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Lease Financing in Canada

Guest post by: Stan Prokop

Article Overview: The article highlights the benefits of lease financing for Canadian business owners and financial managers, focusing of features of this alterantive financing solution

Lease Financing in Canada

Lease Financing - Canada continues to view this option as a major source of capital expenditure financing in Canada financing in Canada. More and more companies are gravitating to leasing as an effective financing option for their equipment needs.

Canadian business owners and financial managers need to be aware of the types of lease financing out in the marketplace, with respect to documentation, rate, term and structure, and of course, most importantly, approval .

The term for most leases in Canada, based on our firms experience tends to be between thee and five years. With respect to what asset type can be leased, probably the better questions is to ask 'what can't I lease '? That's is because almost every type of asset can be lease financed. Leasing firms do like to focus on equipment and assets that are 'revenue producing 'in nature - i.e. those assets that will generate sales and profits for your firm - that's because the lease is of course paid from the cash flow out of those profits and sales.

Many business owners do not, unfortunately, have a solid understanding of what types of leases they can enter into. Doing your basic homework in this area will save you potentially thousand of dollars over the term of the lease, based on estimated asset values and the type of lease you enter into. (There are two types - capital and operating).

When we ask business owners and financial managers why they lease more often that not the answer comes back relating to preservation of capital. In today's difficult financing market Canadian forms want to preserve cash and credit lines for other basic business needs.

Other firms are very focus on how the optics of the lease will affect their balance sheet - many larger firms focus solely on operating leases, where the asset remains off their balance sheet as debt, and the payments are reflected as an operating expense. When debt to equity ratios and cash flow coverage ratios are important to your firm, your bank, or your shareholders then leasing via an operating lease becomes a very effective financing tool.

Leasing tends to be 'fixed rate' financing. Given today's relatively low interest rate environment it of course makes a fair bit of sense to lock into a good low rate for the next three to five years.

There isn't a day goes by when we don't hear of in the radio or the financial press concerns about inflation. When costs go up in an inflationary environment the business owner takes solace that his lease payments are fixed and at a respectable rate.

We spoke previously of capital conservation - more often than not leasing is 100% financing - on occasion a customer may be required to provide a first, or first and last payment, and sometimes a down payment, but in general business view leasing as 100% financing. That's a good thing relative to cash flow management.

When we talk to business owners about leasing we frequently use the term 'options '. That is because leasing lets you have a final vote in your capital expenditure financing. Properly structured leases allow you to return equipment, buy it out at end of lease, or extend the term of your lease if you feel the equipment will be used for another specific period of time. Many lessors will even allow you to go 'month to month '.

Naturally in today's competitive environment it makes sense to stay ahead of technology whether that is computers or plant equipment or rolling stock. Leasing allows owners to use the asset and ensure that you have access to newer assets if your firm needs them - upgrades are very common in lease financing in Canada.

We spoke of 'approval 'previously .Since most lease financing is done outside of the banks in Canada independent finance companies focused on lease financing work hard to generate an approval for your asset financing. Typically a lease finance approval can be obtained in a week or so as long as you have the required information, which is generally an asset description of quote, and the basic financial information on your company, i.e. your financial statements.

Investigate the benefits of leasing by talking to an experienced and credible advisor who can ensure your firm is maximizing those lease finance benefits!

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Article Tags: capital expenditure, lease financing Canada, leasing, source of capital



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