Canadian business owners and financial managers are constantly challenged to come up with financing alternatives for both working capital and the asset acquisition.
Let’s focus on why a commercial equipment lease provides your firm with some of the best financing benefits and alternatives. In order to be successful in financing equipment it is important to know several key things – we can summarize those in a few critical categories:
– Understanding what lease company is the best fit for your firm
– Focusing on what benefits are important to you in an asset acquisition
– You must have the ability to de-mystify lease pricing and rates and structures to ensure you are getting a competitive market rate and structure
When you make the equipment asset purchase decision you are always faced with what is known as the ‘ lease vs. buy ‘ scenario. We don’t intend to make out information shared here an accounting lesson, but either using a lease vs. buy calculator or template, or, even better, speaking to your accountant you can easily come up with a rudimentary analysis of what the best financing option is . If it is lease financing then you are ready to move forward.
We talked about our critical point # 1 – which is simply to understand who your best lessor might be. The factors that determine this might seem like common sense – they are: The type of asset you are acquiring, the dollar value of the asset, and the overall credit quality of your firm you are in a position to focus on the firms that finance this type of asset.
The good news is that there are hundreds of lease financing sources in Canada – the flip side of that coin is that you might not have the time to invest in speaking to 100 different firms.
In most cases in makes a lot of sense to seek out the service of a lease financing expert who will be in a position to source the optimal funding as well as the best rate, term, and structure.
We advise all clients that, if they can, they should try and determine if the manufacturer provides financing – this is known as ‘captive ‘ financing and 99% of the time is your best deal – and fastest approval . That’s simply because the mfr. finance arm is incented to move product, as well as earn some income on the financing of course!
We talked in point # 2 about focusing on benefits – Leasing has numerous benefits. It would be rare that every benefit applies to every firm – so we recommend to clients that they outline what is most important to them with respect to the financing of this asset – those considerations might be a lease to own financing, or in some cases, an ‘ operating lease, which is akin to a short term rental, although a typical operating lease might range between 2-3 years in duration. The benefit of that type of financing is simply that your benefit from the use of the asset, not the ownership of it, and profiting through use of the asset is what it’s all about in business.
We tell clients that we aren’t necessarily overly proud of the way the industry sometimes confuses customers with a myriad of terminology and options, these includes references to FM, skip payments,
First and last, full payout, bargain purchase option, etc.
The most important piece of advice we can give a client is simply that by properly positioning their current financial position, demonstrating profit through use of the asset, and knowing whats important to them re payments, approval, lease term, etc should in fact allow them to maintain a control position in any lease financing negotiation.
Be an informed lessee in your search for a commercial equipment lease, understand that the market is competitive and people do want your business, and focus in on what financing equipment benefits work best for your firms sales and profit prospects.