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Depending on the type of leases that Canadian business owners and financial managers have entered into is critical to have the information and skills to negotiate a successful end of lease strategy for asset-based financing equipment needs. The bottom line is very simple – you are at the end of your Canadian Equipment Financing – what now? What happens to this equipment and what are my rights and obligations...
MANAGING THE END OF THE LEASE
The entire process should be viewed as a proactive process with your equipment financing lender. Some Canadian business owners may also choose to use the services of an experienced, credible and successful lease financing intermediary to assist them with the process of leasing equipment for their business needs. At 7 Park Avenue Financial Equipment Financing is our specialty.
TIMING IS EVERYTHING
We have heard the expression ‘timing is everything ‘. That’s equally important in our financing for equipment scenario, as it is critical to start to evolve into discussions with your lessor at least a couple of months ( 90 days is recommended ) regarding the final disposition and acquisition of the financed equipment. Some equipment leases in certain areas of business may be in the many hundreds of thousands or millions of dollars – given these transactions are much more d complex we would recommend an even longer time period for the start of negotiations.
WHAT ARE YOUR RIGHTS AND OBLIGATIONS UNDER A LEASE IN CANADIAN EQUIPMENT FINANCING
So what are the Canadian lessee’s rights and obligations? That’s a simple answer – they are in the written lease contract your firm entered into with the lessor.
3 KEY ISSUES TO ADDRESS WITH EQUIPMENT LEASING COMPANIES IN CANADA
That wording should be reviewed by you with respect to issues such as –
1. Can the lessor come to your premises to inspect the equipment?
2.Does your firm have to provide maintenance records?
3. What were the return or purchase provisions as documented in the lease transaction you signed?
NOTIFICATION IS KEY
We would also add that many equipment leases require you, the business owner, to notify the lessor of your intentions under the lease, and in some cases, the lessor may also be bound to notify yourself as to final termination issues and procedures. The rights and obligations you have under the lease are neatly compacted into the following points – You can buy, return, renew or extend the lease, or surrender the asset.
By now business owners realize that the lease they entered into three or five years ago must clearly be reviewed again. Companies that do a lot of lease equipment financing are strongly recommended to have followed up and termination policies in place that will allow the lease to be reviewed as it comes to expiration.
KEEP AN EYE ON THE VALUE OF LEASED ASSETS
Let's talk a bit about the ‘value ‘of the equipment when it comes to dealing with leasing companies - This is somewhat of a tricky area and business owners are cautioned to investigate this one thoroughly. We can frankly compare our scenario to selling our homes – we think we as homeowners know what the price is worth, the realtor tells us their opinion, and, guess what, the market will ultimately decide what the home is worth.
DEPRECIATION AND TECHNOLOGICAL OBSOLESCENCE
It’s not unlike your lease financing transaction, whether that financing was for computers or plant machinery. The type of equipment you will require will probably vary greatly - Certain assets depreciate and lose value s very fast, some lose a portion of their value, and in a very small set of circumstances, some assets hold their value and may in certain instances be worth more than you paid for. (Rare, but it happens!) Many lessees will choose an operating lease to hedge against obsolescence when leasing equipment. Cash flow issues will always come into play in your lease decisions, whether it's managing a capital budget or matching lease payments to the value of the asset.
In summary, business owners are cautioned to ensure they understand the end of lease options rights and obligations when it comes to leasing services. The follow-up to the transaction should not be done at the last minute, and a thorough investigation of asset value should be done with proper diligence. It’s only common sense. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your lease finance challenges in the financial services sector.
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