YOUR COMPANY IS LOOKING FOR LEASING EQUIPMENT SOLUTIONS
THE RIGHT WAY TO LEASE EQUIPMENT YOU NEED FOR YOUR BUSINESS VIA THE COMMERCIAL LEASING INDUSTRY
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Financing & Cash flow are the biggest issues facing businesses today.
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
LOOKING FOR THE RIGHT ANSWER ON A LOWER MONTHLY LEASE PAYMENT ON AN EQUIPMENT PURCHASE / TECHNOLOGY PURCHASE
Interest rate and equipment lease costs seem to be a major mystery to the Canadian business owner and financial manager. That doesn't have to be the case. That type of confusion has left some business people cursing about leasing cost!
WHAT FACTORS AFFECT LEASE FINANCING RATES
Lease costs depend on several apparent factors that seem not generally known when companies use asset leasing to acquire assets. If you want to take advantage of Canada's most popular method of acquiring business equipment, you must understand what's behind the pricing, including the capital equipment lease calculator. Current equipment lease rates are more competitive than ever for a leasing loan solution - Let's dig in.
There are some factors in lease finance costs - as we've said, too many owners/managers focus solely on the interest rate, 'which is rarely the most crucial part of a lease, especially as your assets' size grows in dollar size!
HOW IS A LEASE INTEREST RATE CALCULATED?
At the heart of any transaction is understanding the actual calculation of a lease rate. They are :
Term
Financing rate
Asset cost
Monthly Lease Payment
End-of-term lease period obligation
When you know any 4 of those, you can pretty well calculate the missing piece of the puzzle. Most lease companies in Canada quote only monthly payments, not the interest rate. And to add to the confusion, how the rate is presented may not always be the same! (Next time you are quoted a lease rate, ask the lessor if they have quoted you in ' advance' or ' arrears ‘)
THE CAPITAL LEASE VS OPERATING LEASE CHOICE
In the past, we've advised that the owner/manager has two choices in the types of leases offered - the ' CAPITAL ' lease to own or the ' OPERATING' lease to use. Because operating leases are, in fact, rentals, many business owners may be surprised to know that the actual rate calculated may be negative - i.e. below 0! That's because the lessor is betting you will return the asset, and they can resell or refinance it again. Your lease options's down payment necessity is at the lessor's discretion.
Lessees will find a capital equipment lease calculator a handy tool to assess costs and calculate lease options down payment impact on a transaction.
BENEFITS OF AN OPERATING LEASE
The operating lease allows you to purchase the equipment at fair market value at the end of the lease, return it, and, in some cases, upgrade it. Understanding your option to address the equipment at the end of the lease is key in operating leases. Monthly lease payments will always be lower on an operating lease due to the residual position taken by the lessor or a third party.
Assessing the useful life of the equipment and its use and value to your firm is key in the lease vs buy decision around the asset's purchase price. Whether you return the equipment or buy the equipment will affect the monthly lease amount - and if you choose to return the equipment, a shorter lease term is typically taken. Take a holistic approach to the total cost of the equipment.
Of course, the lease term will drastically affect the monthly payment - being approved for a longer term (amortization) will lower the monthly payment - that longer-term increases the leasing company's financial profit. The lessor often requests miscellaneous title transfer fees.
CREDIT QUALITY
Credit quality drives the majority of lease cost rates in Canada. Rates are very competitive if you are dealing with lessors that directly compete with each other. Financing approval is often as necessary as the ‘rate ' to many clients we meet and work with.
We mentioned that interest rates aren't the be-all and end-all of asset financing. That's because lease documentation, financial statement impact and tax impacts are key to a true lease financing deal.
Understanding your equipment lease transaction's terms and conditions is also critical - end-of-lease term obligations, maintenance issues, and other ' nuances ' affect your ultimate finance cost.
Of course, the option to buy assets versus taking out a lease or a bank loan is also available to the business owner / financial manager. Long-term asset acquisition favours a capital lease when you intend on keeping and using the asset. Technology lends itself to short lease terms or rentals due to quick depreciation and changing technologies. In other cases, different types of new equipment / expensive equipment will hold their value.
BUSINESS TIP - Use a capital equipment lease calculator to understand lease pricing in your lease agreement better. Your lease option's down payment will lower your monthly payment and outstanding loan balance.
CONCLUSION
Understanding current equipment lease interest rates is essential to business owners.
Equipment financing allows you to source any equipment you need for your business. Over some time, leasing companies have always been there for the Canadian business owner. If there is one way to step delicately through the lease costs minefield in Canada, call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assure you that your next lease finance transaction will get better for needs around capital leases or equipment loan solutions.
FAQ: FREQUENTLY ASKED QUESTIONS PEOPLE ALSO ASK MORE INFORMATION
What factors influence equipment lease rates for companies?
Several factors can influence rates, including the lessee's creditworthiness, the type of equipment and equipment value, the lease term length as to when the lease expires, prevailing market interest rates, and the residual value of the equipment at the end of the lease term.
How can a company ensure they receive favourable lease financing costs?
Companies can maintain solid financial statements, build positive credit histories, negotiate lease terms assertively, and shop with different lessors to compare rates and terms. Working with a lease broker ensures industry expertise.
Why might two similar companies receive different lease rates?
Differences in credit histories, negotiation skills, relationships with lessors, and the equipment's specific intended use or customization can lead to varying rates.
How do soft costs factor into lease costs?
Soft costs, like installation, training, or software related to the equipment leases, can be financed as part of the lease. This can affect the lease cost and monthly payment amounts when businesses acquire equipment.
Do shorter lease terms always result in higher monthly payments?
Typically, shorter lease terms for leased equipment have higher monthly payments than more extended terms. However, the total cost over the life of the lease might be less due to reduced finance charges/cost savings.
How can changes in market interest rates impact lease financing costs?
If a lease rate is variable and tied to a market rate, it can fluctuate over time. In a rising interest rate environment, this could increase the cost of leasing.
What are some overlooked costs when considering equipment leasing?
Maintenance costs, penalties for early termination, fees for exceeding usage limits, and potential charges at the end of the lease (like equipment return or purchase) are sometimes overlooked.
How do tax considerations play into lease financing decisions?
Depending on the lease structure, companies can deduct lease payments as an operating expense, offering potential tax benefits. It's essential to consult with a tax professional to understand the implications fully. Companies also can analyze sale-leaseback opportunities, which may have tax implications around issues such as book value.
Can the residual value of equipment affect lease costs?
Yes, suppose the equipment has a higher expected residual value at the end of the lease. In that case, the lessor may offer lower monthly payments, as they anticipate a higher value upon selling or re-leasing the equipment later.
How do the equipment type and industry specifics affect lease rates?
Equipment that becomes obsolete quickly or is specific to certain industries might have different lease rates than general-use or longer-lifespan equipment. The perceived risk associated with the equipment's future value and utility can influence rates.
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