YOUR COMPANY IS LOOKING FOR LEASE EQUIPMENT FINANCING!
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Welcome to 7 Park Avenue FinancialFinancing & Cash flow are the biggest issues facing business today
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We previously wrote on some of the challenges that Canadian business owners and financial managers face in getting successful lease equipment financing in place for their assets and capital expenditures. The current difficult economic environment makes it more challenging than ever for Canadian business owners to get the proper rate, terms, and structure that they deserve.
Success asset financing requires a working knowledge of what the lessor is looking for in a transaction.
OBTAINING CREDIT APPROVAL FOR YOUR LEASING NEEDS
Owners can safely assume that the lender is doing significant work on financial statement analysis to satisfy them they are making a proper financing decision with your firm. Included in this analysis is a strong emphasis on cash flow history and projections, operating efficiencies of your firm as measure by industry-accepted ratios, and balance sheet analysis concerning the amount of debt your firm is carrying, etc.
WHAT ARE RESTRUCTURING OPTIONS IN LEASING
In our previous article, we suggested that business owners be aware of some key 'structuring options 'that lenders use when contemplating approval that they are not 100% comfortable with. These options, previously discussed, were:
- Utilizing higher rates to compensate for risk
- Use of Security Deposits
- Use of advance payments
- Structuring higher payments in the earlier years of the lease
- Shortening the lease term to offset long term risk
Business owners should be aware of some additional enhancements that can further a financing approval when your firm might not fully qualify for your desired amount of financing and overall structure.
ADDITIONAL CREDIT ENHANCEMENTS TO GET YOUR LEASE APPROVED
Let's looks at some of those additional enhancements that complement the 5 areas we have noted above.
Business owners who are not familiar with some of these financial nuances should employ a trusted leasing advisor with credible experience, thereby significantly increasing their chances of getting a lease financing approved.
DOES LEASE FINANCING REQUIRE A PERSONAL GUARANTEE?
Business owners might not always be comfortable providing a Personal Guarantee on the transaction; however, personal guarantees are a clear fact of life in the Canadian business financing environment. In this case, the logic of the lender, your equipment lessor, is that you are more motivated to make those payments if you are personally obligated in the matter.
Naturally, companies incorporate to avoid personal liability, but business owners are often called upon by lenders, lessor, etc., to provide a guarantee. It goes without saying that the lender will also want to validate the quality of your personal guarantee.
ADDITIONAL COLLATERAL MIGHT BE REQUIRED IF YOUR FIRM HAS ' BAD CREDIT
In many cases, you might request additional collateral on the transaction as a borrower or a lender. This would be collateral that is currently unencumbered, but in effect, shores up the lessor's overall position, allowing your transaction to be approved. In many cases, you will be required to provide some form of documentation (usually an appraisal) of the additional asset.
In some circumstances, an effective additional collateral might be credit life insurance on the transaction - in a smaller of mediums sized Canadian firm, the lender/lessor may rely on that insurance if something happens to the owner, that something being 'death' of course!
CAN THE MANUFACTURER OF THE EQUIPMENT PROVIDE FINANCING ASSISTANCE
Not all Canadian business owners know that in some cases, the manufacturer that you may be purchasing and financing the equipment through is agreeable to providing a limited or partial guarantee on your transaction. They are making a sale, generate profits from the sale to your firm, and may be able to remarket the asset if the lessor requests assistance in this area.
Finally, your lessor may request a letter of credit or Certificate of Cash deposit as additional collateral in some cases. In the author's experience, this is rare, as your firm traditionally would not want to encumber cash in such a manner.
CONCLUSION
So what's our bottom line? It is simply that lease financing can be a challenge, but if you work with a lessor to offer up and cooperate on some manner of structuring, as outlined above, then your chances of successfully getting a lease financing approval increase immensely!
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