Canadian business owners and financial managers quickly realize the benefits of lease financing when it comes to paying for equipment acquisitions. Whether your firm is a start up or an established company many of the benefits of lease financing will apply to your firm. One of those key benefits is simply the fact that you realize that somewhere in the near future you will have to replace that asset, and that is not the time when you wish to have a burdensome asset on your books that you must fully replace with valuable cash and working capital.
In Canada any asset class can be financed, including in some cases even soft costs or non tangible assets. Computer software might be a good example.
Cash flow is what most business owners are most cognizant of, and you quickly realize that paying for the use of an asset over its expected useful life makes much more sense that writing a large cheque for an asset that effectively depreciates the minute you purchase it. As consumers we can relate to that statement when purchasing a vehicle for our selves or our family!
Business owners have the luxury, when lease financing, of strutting a financial vehicle around the ultimate use of the asset – By that we mean you can have a significant say in the rate, term, and type of lease you enter into.
Clients always ask us about the rate in lease financing, as in some cases they have heard that leasing is a more expensive option to a bank loan or outright cash purchase. Textbooks have been written on that whole subject – but let’s try and summarize that whole textbook into a few common sense statements! They are as follows –
– Using up bank credit lines for an equipment asset strategy can be a bad decision based on your overall ability to borrow in the future and the covenants the bank lender might place on your company.
– Writing a cheque for payment in full of a depreciating asset, and depleting your cash on hand is never a recommended strategy for our clients
– If you could match the benefits and the useful economic life of the asset to monthly cash outlays why wouldn’t you take advantage of that option
– Many business owners prefer to have multiple sources of business financing – they don’t want all their ‘eggs in one basked ‘so to speak – Wouldn’t your firm want to do that?
Canadian business owners can choose from two types of leases –
Lease to own
Lease to use (commonly called an operating lease)
We recommend that clients view all asset acquisitions as a potential form different financing strategies. Work with a trusted, respected and credible advisor to ensure you understand that the rates, terms and structures reflect your overall credit quality and the type of lease that makes most sense for you Canadian asset acquisition . That’s a solid business financing strategy.