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EQUIPMENT LEASING IN CANADA - HELPING YOUR ' LEASE OR BUY ' DECISION
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Equipment finance poses an interesting and challenging question when buying equipment for Canadian business owners and financial managers.
BUY VS LEASE ANALYSIS
That question? Should we lease or buy the asset in question? Or should we care? ( Answer – you should ) . Whether it’s a one-time asset acquisition or if your company is somewhat ' asset ' intensive, there are numerous ' repercussions’ (both positive and negative) around addressing that question properly. Let's dig in.
It should be no secret that the leasing industry touts the many advantages of equipment financing as beneficial to your business. Those benefits are real, but even more real is that every company is somewhat different relative to its own needs and any peculiarities surrounding their business or industry.
WHAT ARE KEY FACTORS AROUND CHOICE TO FINANCE DECISIONS
What are some of the key factors around your choice to finance or buy an asset or technology? (Yes, Virginia, your tech needs can be financed!)
WHAT ARE ALTERNATIVES TO LEASING?
And by the way, we're not trying to complicate the decision, but other leasing alternatives exist - including :
Sale-leasebacks of owned assets
Temporary bridge loans
Back to the ' lease vs. buy ' decision for equipment for your business, though; it almost always is some cash flow analysis at the heart of that decision. It's really the ' timing' of monthly payments and cash outflow that brings many owners to the decision to opt-in in favour of leasing. Some of those other issues that should be considered include tax issues that might well be discussed with your accountant as well as, of course, the useful life of the equipment.
In our own experience, clients tend to consider balance sheet and tax, depreciation and other issues in favour of... you guessed it... interest rate! If only we had a dollar for every time someone asked us ' what’s my rate ‘......
In some ways, primarily because the industry is very competitive and overall credit quality drives rate, it’s really the least important lease finance issue for leasing equipment.
What are some key data points in managing your overall decision to purchase or lease an asset?
WHAT ARE EQUIPMENT LEASE CRITERIA DECISIONS?
Equipment lease criteria will include:
How will the piece of equipment be maintained while using the equipment? Maintenance costs can be easily bundled into any lease.
Is it advantageous to my business when buying equipment to include other miscellaneous costs tied to the acquisition in the financing - delivery, installation, service, etc.? Over a period of time, having to pay these out of pocket can drain cash reserves - leasing helps you lower the overall cost of the equipment based on the type of equipment when you buy equipment and choose the lease financing solution.
Do I have ' wiggle room ' in getting out of a lease early when I purchase equipment (Answer - basically, you do not!) - Leasing allows you many options, but not that one!
How can upgrades or add ons to the asset/assets in question be handled? What happens at the end of the lease term when you purchase the equipment and finance it. In a capital lease, your own the equipment outright in that type of finance lease transaction.
In some cases, you can choose an operating lease versus a capital lease - those leases are very popular in technology financing or major large ticket transactions. Monthly payments will be lower on an operating lease based on the residual position - lower monthly payments happen because you are not financing the residual portion of the operating lease - The operating lease lessor will sell or refinance it.
HOW TO CALCULATE LEASE PAYMENTS
Lease payments on equipment leases are a factor of :
Cost of equipment
Future value of equipment
Once you know 4 of those, you can always calculate the 5th! Many online calculators can help - CLICK HERE for an online lease tool.
Decisions around equipment leases should be made on the equipment's life and its ultimate use to your business to create profits.
Purchasing equipment via leasing options funding can be complex if not handled properly. Small business has different types of choices in acquiring assets, so you can make sure you are managing capital effectively over the long term. If you're looking for expert financial assistance in the lease versus buy ' pros and cons ' conundrum, seek out and speak to 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor who can assist you in ‘ declassifying ‘ data into asset acquisition financing that makes sense.
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