Many clients tell us they receive a lease of financing quote and don't necessarily understand whether or not the financing offer is in fact competitive. All things being equal we're going to assume your firm has good credit quality. But don't despair if you don't because the one good thing about leasing options in Canada is that it's available for all firms, regardless of overall credit quality or financial challenges.
So a couple of key basics, here we go: First you need to understand how leasing pricing is derived. The key elements of any finance quote are: term of the lease, interest rate, present value, payment, and your end of term option. Remember also that when you know any 4 of those key elements you can always figure the last one out. We would point out that it helps to have a true ' financial calculator ' to derive exact pricing.
We cringe when we hear the phrase ' whats my rate ' from clients... simply because that isn't always the aspect you should be focusing on in equipment financing. Want to know what leasing rates are in Canada - They range from 4 3/4% to 24% or more per annum in the current environment. In fact lease rates got a lot better in 2011 as the economy approved and Canadian leasing companies got their act in gear again.
One of the best tips we can give you is to do some real basic lease vs. buy analysis on your transaction. This of course assumes you are in a position to purchase the asset outright, because quite frankly most clients are looking at leasing options simply to conserve cash and working capital.
And oh yes, try not to view leasing as a commodity, when it facts it's a specialized form of financing that allows you to acquire assets and finance them over their useful economic life. Think in terms of the asset you are acquiring, how it will affect your profitability, and don't forget balance sheet and tax issues that lease financing can positively impact.
Here's a challenge. Do you think we could better any lease rate you could achieve on your own by say, 10%?! A quick way to do that is by letting us offer you an operating lease, which can significantly lower your payments, but still give you that financial flexibility. You can acquire assets without beefing up your balance sheet with debt - which is desirable for many business owners, particulary when it comes to assets that have a technological life cycle.
Remember also that by making a down payment or providing a security deposit, both of which may or may not be required also drives that pricing down.
So do we have a bottom line on the sometimes confusing aspects of lease rates, feeling you're getting a good price, and ensuring you know your leasing options when it comes to type of lease, etc? We think it simply investing some time and gathering knowledge on how the lease industry in Canada works, how it prices different leasing options.
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