We can help you secure financing for the equipment you need to grow!
Successful Lease Financing Approval in Canada - By Stan Prokop -7 Park Avenue Financial
We previously wrote on some of the challenges that Canadian business owners and financial managers face in getting successful lease equipment financing in place for their assets and capital expenditures. The current difficult economic environment makes it more challenging than every for Canadian business owners to get the proper rate, terms, and structure that they deserve.
Success lease equipment financing requires a working knowledge of what the lessor is looking for in a transaction.
Owners can safely assume that the lender is doing significant work on financial statement analysis to satisfy them they are making a proper financing decision with you firm. Included in this analysis is strong emphasis on cash flow history and projections, operating efficiencies of your firm as measure by industry accepted ratios, and balance sheet analysis with respect to the amount of debt your firm is carrying, etc.
In our previous article we suggested that business owners should be aware of some key 'structuring options 'that lenders use when they are contemplating an approval that they are not 100% comfortable with. These options, previously discussed were:
- Utilizing higher rates to compensate for risk
- Use of Security Deposits
- Use of advance payments
- Structuring higher payments in the earlier years of the lease
- Shortening the lease term to offset long term risk
Business owners should be aware of some additional enhancements that can further a financing approval when your firm might not fully qualify for your desired amount of financing and overall structure.
Let's looks at some of those additional enhancements that compliment the 5 areas we have noted above.
Business owners who are not familiar with some of these financial nuances should employ the use of a trusted leasing advisor with credible experience, thereby significantly increasing their chances of getting a lease financing approved.
Business owners might not always be comfortable with providing a Personal Guarantee on the transaction; however personal guarantees are a clear fact of life in the Canadian business financing environment. The logic of the lender, in this case your equipment lessor, is that you are more motivated to make those payments if you are personally obligated in the matter also. Naturally companies incorporate to avoid personal liability but business owners are often called upon by lenders, lessor, etc to provide a guarantee. It goes without saying that the lender will also want to validate the quality of your personal guarantee.
In many cases you as a borrower, or the lender might request, additional collateral on the transaction. This would be collateral that is currently unencumbered, but in effect shores up the lessors overall position, allowing your transaction to be approved. In many cases you will be required to provide some form of documentation (usually an appraisal) of the additional asst.
In some circumstances an effective additional collateral might be credit life insurance on the transaction - in a smaller of mediums sized Canadian firm the lender / lessor may rely on that insurance in the event something happens to the owner, that something being ' death ' of course!
Not all Canadian business owners know that in some cases the manufacturer that you may be purchasing and financing the equipment through is in some cases agreeable to providing a limited or partial guarantee on your transaction. They are making a sale, generate profits from the sale to your firm, and may be able to remarket the asset if the lessor requests assistance in this area.
Finally, in some cases your lessor may request a letter of credit or Certificate of Cash deposit as additional collateral. In the authors experience this is rare, as your firm traditionally would note want to encumber cash in such a manner.
So what's our bottom line? It is simply that lease financing can be a challenge, but if you work with a lessor to offer up and co operate on some manner of structuring, as outlined above, then your chances of successfully getting a lease financing approval increase immensely!
7 Park Avenue Financial wants to help your business grow!
Most business owners and financial managers realize they can either purchase fixed assets out of equity, or finance those same assets on a long term lease.
Business owners need to focus heavily on the use of the asset. Any company that acquires assets has either a long term view of the asset or a short term view. Lease financing is an excellent method of financing long term assets.
From the company perspective a long term lease on the asset - typically 3-5 years, and sometimes longer, is simply a method of purchasing the equipment via a ' loan '. The company simply decides on which asset or assets they wish to acquire, and then negotiates a price with the vendor or manufacturer. Typically the company is either dealing with the vendor/mfr. or the captive finance firm related to that manufacturer.
Business owners are barraged with claims that ' leasing provides 100% financing ' or that it ' conserves capital '. More sophisticated business owners and financial executives know that long term leasing is in fact a solid mechanism for tax avoidance. Some people maintain that if corporate taxes disappeared long term leasing would disappear!
When a firm arranges leasing it of course uses the equipment, and makes fixed payments on that equipment. Business owners focus more often than not on ' using equipment ', not owning equipment. The user can though structure leases allowing them to purchase the equipment at end of term.
If a customer does not wish to acquire assets over a long length of time, and if those assets have a shorter useful economic life than a firm should consider an ' operating lease '. The company has the right to cancel the lease at the end of term, return the asset, etc. In long term asset financing the transaction cannot be cancelled.
If a firm utilized a purchase strategy for long term assets then the funds for those purchases come from equity shareholders. The company uses the asset, and it owns the asset. Many customers have a philosophy of ' pride of ownership ' and have long term histories of acquiring assets under a purchase strategy. If the company is properly funded this is of course an entirely viable option.
We would point out further that if the financial markets were ' perfect ' ( they are not!) the advantages of leasing would diminish. In that case the company would not have to consider legal costs, brokerage costs, and other miscellaneous fees. Leasing matters because there are no perfect markets - advantages gained by the lessee are at the expense of the lessor, and each company has a unique credit and risk profile.
In summary, each company has a unique financial structure and acquisition philosophy around financing and asset acquisition. Owners and managers must consider the optimal financing strategy for long term assets that best suits overall corporate needs.
Let us help you secure equipment financing in Toronto Ontario today. We focus on providing our customers with reliability, integrity, service and confidentiality. Call us, and let us guide you to the financing your business needs.
7 Park Avenue Financial can provide you with professional, personalized attention to your unique financing needs. We have literally sourced millions in financing for our clients, and over the years we have built relationships with senior managers at various financial institutions. We can be your direct line to the decision makers, our track record speaks for itself; click here to take a look.
Custom tailored service to help you acquire the equipment you need.
Lenders focus on a variety of different factors, and they place importance in different areas depending on the specific lender that you deal with.
Not only will this provide you with an acceptable turnaround time, but it will help avoid any unnecessary and costly delays.
Equipment Leasing and Financing
This article is going to discuss what is equipment leasing/financing, what are its benefits, leasing plans and how it relates to the start up and seasoned business.
Leasing is a form of renting but with a buyout clause at the end of the lease to take title to whatever we are leasing. The requirements to get into the lease may be as low as first and last payment and as much as 25%. Each situation is different and this offers the start up and seasoned business a way to invest very little monies into the business. Additionally, all other monies can be used for operating expenses such as marketing and other key areas. Leasing is not a new form of financing but could be a lending solution to the start up business. The small sample of type of industries that leasing can be used for are the following:
Dump,garbage, tow, flatbed, water trucks, over the road trucks and day cabs, heavy and construction equipment such as bulldozers, tractors, excavators, skid steer loaders, backhoes, flatbed, drop deck, refrigerated, dry van trailers, and industries which include limousines, limousine and shuttle buses, and machinery and production equipment.
The benefits of leasing may result in off-balance sheet financing reporting, tax incentives and conserving cash flow and preserving lines of credit for working capital purposes. Many leasing requirements may only require the initial outlay of first and last rental payment. Most leases finance 100% of the cost of the equipment such as soft costs which include shipping, software, training and installation. Additionally, leasing lets you regularly upgrade your equipment, eliminating your utilization of old, outdated equipment and reducing repair options.
Some of the leasing plans available to the lessee are $1.00, 10% or 20% purchase options as well as Trac Leases and FMV lease buyouts. Additionally, some lenders offer seasonal payments, deferred payments for ninety days, declining payments and half payments for a specified time period. It is important that the lessee understands all these different lease plans available as well as the buyout clauses.
The lessee has many options to consider in negotiating his lease. He must understand each lender's requirements and see if it fits within the realm of the lessee's requirements. Some lenders will accept the start up business whereas others will not want to lend to this group. They consider that their risk capital can be invested in other types of portfolios that can be better served. Many lenders require full documentation which includes a couple of years of personal income tax returns, a personal financial statement, and other underwriters requirements. However, in the past couple of years, there is a select group of lenders out there require an application only program. These lenders have their own computer scoring model and eliminate the necessary additional paperwork of other lenders. These application only programs are usually restricted to the seasoned business, however there are a few out in the industry which will work with the start up business as well. The amounts of the application only program run as high as $250,000 for the seasoned business and $100,000 for the start up. Additionally, the lender will lease the qualified asset probably from 36-60 months and many won't finance any equipment and commercial vehicles over ten years old.
It is important to understand the lease terms, the rate factor the lender is charging and the buyout clauses in the lease to take title. If you anticipate paying off the lease early, you should consult your lender to ascertain there is no prepayments for a early payoff. The last thing to understand that the lessee is going to guarantee the lease.
The last point to consider whether you are a start up and/of seasoned business due to economic conditions, there are some unusual specials available for off leases and repos. The lender has excess inventory on their books that they need to liquidated or re-leased as quick as possible. The minimum credit score for the applicant can be as low as 575 and prior bankruptcies may not be an issue in the credit decision.
Either way, spend your proper time investigating the item you are looking for to acquire, get the best price that you can obtain and secure proper financing.Happy hunting... - Source = www.goarticles.com
Computer Leasing For New Businesses
Establishing a new business is in most cases a financially draining and time consuming task, but can of course ultimately be hugely rewarding. As such, it is no surprise that in the face of an apparently turbulent financial environment, thousands of people still opt to set up their own companies.
There are myriad resources available which provide advice upon all aspects of business start-ups, guiding entrepreneurs from their initial concept through to the formal registration of their company. Given the nature of business today however, once registered there are still some serious decisions to be made which can have a major impact on the success, profitability and longevity of a new company. Unlike the actions taken prior to company registration: which follow a relatively standard procedure, many of the decisions required from freshly registered companies are much less clear-cut.
In any business keeping a close eye on cash-flow is important, in the case of new businesses however, controlling cash-flow in every way possible can be absolutely central. Keeping capital in the company is essential to ensuring stability and avoiding excessive borrowing, as such it is prudent to look at minimising expenditure wherever possible. It is with this in mind that leasing presents itself as a particularly attractive prospect compared to the cash heavy option of outright purchase.
Leasing and renting are established practice with regard to office space and company cars due to the high outright cost of purchasing property or vehicles. The cash preserving benefits of leasing do however extend beyond these two commonplace forms, with IT equipment leasing standing out as a particularly useful option for recently established businesses. Computer hardware, software and peripherals are an integral constituent of the modern office set-up and are very often both costly and prone to heavy depreciation over time.
When opting to lease IT equipment, not only is the initial outlay considerably lower, but depreciation is no longer a factor as there are often attractive upgrade options part way through the lease contract. Obviously, choosing to lease rather than purchase IT equipment is only one of the many decisions that must be made during the all important start-up stage of a company, but the cash flow benefits are likely to ease the pressure in other areas.
It is also worth noting that leasing is by no means the best course of action in every instance, but for those looking to maintain favourable cash flow it without doubt has numerous merits.
Mark Farrell partners in a Manchester Web design company. For an example of the likely monthly or weekly cost of leasing IT equipment take a look at this simple quote calculator
This article is copyright
Printed From: http://www.articlealley.com/article_1254264_45.html Back to the original article
