Canadian Lease equipment financing continues to be one of the most successful means for a company to acquire assets of all types.
Unfortunately most clients we talk to are always focused on rate, which in many cases is only one small piece of the Canadian asset, based lending puzzle, and solution.
In Canada equipment of all types can be leased – that includes capital expenditure items from 5k to 50M dollars.
What should Canadian business owners focus on and seek guidance on when acquiring assets via the leasing option. We think three things are important –
– Who to lease from
– What are the key elements of a successful lease structure?
– What is required for an approval that meets your firms needs Vis a Vis rate, term, and structure.
In Canada the leasing industry is very fragmented. Like all other parts of the financial services industry the business has gone through major tumult in the last couple years, particularly the 2008-2009 global financial meltdowns.
So who are the players and why is it important to know who you are leasing with, as long as you are approved? Good question?! Let’s explore the answer.
In Canada the leasing industry is self regulated via a national association called the CFLA. The companies that make up the industry are:
– Major international conglomerates and their Canadian subsidiaries
– Canadian owned private independent finance firms
-Captive finance Companies
– Independent lease originators, also known as intermediaries
So why is it important to understand who you are dealing with? Time is money, and a significant amount of time can be spent with a lessor who you think might be able to do the transaction for you, but ultimately your firm might not fit the asset and credit criteria required .
We referenced the major international conglomerates; a well known example might be GE. The reality is that these firms predominately focus on very high ticket value transactions with commensurately high credit quality criteria. We have spoken to many customers who have invested time, commitment fees, etc only to find they were in effect dealing with a firm that was unable to satisfy the size of their transaction.
Private independent lease firms in Canada tend to have niches – in the industry the term is ‘ credit box ‘. That simply means they only solicit a certain type of asset and credit quality – any transaction falling outside the box becomes not doable. Again, you may have totally wasted your time.
We are the first to advise clients that if they can get lease financing via a captive finance company or a vendor program via the manufacturer there is only one recommendation – ‘ Take the Deal!” Vendor and Captive programs are highly incented to finance assets at competitive rates and sometimes overlook the rational credit quality that is required to get a deal approved.
Recall that our final lessor category is independent finance originators, aka intermediaries – we hate the term broker by the way. The key benefit of working with a trusted, credible, and experienced advisor in lease financing in Canada is simply a time/ money scenario. You can spend hours, days, and weeks negotiating with firms who ultimately can’t do your transaction. Along the way you may have laid out commitment fees as well as having your firms financials viewed by a number of different parties with whom you may never do business .
Our experience is that people prefer to deal with experts. Why wouldn’t you want to work with an expert that can assist you in achieving the optimal rate, term, structure, etc? Simply things such as a recommendation on the type of lease you choose (capital or operating) can save you firms either thousands in interest, or have a significant effect on monthly payments. That is a solid acquisition financing strategy!