But solid insights into how Canadian equipment and lease finance works sure can help, as the market is fragmented and has numerous players , all promising you different things, and all trying to fit you into their ' box ' - which you might find won't fit once you're inside!
A frequent term utilized in lease financing is ' lifecycle '. Let's look at that in a number of ways. In its most common use it refers to two things - matching the financing you utilize to your useful asset life, and at the same time choosing the type of lease that works best for that particular asset, and your balance sheet.
Utilizing the right type of lease will end us satisfying owners of the firm, and its creditors, relative to new debt being acquired. We talked about those ' operational ' leases, more commonly called off balance sheet operating leases. They have the ability to eliminate additional debt on the balance sheet ( trust us its still there, just not on the balance sheet !) as well as keep your ratios intact if you're operating within bank guidelines around debt to equity, cash flow, etc.
Those operating leases tend to work really well when you are in a technological environment, a good example being computing and telecom.
Quick example - let's say you are doing a major computer upgrade and total cost of all hardware and software is $1,000,000.00. Getting back to our lifecycle comment you typically would finance this over 3 years (given the fast changes in technology). A capital lease at today's competitive rates would typically generate a monthly payment obligation of approx $30,000.00 - and at the end of the lease term your firm is the ‘proud owner ' of 1 Million dollars of computer hardware and related items. We'll come back to the word 'proud '.
However, that same transaction, utilizing a lease financing operating (operational) strategy would yield a payment obligation of only $24,000.00.
And oh yes, would you really feel that 'proud' about owning a 3 year old computer system - we think not, that's why that same operating lease can provide you with lifecycle management flexibility, allowing you to return, extend, upgrade, or purchase if you choose . It's a right though, not an obligation, and that's important.
All clients, whether we like it or not, focus on rates. Of course they are important, but we caution you that you can have the best rate and monthly payment in town and pay dearly for being in the wrong type of lease financing strategy with the wrong options available to your firm.
And do you want to know the true reality of ' rates ‘. It's that you get to pick you own. Surprised? You shouldn't be, because in effect your own credit quality actually drives your final rate - as it's a competitive world out there. We can usually tell within minutes what a competitive rate band you might find yourself if, if you'll share some key financial disclosure on your firm.
Finally, industry knowledge. Is there a way you can navigate Canadian equipment financing waters successfully, in a manner that makes sense from a time and cost perspective. There are hundreds of lease finance firms, all have different criteria, some do large complex deals, some only small ticket deals and all have varying levels of financial disclosure required by your firm.
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