works perfectly for all companies in all industries. But leasing of equipment has significant benefits that clearly outweigh other options such as purchasing for cash, entering into long term loans, etc.

Speak to a trusted, credible and experienced lease financing advisor to ensure you can take advantages of the 4 key benefits we outlined.