YOUR COMPANY IS LOOKING FOR HELP WITH EQUIPMENT LEASING AND THE
LEASE VS. BUY DECISION IN CANADIAN BUSINESS FINANCING!
MAKING THE EQUIPMENT LEASE DECISION WORK
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - sprokop@7parkavenuefinancial.com
When it comes to a lease vs. buy decision is the Canadian business owner or financial manager considering the right issues when it comes to equipment leasing financing for his or her asset needs?
THE SOLUTION TO UPGRADING YOUR ASSET NEEDS
There's a general sense that equipment financing is in fact the best option when it comes to acquiring assets of all types in Canada. That fact becomes even more pronounced when you business is in a constant upgrading requirement based on either useful life or perhaps technology needs. Computer and telecom assets are a great example of that.
Is your own firm’s specific requirements different than others, so it’s good to establish a set of rules and criteria that work for you?
THE KEY BENEFITS OF LEASE FINANCING IN CANADA
The two main benefits around lease financing are cash flow preservation and the flexibility that comes with a lease. It's that lower cash outlay that attracts most business to equipment finance. Even if a modest down payment is required its still cash flow preservation in the long run.
We're certainly not intending this to be an accounting lesson today but the reality is that the accounting aspects of the lease require some attention and can bring you some solid advantages on your income statement and balance sheet. One of them is your ability to make lease payments tax-deductible when your lease is constructed properly.
This, therefore, in the long run, can actually reduce the total cost of the asset and its acquisition. Also, the ability to ensure you know what the monthly payment is and how it reflects your cash flow position is key.
CASH FLOW SAVINGS VIA LEASING ASSETS
We've mentioned the other perceived benefit in lease finance is the cash flow savings - we'd have to say the other key benefit is the fact the leases are usually much easier to obtain. It’s a highly competitive industry, and unlike term loans from Canada’s handful of chartered banks, the reality is that hundreds of lease companies all across Canada are ready to compete for your business and your need to finance business equipment, technology assets, software, rolling stock, etc! Leasing machinery for the shop floor in a manufacturing environment is a popular finance solution in Canadian business.
Many firms that are financially challenged in areas such as a financial loss or other issues will find that equipment leasing financing option still exists for them under a lease approval. The leasing company marketplace is very competitive, and any asset and credit profile can be considered for financing.
The interest rate will always be commensurate with your overall business credit profile. Leasing rates for equipment also take into consideration the present and future market value of the asset, especially if you are considering an operating lease versus a lease to buy option.
ARE THERE DISADVANTAGES TO LEASING BUSINESS EQUIPMENT AND OTHER ASSETS?
Are there though some disadvantages to the lease vs. buy decision when it comes to an equipment loan of lease ? The two key areas to consider are overall cost and the fact that ownership of the asset is held by the lessor for the term of the lease. Of course properly structured capital and operating leases can address both of those issues nicely, and you should input capital and operating lease calculations into your lease vs. buy decision.
Lessees should also note that it is critical to decide on your business wants to handle end of the lease transactions vis a vis keeping of returning or upgrading the asset - or even renewing the lease or exercising the bargain purchase option. Additionally matching the lease term to the useful economic life of the asset is key to successful asset financing.
By the way, both new equipment and used equipment can be leased - but used equipment cannot be part of a private sale, it must be a commercial lease transaction.
CONCLUSION
Utilizing the right lease versus buy analytics will allow you to ensure you're obtaining the best option in equipment asset financing. It's not a black and white world in consideration of financing your assets so being well informed is key to successful asset acquisition.
Understanding issues such as tax deductibility on lease payments, determine useful asset life and depreciation issues, as well as knowing what your periodic cash outflows will be is critical in the lease decision.
In many cases a down payment might be included in the transaction, thereby affecting monthly payments and lessor interest rates. In some cases, a sale-leaseback is a solid consideration of assets your firm already owns.
Knowing the true market value of assets you own, or the expected future value of assets you might lease provides you with solid ammunition in negotiating lease rates and terms to ensure maximum flexibility.
Many business owners are still tied to the ' pride of ownership ' principles but current low rate environments make asset financing a very tempting alternative to paying full cash price. Lessors are profit-oriented firms, nobody should be complaining about that, but knowing your options and rights and maximum flexibility allows for a win/win between the lessor and your firm as the lessee.
In summary, the key things you need to address are your financing alternatives, the aspect of debt in your company, tax implications, and the effect of the lease on your balance sheet and income statement. Other issues to keep in mind are off-balance sheet financing possibility, down payments, and your ability to work with a solid lease finance partner.
At the end of the day, the time you take to analyze your lease needs and then structure them properly will make you an overall winner.
Clients at 7 Park Avenue Financial will often ask - how does equipment leasing work? , and is it the right option for my company - Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with the proverbial lease vs. buy decision when it comes to business equipment leasing and equipment loan financing.
Click here for the business finance track record of 7 Park Avenue Financial
Stan Prokop 7 Park Avenue Financial/Copyright/2020
