Successful Lease Financing Approval in Canada

Updated: March 03, 2011

Owners can safely assume that the lender is doing significant work on financial statement analysis to satisfy them they are making a proper financing decision with you firm. Included in this analysis is strong emphasis on cash flow history and projections, operating efficiencies of your firm as measure by industry accepted ratios, and balance sheet analysis with respect to the amount of debt your firm is carrying, etc.

In our previous article we suggested that business owners should be aware of some key 'structuring options 'that lenders use when they are contemplating an approval that they are not 100% comfortable with. These options, previously discussed were:

  • Utilizing higher rates to compensate for risk
  • Use of Security Deposits
  • Use of advance payments
  • Structuring higher payments in the earlier years of the lease
  • Shortening the lease term to offset long term risk

Business owners should be aware of some additional enhancements that can further a financing approval when your firm might not fully qualify for your desired amount of financing and overall structure.

Let's looks at some of those additional enhancements that compliment the 5 areas we have noted above.

Business owners who are not familiar with some of these financial nuances should employ the use of a trusted leasing advisor with credible experience, thereby significantly increasing their chances of getting a lease financing approved.

Business owners might not always be comfortable with providing a Personal Guarantee on the transaction; however personal guarantees are a clear fact of life in the Canadian business financing environment. The logic of the lender, in this case your equipment lessor, is that you are more motivated to make those payments if you are personally obligated in the matter also. Naturally companies incorporate to avoid personal liability but business owners are often called upon by lenders, lessor, etc to provide a guarantee. It goes without saying that the lender will also want to validate the quality of your personal guarantee.

In many cases you as a borrower, or the lender might request, additional collateral on the transaction. This would be collateral that is currently unencumbered, but in effect shores up the lessors overall position, allowing your transaction to be approved. In many cases you will be required to provide some form of documentation (usually an appraisal) of the additional asst.

In some circumstances effective additional collateral might be credit life insurance on the transaction - in a smaller of mediums sized Canadian firm the lender / lessor may rely on that insurance in the event something happens to the owner, that something being ' death ' of course!

Not all Canadian business owners know that in some cases the manufacturer that you may be purchasing and financing the equipment through is in some cases agreeable to providing a limited or partial guarantee on your transaction. They are making a sale, generate profits from the sale to your firm, and may be able to remarket the asset if the lessor requests assistance in this area.

Finally, in some cases your lessor may request a letter of credit or Certificate of Cash deposit as additional collateral. In the authors experience this is rare, as your firm traditionally would note want to encumber cash in such a manner.

Featured Research
  • Video Conferencing Best Practices

    Video conferencing is quickly becoming one of the most important communication channels for both small and big businesses. As more businesses turn to this technology, expectations about the experience are also rising. It’s not enough to just offer video conferencing as a communication method. You also need to meet minimum audio and visual standards, and there’s even proper etiquette to consider. more

  • 10 Contact Center Myths Busted

    For most forward-thinking companies, the use of contact center software is on the rise. That said, in spite of contact center software’s sudden rise in popularity, a number of myths have begun to take shape. more

  • Go Mobile and Increase Employee Productivity

    The Bring Your Own Device (BYOD) and Voice over Internet Protocol (VoIP) tech trends now allow people to work whenever, wherever, and however they want—mobility makes it happen. more

  • [Infographic] How to Select a Phone System in 10 Steps

    Choosing the perfect phone system for your business is no small task …. Depending on the size of your company, the industry in which you work, and the specific needs your phone system will be required to meet, any number of solutions could get the job done. more

  • SMB CRM Providers Comparison Guide

    A good SMB CRM system can be an incredibly valuable asset for your business. As more businesses recognize this value, the amount of SMB CRM vendors is expanding quickly. Navigating the pricing plans, features, and service terms of all these can be a decision-making nightmare. more