Here’s An Opinion On:
The Equipment Finance Lease In Canada : Eliminating Rough Waters In Asset Financing
by
stanprokop
The equipment finance lease is by far the most popular method of asset financing in Canada. Although paying for an asset in this matter is ‘ cash going out ‘ vs. ‘ cash going in ‘ this method of finance allows businesses in Canada to acquire assets and technology needed to run and grow their business. ( Note Businesses can achieve ‘ cash in’ status via a sale leaseback strategy )
While mostly positive, and we hesitate to use he word ‘ negative ‘ there are some issues that need to be understood by the owner/manager. It’s all about handling the truth we suppose – let’s dig in.
Unless your lease properly reflects the option to own the asset at the end of the term lease financing is all about ‘ using’ an asset. Small to medium size lease financings have some fairly basic issues attached to the documentation; if you don’t know the basics of these you can over pay / over spend on lease financing. And by the way, they are all negotiable!
And those basics? They are:
Amortization term of the lease
Residual
Purchase Option
Termination abilities
For asset financings in the SME Commercial area documentation around lease contracts is fairly simple these days – lessors have strived to eliminate paperwork. Larger transactions and ‘ Master Lease ‘ agreements tend to be more complicated.
Many business owners and financial managers don’t fully investigate ‘ operating leases. A good way to understand these is to think of it as a lease for an asset where the life of the lease term is almost always shorter than the expected life of the asset. One of the most common asset classes financed by operating leases is ‘ Technology / Computers’
While the appeal of the ‘ off balance sheet ‘ aspect of operating leases has pretty well bitten the dust it’s still a great way to upgrade, replace and add on to existing tech assets.
While lessors in Canada scream ‘ benefits ‘ (flexibility, cash flow, alternate credit sources, tax implications) a more balanced approach is to ensure the potential downside.
Those ‘ downside’ issues include:
Potential non ownership of the asset
Termination costs if you are forced to exit a lease for business reasons
Cost (rates tied to leases are more often than not higher than pure bank loans/borrowings)
When we talk to clients about ‘ handling the truth ‘ in those downside issues it’s important to realize they are all manageable and hardly overwhelming if understood at inception.
If you’re looking for ‘ smoother waters’ in your equipment finance lease needs seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in matching proper asset financing solutions to your needs.
Stan Prokop
Stan Prokop – founder of 7 Park Avenue Financial http://www.7parkavenuefinancial.comOriginating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years – has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.http://www.7parkavenuefinancial.com/equipment-finance-lease-asset-financing.html
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The Equipment Finance Lease In Canada : Eliminating Rough Waters In Asset Financing}