YOUR COMPANY IS LOOKING FOR LEASE FINANCE FOR NEW / USED CONSTRUCTION EQUIPMENT!
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Certain types of asset classes lend themselves to maximum flexibility and maximum benefits when it comes to lease finance. Leasing new or used construction equipment definitely falls into that category.
The acquisition of these sorts of heavy 'yellow iron' type assets ebbs and flows with the economy, and the Canadian economy has clearly 'righted' itself after several tough years.
The attractiveness of this type of financing is that it is applicable to all asset types and firms with different levels of credit quality. It's of course all about getting 'approved' and using those assets to generate revenues and profits.
In many cases firms acquiring such equipment might be in the SME sector, even start-ups. Therefore the general credit history of the owners is always on the table as a discussion point.
Lessees of other types of equipment might be surprised that lessees of new and used construction equipment can easily get approved despite a negative credit history.
The reason? Simply that these types of heavy equipment assets generally have a solid resale value, and in many cases hold significant value years later. That certainly isn’t the case in Computer and technology leasing, where assets quickly devalue as technology changes.
Owners of firms in the construction and heavy equipment area quickly recognize that lease finance is simply a very effective use of capital and that capital translates very quickly into cash flow conservation.
When Canadian business owners and financial managers are looking to acquire, and lease these 'yellow iron' types of assets they need to consider three key factors.
First of all the type of lease they choose is important. It's at this time they need to consider the issue of ownership, i.e. who will own the asset at the end of the lease term? The majority of leasing we see in this area of the economy has the business owners and managers opting for a 'lease to own' type strategy. The title would only revert to the leasing company if your firm was unable to make payments and defaulted.
Understanding the real cost of a lease is critical to equipment finance success. That's our 2nd key point. Knowing the rate, and in particular how it's calculated can make or break some of the financial benefits of your lease transaction. Leasing companies in Canada can employ several 'tricks' (maybe we should call them pricing strategies!) to improve their yield, so be cautious of down payments, whether payments are calculated in advance or arrears, and how your purchase option figures into the total pricing.
We maintain there is no real difference, from a financing perspective, if you choose a new or used asset. In some cases your firm simply might have access to a great deal on a used piece of equipment, so financing that ' good deal ' makes even more sense. We do not agree with some that maintain it's difficult to lease used construction equipment. It can easily be done!
Pricing in your transaction will depend on your firm's overall credit quality, and the industry in Canada divides itself nicely into different tiers of pricing, credit, and asset quality.
Firms with lower overall credit quality can expect some form of down payment, or perhaps a shortened amortization on the term of the transaction.
When you choose lease finance you are making a trade-off between financing costs and conservation of capital. For most businesses in the SME sector conservation of capital becomes priority one and leasing wins that decision.
So there you have it. Whether you are looking for trucks, excavators, bulldozers, all other 'yellow iron' your asset finance needs can be satisfied.
Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your new and used construction equipment finance needs.
Stan Prokop 7 Park Avenue Financial/Copyright/2020
