Leasing equipment in Canada. When it comes to lease finance of assets how though does the Canadian business owner and financial manager know when this method of financing assets is both the right time … and let’s not forget ‘ how to ‘!
Interest rates are always a key factor in borrowing of any funds for business. If your alternatives for borrowing for business are limited then lease finance becomes a desirable form of finance – it has now become a working alternative!
Don’t forget though that interest rates in leasing equipment in Canada are dictated by overall credit quality – so although you may be approved for leasing not withstanding your firm’s credit, you may also have a higher rate within the lease. But its all about access to capital, not cost of capital for the majority of business borrowers.
Don’t forget to speak to your accountant about the tax benefits of leasing assets in Canada. Also, in many cases you might find that your bank might want additional collateral, commitment fees, or compensating balances, or outside collateral. Many of these are requests are not within general lease finance offers in Canada.
Is there a checklist the business owner of finance manager can utilize to finance assets via leasing? There definitely is, and here are some solid pointers:
– Always consider the obsolescence factor when it comes to acquiring an asset – and definitely consider lease finance if your asset has a somewhat defined useful life
– If you need the asset for a project or a shorter period of time asset finance is a solid strategy. We would point out though that, in general, the shorter term you can acquire in Canada tends to be 24 months. Typical amortizations by the way tend to be 3-5 years , but larger assets or assets that hold their value can in fact often be leased for terms up to 7 years , or longer .
– In business it’s all about capital preservation, so always consider your access to operating funds when acquiring an asset – that’s when leasing equipment becomes the optimal solution
– Don’t forget to review the type of lease you want to enter into – In Canada we keep it pretty simple, it boils down to lease to own, or lease to use . The terms for those two leases are capital and operating, respectively.
Who can you lease from in Canada? In Canada it boils down to private lenders, non bank independent finance firms, captive firms, and bank leasing subsidiaries.
So how do you go about making that choice? A good option is to use the service of a Canadian business financing advisor who can add solid value to the choice of term and overall rate, term, and structure.
There are many factors that are involved in the choice of financing an asset. Use this checklist to better understand your options.