What Mom Never Told You About The ‘ Credit Box ‘ & Acquiring The Business Assets You Need
OVERVIEW – Information on leasing equipment in Canada. Knowing your business lease finance options allows you to acquire the assets you need to run, and yes grow your business
Business lease finance options aren't necessarily always a straightforward process when it comes to acquiring assets. Equipment leasing might also find your company ' outside the credit box ' - in otherwards potentially not qualifying for the asset financing you require.
The real world reality? Your lease options and who you deal with in this area can make or break good or bad financing decisions. Mom never told us that one! Let's dig in.
We're arming you with some lease basics, and we'll let you in on some inside secrets to the trade. We have often told our clients we're not impressed by the ways in which some industry participants create a smoke and mirrors scenario around some of your most important lease financing acquisitions.
You're wrong if you think that it's all about interest rates also. Unfortunately most of the time new clients we meet are only focused on rate. In reality pure math analysis will more often than not show that leasing is a bit more expensive option. The actual reasons you chose to lease probably should be more focused around the two types of leases available, and which one is right for your firm. And as mentioned, leasing strategies properly structured will also put you inside that ' credit box ' - in other wards: You're approved!
Alternate decisions to lease are driven by, guess what...? Credit approval (leasing approval is easier to obtain) and the managing of your payments in a predictable fashion related to your cash flow. An if you are in a technology business you're most concerned with the fact that you have 3 or 5 years to go on payments and your asset is depreciating, or become obsolete a lot faster.
Don't forget also that many small, what we can call ' service features ' come with the lease facility. They include the ability to include taxes on your payments, bundle in warranty and maintenance, etc. Not everyone knows also that used equipment can be lease financed - provided the asset is purchased from a legitimate vendor either here in Canada or in the U.S.
Is it possible to figure out the exact rate you are being charged in a lease? As we said, it shouldn't always be about rate, but the answer is ' yes'... you can figure out what the interest rate is.
How do we do that then? Relatively simple, if you have the tool. The parts of any lease calculation are term of lease, amount financed, the final obligation or future value, the interest rate, and the payment. If you know any four of those you can use a financial calculator to calculate the 'real' rate the lessor is using.
Example: Your business is leasing 50,000$ of assets/ asset for 3 years and you own the equipment at month 36 you are told, and the monthly payment is 1600.00$. By entering those 4 into a financial calculator (a real financial calculator) you can see that the rate is 10%.
Let's stay with our client's fixation on rate. Is that 10% high, low, acceptable, competitive? More often than not it's a competitive number because the entire industry has to stay competitive to be in business.
A better question you never asked is what rate your lease company borrows at in order to allow leasing equipment for business such as yours. If they can borrow at 5% they are making 5% on you... if their cost to borrow is higher... and in most cases it's higher than you think, they are making less.
Let's share another of those secret strategies not commonly known. Your firm has a lease... it's for 50,000, for three years, and the monthly payment is 1600.00 and you. Your competitor has the same lease, but that monthly payment is 1480$. How could that be, ask clients?
The answer is that one lease is probably an operating lease, structured as a rental, and the lower payment simply means the lessor is going to get the equipment back at the end of the lease - sell it, and recover the shortfall (hopefully) on the lower payment you have been making.
So... is it all smoke and mirrors when it comes to lease finance options? It doesn't have to be.80% of Canadian business use various lease strategies to acquire assets. Shouldn't your firm be considering that?
Do your homework, compare apples to apples, and speak to a trusted, credible and experienced Canadian business financing advisor in the lease financing area.
7 Park Avenue Financial :
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
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
Stan Prokop
