The Evolution of Equipment Financing and Leasing in Canada - an Overview

As the Canadian economy developed in the mid 1900's manufacturers recognized the need to provide financing to their customers. This caused a major surge in growth in business equipment leasing. At the core of the issue was the belief of manufacturers that they could sell more products if they were able to provide a financing solution to their customers.

Equipment leasing became a major force in the Canadian business economy. Certain manufacturers took an alternative view to the benefit of simply selling more products to their customers. They felt by leasing, or in some cases renting or installment financing, they were able to protect the proprietary rights in their different technologies. The best example of this is the Bell Telephone Company, which rented or leased phones to business and consumers in Canada. Unbelievably, Bell actually started doing this back in the late 1800's. In the early 1900's automobile financing and renting came into being, creating the mammoth vehicle financing industry.

It is interesting to note that even today the equipment leasing industry is characterized by the same breakdown of participants, that being captive vendor lessors, and alternatively private independent lessors not specifically affiliated with any particular product or firm.

During the 1960's, as more and more computer and telecom technology evolved companies began to recognize one of the major tenets of leasing - that is simply: ' Its more advantageous to use the technology, not buy it '. Customers, unlike manufacturers, had not insights as to the future values of the equipment they were purchasing. Therefore leasing and renting became a very sensible option.

We have talked about the advantage of use, versus ownership. We need also mention that in many cases the costs of new technologies was very prohibitive for many firms, so the concept of small monthly payments was very attractive to the business owner and CFO.

It is interesting to note that as the industry started to evolve many Canadian chartered banks forayed into leasing and became dominate players in the markets, as did some major trust companies.

In summary, the Canadian leasing industry has grown and evolved into a major Canadian economic force. The three key drivers in the growth of the industry were:

Sales aid financing

Technology boom

Financing and tax benefits

These core drivers continue, even after 100 + years, to be key in the development and evolution of the industry.

Author:.

Stan Prokop is the founder of 7 Park Avenue Financial . The firm specializes in business financing for Canadian companies     in the areas of working capital , asset based lending, SR & ED tax credit financing, equipment financing,  franchise financing and banking .

 

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