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Asset Finance... via a business lease company in Canada. Doesn’t it seem that we're all exceptionally grateful for any good news these days in business of business finance? The good news is that direct financing of your company asset needs is back to being fairly plentiful these days.
And talk about asset types; i.e. what can be financed. It runs the gamut: heavy machinery, technology assets, and the new kid on the block: solar/energy etc., plant equipment, material handling, print and restaurant...and... Well you guessed it, and on it goes.
There are some solid, what we will call 'can't fail' types of lease and asset finance available for Canadian owners and business managers. Let's recap 8, yes 8 of those methods. We would point out that the different names of these financing solutions are rarely at the top of the page - you kind of have to know what they are, and what to ask for, and that’s our job today, I guess!
The most common method of asset finance is the full payout lease, aka 'lease to own'. It's very much just a pure finance play, with your firm's intention being to own the asset at the end of the lease term. Here it’s critical that it’s your intention to do that, and probably the major concern of most firms here on this method is understanding the financing rate, which can be easily calculated if your lessor won’t share that. The elements of a pure full payout lease are term, rate, asset value, and monthly payment and end value - if you know 4 of them you can always calculate the other!
Some business owners might be interested in what’s known as a true lease - in this case your lessor will be ensuring that the rights and obligations of ownership of the asset are clearly with the lessor itself, not your firm. In Canada, certain accounting rules under CICA have to be met in order for your transaction to be a 'true lease‘. Remember that a lease is not, we repeat, not a loan.
The third can't fail method we are talking about is the true operating lease. As opposed to our number one method of ownership, the operating lease denotes 'usage', not ownership, and your firm has to have the intention of returning the asset at the end of the lease term. Naturally you can purchase the asset at that time also. As well, most lessors will allow you to upgrade and extend. Technology assets are perfect for lease finance.
Although the majority of assets in Canada that are done via a direct business lease company are hard assets, it's 'Service Leases' that make up the portion of some firms' business. Services can be financed if they are to a credit worthy lessee. Service type leases tend to be shorter in term and are sometimes a component of another asset within the lease, or on their own.
Our next 'can't fail' is what we will call the single one time lease. It’s an all or nothing transaction, a single asset that gets ordered by your firm, it arrives, and you sign off acceptance. In some cases mere delivery of the asset can constitute your firm's acceptance and commencement of the lease.
Our 6th can't fail method is the sale leaseback. It's been around forever... It was out of vogue for the past few years, and back in vogue these days... When it makes sense for you and the lessor. It’s a case of your firm selling an unencumbered asset to maximize cash flow and working capital from an asset that’s on your balance sheet.
The 'Master Lease' concept is our 7th 'can't fail' strategy. It’s a great way to cement a long term relationship with a lessor; your firm agrees on one legal lease document vis-a-is terms and conditions, and then you simply add on assets over the term of the relationship with your lessor. Saves time and money on legals, documentation, etc.
Our last ‘can’t fail' method? It's the concept of a sublease wherein you and the lessor agree you can release the equipment to one of your own clients. Your firm either stays on the hook, or transfers the rights and obligations you have entered into to your client.
So what’s our point today? Simply that you have a lot of flexibility in asset finance in Canada when you deal with the proper business lease company. Maximize that flexibility and enhance your asset financing knowledge by speaking to a trusted, credible and experienced Canadian business financing advisor today.
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Stan Prokop 7 Park Avenue Financial/Copyright/2020
