Business Leasing. It Seems To Always Be The Future Of Equipment Asset Financing And Here’S Why

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Business leasing in Canada. Day in, and day out it seems that Canadian business owners and managers gravitate to equipment asset financing solutions as their preferred method of funding capital expenditures. Why is that? While we might not unlock the secret of the universe along the way we can sure provide some powerful insights into what makes lease finance tick! Let's dig in.

Let's take a look first at how clients typically approach the asset acquisition question. Typically it seems to be always driven from a âEUR~cash flow ' perspective. Companies determine over the course of the time that they need to acquire or replace assets. In many cases the cost of new asset acquisition (technology is a good example) is significantly covered off by savings in costs as well as opportunities in growth and profit. That's a good thing!

More sophisticated users of lease finance take a look at the cost of the asset, the savings and profits they will generate, and bench mark those against the actual lease, tax and accounting benefits that come with lease finance. Smaller firms in the SME sector might not actually do that level of analysis - but smart owners and managers seem to intuitively know that a solid alternative to taking on long term debt or depleting cash resources often comes via the lease finance solution.

In the old days many firms actually used operating lease to in effect hide debt on their balance sheet. The accounting rules have dramatically changed in recent times and most lenders and owners recognize that quite certainly the equipment lease is a liability The bottom line is that any firm, in any business financing decision has to ensure they are watching their debt to equity relationships and the cash flow that suffers and benefits from any financing decision.

Where business leasing is similar to secured lending is that at the end of the term (in a capital ' lease to own ') your firm owns the asset. Remember though that in a secured term loan situation your lender, typically the bank might have restrictive covenants around how much you can borrow now or borrow in the future. Leasing tends to place less or no focus on this issue - the focus is on the asset and the cash flow.

Remember also that todayâEUR(TM)s equipment finance markets are ultra competitive. The industry is on a total rebound and that drives interest rates and credit approvals to a positive convergence of ' goodness' for the Canadian lessee.

By properly negotiating leases in an upfront manner, either from a capital or operating lease perspective the Canadian business owner /manager is in a position to have a say in the ultimate value and use of the asset at end of the lease term. So your company benefits in knowing your fixed financing costs on the asset as well as having a say in its useful economic life.Talk about eliminating uncertainty.

Yes, you do have to pay attention to claims of ' 100% financing ' and other claims sometimes not true in lease finance,

But, on balance, a s we said, we're not quire sure lease financing is one part of the mystery of the universe solution, but we do know that 80% of the crowd cant be wrong, and that's how many companies utilize lease asset finance in Canada.

Stan Prokop [http://www.7parkavenuefinancial.com/stan-prokop]
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