Equipment Leasing Canada – Why Equipment Lease Rates aren’t Important!
Critical Factors to Consider when Lease Financing in Canada
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How can equipment lease rates in Canada not be the most important part of your equipment leasing in Canada acquisition strategy? That’s what clients want to know when we advise them the while an overall competitive leasing rate is important they must not miss the several other factors that play a huge part in making the proper lease financing decision.
Leasing in Canada has of course been around for many decades, we venture to say at least back to the 19 50’s, if not older than that. As a Canadian business owner and financial manager you recognize that it is clearly one of the most viable methods of acquiring assets for profit and sales growth – Profit through use is one of the buzzwords of equipment leasing in Canada.
The key thing you quickly realize about lease financing in Canada is that it encompasses all types of assets - from heavy industrial equipment, used equipment of all types, and of course technology such as computers and telecom equipment, etc . The reality is, and this is a surprise to many, that even ‘soft’ items can be financed such as computer software, or installation costs and warranties for shop equipment, etc.
So fine, we recognize that leasing is important, and we recognize it’s available to us as a financing option. So why isn’t rate the most important factor, isn’t it all about cost and payments?
We don’t think so, because the reality is that if you don’t properly address or thing about the other key factors that are involved in the whole ‘should I lease or should I buy?” decision then the last thing you should be worrying about is your rate. Let’s cover off one key point about rate before we move on to some of the other factors you must consider – it is as follows - Business is competitive in Canada – There are a number of lease financing sources.
Customers doesn’t believe us but we actually spend a lot of time talking to them and advising them that they get to pick their own rate! How is that possible they ask? It is simply based on the statement that your overall credit quality determines your rate within a very close band of competitive offerings of lease financing in Canada. So if you can properly demonstrate your own overall credit quality re ability to pay, historical cash flows, future cash flow ability, overall business prospects, etc then categorically will be in essence determine your own interest rate on the transaction. End of story on rate!
So, those critical other factors you need to consider - they are as follows – you should discuss with your accountant or a trusted, credible, and experience lease financing specialize what financial statement implications your lease will have – You want to determine if you choose a lease for ownership of the asset, or a lease for use of the asset, the latter being called technically in the industry an ‘operating lease ‘.
Are there any risk to leasing equipment .There might be. This is where you want to talk to your accountant about what the tax advantages or disadvantages are of the transaction. You mighty want to ask him to run what is known as a lease vs. buy analysis to determine, with your input, what is the best way to acquire the asset in questions.
Despite what leasing companies might tell you in their literature or on their website you might find that a true analysis of the transaction shows that leasing is not necessarily the lease expensive way to acquire assets. If you and the leasing company borrow at the same rate (it could happen – leasing companies borrow also to fund your deal) then clearly lease financing might not be the best option.
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