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Equipment Asset Finance In Canada
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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Disadvantages of equipment lease financing in Canada? Say it isn’t so Joe! It's not really ' disadvantages' we're talking about, perhaps the better choice of words is ' things to be on the lookout for '.
No one is more bullish on lease finance in Canada then us when it comes to financing business assets. When we talk to clients about the pros of leasing as a popular method of asset acquisition we probably sound like a broken record.
THE KEY BENEFITS OF LEASING ASSETS
It's all about cash flow preservation, 100% financing capability, leaving your other sources of credit undisturbed, tax and accounting benefits, and ownership rights along with the obligations. Anyway, suffice to say you can put us in the bullish column when it comes to recommending this method of Canadian business financing.
ARE THERE DRAWBACKS TO LEASE FINANCING
But, back to those 'disadvantages', or as we said, things to properly look out for. As much as we hate to say it, we don’t think we'll ever get our customers focused off the issue of the rates and cost inherent in lease finance. Customers who perform a lease vs. buy analysis may well find that purchasing an asset with cash, or entering into a bank term loan may in fact some cost advantages. For the record, we have never seen a big disparity in any lease vs. buy analysis when it comes to that decision at the fork in the road.
However, as we said, Canadian business owners and financial managers do often focus just on cost, rate, low monthly payment, etc. All we say is simply it's never 'just' about the rate; it's also about the flexibility, ease of acquisition, etc.
END OF TERM CONSIDERATION IN LEASING ASSETS
Another thing you have to look out for is the loss of 'salvage' value when it comes to the end of the term of your business equipment lease... At the expiration of your term in a business lease, unless you have properly addressed the issue the equipment may belong to the lease company. That's clearly a disadvantage, IF... you don’t address the issue by properly constructing a lease that mirrors your choice of ownership at the end of the term.
How can that be done? Pretty simply actually. You can eliminate the loss of ownership ' disadvantage ' by simply ensuring you have a purchase option at the end of your lease term, or, alternatively, you can opt for a true operating lease and invoke on of the rights you have at the end of that transaction. Those rights are: buy, extend, or purchase at fair market value or pre-agreed amount.
CONSIDER A SALE LEASEBACK
One of the most popular again types of equipment lease financing in Canada continues to be the sale-leaseback. It's a case of monetizing assets you own already by leasing them back to your firm. However, if the tax base of the asset is below its sale price you might have to pay or record some sort of capital gain. Talk to your accountant guy about that one! Just in case.
Other disadvantages? Well, as we said, we're not necessarily pitching them as disadvantages, just things to look out for. So other areas you want to focus on are your obligations in the lease, which pays the insurance, are there any restrictive covenants, etc.
Finally, who to deal with? In Canada, lease finance can be accomplished via a number of partners. They include bank lease co, specialized commercial finance firms, captive manufacturers, insurance companies, etc. To wade through any potential confusion disadvantages consider seeking and speaking to a trusted, credible and experienced Canadian business financing advisor who can ensure you're ' accentuating the positive ' when it comes to leasing financing of equipment assets in Canada.
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Stan Prokop 7 Park Avenue Financial/Copyright/2020
