Equipment Financing for both used equipment and new assets has been embraced in Canada for decades. Most Canadian business owners and financial managers know they can obtain financing for equipment, but they are often unaware of some of the hidden benefits, and, yes, pitfalls, of equipment financing. Let’s explore a couple of those key issues that you need to know about.
Equipment Financing Canada – One Big Mistake Not to Make
Myth! - Only ‘new’ equipment can be financed. Various asset categories can be financed 'used'. Both used construction equipment and even farm equipment can easily be financed when you know some key basics.
Nothing can be farther from the truth. Lease financing is readily available for all types of equipment in Canada, including used and refurbished equipment. This equipment typically is bought at auctions, as well as via the internet, or in many cases from dealerships that have taken a trade-in or have a machine that has come in off-lease.
The main benefit of used equipment financing typically is the price. Let's look at an example – let's say you are buying some production equipment and the price for new equipment is $300,000.00 - Typically this type of equipment if lease financed over 4-5 years. If you were to acquire the asset as used and let's say you got it for $225,000.00 (certainly not unrealistic), then you are saving that 75,000.00 – that’s obvious to anyone of course. But remember that $75,000.00, if purchased new, is a part of a 4-5 year financing so the ability to cut 75k in long term financing out of your cash flow is a very large benefit.
We would point out that in some cases because the equipment is used, it might need to have an appraisal or a valuation attached to the financing – this would typically be obtained from a qualified third-party appraiser. Typically, as in all financing costs, the borrower, or in our case, the lessee, (that’s you) pays for the appraisal. So the common sense question simply becomes – if your equipment was warrantied, guaranteed, and you felt it had long term value, would you in fact invest 1k in an appraisal to save 75k++ in financing costs. We think our clients would!
Does the type of equipment alter the pricing and structure of your equipment lease – in some cases it might, but typically not drastically.
The lessor might in some cases ask for a down payment, or a larger down payment, and also might, on occasion, lower the term of the lease (for example – 3 years, not 4 years, etc.) but overall lease financing for used equipment is still a great value. In many cases even computers are often refinanced after they are returned to the vendor or reseller.
Clients often ask if there are certain types of used equipment that can’t be financed. Used industrial equipment financing is a huge part of the lease finance industry and should be considered when new assets might be too expensive, etc. The reality is that pretty well everything can be considered for financing.
Normal credit underwriting is done, focused mostly on your ability to repay the lease from cash flows generated from your company and the asset. All types of equipment should be considered, especially when you and your team have confidence in your ability to acquire, price, install and maintain the asset.
Seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of success when it comes to financing new and used assets to run and grow your business.
