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Equipment leasing rates in Canada. When it comes to achieving the best asset finance rate for your lease, equipment loan, or sale-leaseback we have often said to the client that it just might be time to ' Walk a Mile in My Shoes '.
That was a song by singer Joe South, and what we mean in talking to clients on this subject is that it just might be prudent to put yourself in the leasing company shoes.
WHAT ARE THE FACTORS INVOLVING LEASING RATES IN CANADA
So let’s take a look at what factors affect your overall lease rate in Canada. And the good news is that today it’s a very competitive environment out there, and if you're dealing with the right firm it's very possible to achieve solid rates, terms, and structures that make sense... for your firm!
So, how exactly does a leasing company make money, and furthermore can you gain somewhat of an edge by utilizing this knowledge to your firm's benefit?
THE SIZE OF YOUR LEASING TRANSACTION WILL SOMETIMES AFFECT RATE
In general, size does count in Canada, so as a general statement larger credit worth transactions are very much sought after and command the best rates often not that far from bank prime. The industry also has a thriving ' small ticket ' model that focuses on quick approval for transactions generally under 25k. While rates might be a bit higher in this industry model it's all about ease of doing business, which is important to the business owner and financial manager.
You as a borrower rarely consider where the lease company gets its funding, but guess what... they borrow it also. The spread between their borrowing rate and your implicit rate in the lease is... no surprise... their profit.
But the lease company makes money in a number of different ways, not just their cost of funds on the actual cash flows of the lease. One method that increases the lessor yield or profit is their ability to request down payments from your firm on the transaction.
NO MONEY DOWN ? 100 % FINANCING
While the industry generally flaunts a ' 100 % no money down' philosophy you should therefore negotiate for the lowest down payment possible, if in fact you are asked to provide one. Oh, and by the way, some firms might call this a 'security deposit', but at the end of the day it’s still in the category of a down payment.
The actual cost and value of the asset is a key driver in the lease company's assumption around profit. In Canada, you have a choice between two types of leases, capital and operating.
IS AN OPERATING LEASE THE SOLUTION?
If you choose an operating lease you or the lease company will make or lose a significant amount of money if the transaction is not priced and understood properly. That's because returning the asset to the leasing company allows them to not only profit on the finance/interest rate portion of your transaction, but also the sale of the asset to further increase profit.
In the Canadian marketplace, you might be asked, and typically you will... to pay miscellaneous lease costs associated with the administration of the lease, ie government registration fees to collateralize the asset, documentation preparation, etc. These generally are no more than a few hundred dollars.
CONCLUSION
We've highlighted some of the factors that affect equipment leasing rates in Canada. If you're looking for an asset finance rate that suits your firm seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your business needs.
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Stan Prokop
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