YOUR COMPANY IS LOOKING FOR LEASE FINANCING!
THE CAPITAL LEASE VS OPERATING LEASE DECISION / CHOICES IN OPERATING LEASES AND CAPITAL LEASES
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Financing equipment challenges. It's almost too easy to have that ' 3rd down and 110 yards to go ' feeling when it comes to asset finance. That's why a properly selected and structured capital lease or their counterpart, operating leases might just give you that ' touchdown' feeling. Let's explain.
GOOD BUSINESS DECISIONS AROUNDS FINANCING OF NEW ASSETS
The concept of making good decisions around the financing of your business assets solves the problem of reducing capital outlay - and that's whether you're starting a business or if you're a major corporation.
BUDGETING FOR MONTHLY LEASE PAYMENTS
Probably 9 out of ten clients we talk to focus solely on their newfound ability, with lease finance, to pay a specific fixed amount every month. They have budgeted for that, they feel they can make the payments, and at the same time, the asset or assets financed help them run and grow the business.
WHAT IS THE USEFUL ECONOMIC LIFE OF THE ASSET YOU ARE FINANCING
That’s a logical and ' ok ' line of thought. But in fact, you might be missing the boat when it comes to other major advantages of this method of Canadian business financing - those might include upgradeability, wrestling with obsolescence and the really useful ' economic life ' of the asset you are acquiring. No more clear an example is when you lease computers, telecom and software, which constantly evolves technologically and requires upgrades and changes to keep your firm competitive, as well as how they are reflected in your financial statements.
THE ACCOUNTING TREATMENT UNDER OPERATING LEASES
And we don't want to forget the tax and accounting benefits that come with a properly structured lease - they are key to maximizing the benefits we are discussing. Although operating leases, or ' leases to use assets, not own them ' are somewhat under attack in the accounting world these days they still can provide significant cost savings and flexibility when it comes to purchasing, returning at the end of the lease, or extending your asset finance transaction.
The challenge that sometimes seems so simple can actually be your most time consuming when it comes to asset financing and lease financing. That challenge? Figuring out who to deal with! One thing we can say is that lessors are more motivated to approve your transaction, as they are solely focused and in the business of doing one thing - leasing business assets in all categories.
Typical capital lease and terms in Canada range from 2-5 years, and operating leases tend to be in the 2-3 year category - given that they are much related to upgrades, returns, and lower payments coming from your lessor’s investment in the asset. When it comes to capital leases the arithmetic is very simple - the longer the lease term the lower the monthly payment, and if there is a down payment required that of course also lowers the monthly rental re the payment and interest expense. Capital leases are also known as a ' finance lease ' - the terminology in leasing can be confusing and at 7 PARK AVENUE FINANCIAL we spend a lot of time educating our clients on equipment finance terms/ benefits, etc.
Operating leases have lost a lot of the off balance sheet benefits due to worldwide accounting standards.
The lessor and lessee determine/agree on the fair market value at end of the lease term. The capital lease usually has bargain purchase options, allowing the lessee to acquire the asset for a small payment or some other form of consideration. Lease accounting issues are important to consider in asset acquisition financing. The company's balance sheet should be a prime consideration, as well as of course the conservation of cash and credit facilities when your company chooses to lease assets.
CONCLUSION
Where things sometimes go awry is when the Canadian business owner or financial manager doesn't quite understand that leases can't be terminated without a penalty of some sort. That's why negotiating the right type of lease, and the right term based on your specific asset being financing is key.
You've got choices in types of leases when you need to purchase the equipment you require to run and grow your business. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your financing equipment needs. All of a sudden 3rd down and 110 doesn't seem so daunting!
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Stan Prokop
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