Unfortunately, a huge number of Canadian business owners devote a huge part of their time in business life to asset finance, in effect trying to find capital for their business. Many times, the solution to that challenge is with leasing companies in Canada ready and willing to provide those business people with equipment loan and lease financing.
What then are some of the key issues that get you one step away from business financing success when it comes to acquiring assets for your firm? As a business owner or financial manager, you want to get the amount of capital you need with the least amount of risk you are willing to take on via debt.
Leasing companies, via asset finance in Canada, are one of essentially five ways to raise capital for assets. (Those other four are, of course, supplier loans, bank financing, term loans or equity injections from owners).
Why then do 80 percent of business owners in North America constantly use lease finance as a business strategy, instead of simply buying the assets? Flexibility is one reason. Your assets can be financed on shorter terms via a “lease to use” type strategy or longer amortizations via a lease to own transaction. Depending on which of the two you choose, you again (and here’s our flexibility again) can either return the asset or take ownership of it .
Canadian accounting practice sets up specific rules that deal with different types of lease strategies, either recording the lease on your books, or in some cases, via an operating lease setting your transaction up as an expense . As boring as it might seem to spend some time on lease accounting implications, the right choices in this area can save you a lot of dollars, and grief when it comes to financial reporting, tax time, etc.
Clients seem to slowly get the point here, in that your lease management becomes part of your overall business strategy and takes some planning. It’s a good vehicle for getting some communications between the users of assets in your company as well as the finance side of the business!
In that manner, we preach to clients that lease arrangements are driven from several areas of management thinking:
The ability to borrow
The convenience provided by leasing companies
Risk avoidance in asset ownership via an equipment loan
Tax and accounting implications/benefits
One of the most powerful examples of risk avoidance in asset ownership via assistance from Canadian lease companies is the area of technology and computer financing. Who in their right mind, asks the business owner, wants to take on the risk of technology obsolescence in the area of computing, which seems to change every five minutes, including the newest grey area of computing, “THE CLOUD”?
Does an equipment loan or lease have a lower or higher cost? That’s a typical question from many clients who are at the crossroads of the lease vs. buy decision. This is where your finance folks or accountants take variables into effect such as your firm’s cost of borrowing, the rate in the lease and hopefully always making every aspect of their comparison an “apples to apples” assessment .
Other factors in the lease vs. buy decision might include down payment scenarios, credit covenants with current lenders, depreciation policies, residual value of the asset at the end of the lease or loan, etc!
An equipment loan or lease might not always be as simple a consideration as you might think. But it continues to be the financing of choice everyday for thousands of Canadian businesses.