So, why do firms lease, including of course your competitors. Yes, arguably it's for tax reasons, as well as the whole issue of obsolescence, but we find it always comes back to cash flow management, not using your valuable day to day working capital, as well as the difficulties perceived by many businesses in arranging loan or bank financing. All in all, some pretty powerful reasons we think!
Many industry finance trade associations provide data that sooner or later almost 80% of all companies in Canada use equipment leasing in some manner for their business finance needs. And there's no discrimination, from the largest firms in Canada to small start ups, all types of companies use this financing. In the case of small businesses it's more often than not because of limited capital, and in the largest of corporation's issues such as depreciation, off balance sheet needs, and budget cycles all play key roles in equipment financing.
We use the term equipment financing, because it's an all encompassing term, but in reality every type of asset can be financing, and that includes technology, software, plant equipment, office equipment, we think you get the idea - anything can be leased based on the overall credit quality of your firm. That also brings up the point that most business finance people quickly understand that equipment leasing approvals are probably easier to arrange than any other type of financing.
Businesses love 'options' for their equipment financing needs - business owners and financial managers want to know they have flexibility. That's where lease options such as full payout lease to own leases, or operating leases offer maximum flexibility, based on your business needs. Using financial leases for long term capital equipment needs is a daily strategy for Canadian business financing.
The costs to lease are varied. The factors that play a role in the ultimate interest rate and payment factor depend on key issues such as your firm's credit quality, potential outside collateral if that's required, willingness of the owners to provide a guarantee, as well as the lessors opinion of your historical and projected cash flow. Quite frankly the main question lessors always ask themselves is simply - "Will this asset product profit for the lessee".
In summary, the key advantages of equipment leasing are its ultimate 'convenience', the flexibility around the types of leasing you require (lease to own or just rental, use and return), tax and accounting advantages, and, oh yes, ease of getting approved!
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