Equipment Leasing Explained

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Is 'good enough' acceptable to your firm when you are looking at equipment leasing and arranging a business equipment loan or lease in Canada? We don’t think so and we'll share some fundamental info and strategies that take your business financing to the next level when it comes to benefits.

You have arrived at the lease or buy decision based on your need for new fixed assets for your business. Financing those assets out of regular cash flow, or entering into cumbersome bank loan arrangements isn’t an option.

The use of the asset over the long term should be what drives your financing decisions. Longer term assets require long term financing, and that's what equipment leasing is all about - matching the useful economic life of your asset to your cash flow and financing structure.

We encourage clients to take a hard look at lease terms. Don’t let our 'good enough' statement overtake your decision to properly match the asset term. Many lease firms that are focused on offering one type of term, or one type of lease (there are two types) are going to try and sway you towards their product or service offering. If there were only one lease company in Canada that would be problematic - fortunately, there are hundreds! Business owners and financial managers need to separate. What do we mean by that? We mean that you must separate the manufacturer and the price of the equipment from the financing. If you are dealing with a manufacturer that is also the financier of your asset, make sure you maximize the benefits of that type of financing, known as 'captive financing' as it's often the best available in terms of rate, term, and structure.

The lease financing industry preaches '100%' financing for your business equipment lease and loan needs. The reality is though that oftentimes a down payment of security deposit is required. Make sure that request is reasonable and competitive; don’t fall into our 'good enough' scenario of having to accept every term or down payment that is specified in your finance offer.

Structuring is what lease financing is all about. Be armed with a cash flow analysis that makes sense for the type of asset you are acquiring. Remember, if you don’t ask or request a ' vanilla ' or typical lease solution will be offered up - you don’t have to accept that if your cash flow needs, business seasonality, or term of the lease are particular to how you want to benefit from lease financing.

Let's take a quick example - let’s say you are leasing a 100k computer system. The lessor offers you a 5 year lease based on your firm's overall credit quality and requests a 20% down payment and specifies payments of $1685/month. Did you know that in many cases you could get the same lease payment for a 3 year term, saving you two years in payments? That’s by utilizing an operating lease and shortening the term. Again, back to our point, don’t let 'good enough' be your only choice in asset financing.

In summary, every firm in Canada has unique financial needs, and you need lease financing payments, terms, and structures that work for you. Don’t accept 'good enough' in business financing.

' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

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