Financing leases in Canada. Should we... or perhaps we shouldn't ... and who with... and when ... and why. Can we make up our minds here!No one is a bigger fan of lease equipment strategies in Canada than us... when you're with the right leasing company it's a powerful double whammy of financing success.
But is it always advisable to choose equipment finance, and when are there some clear disadvantages to this popular method of Canadian business financing.Although 80% of North American firms utilize lease finance it might not always be your preferred strategy. Two obvious alternatives of course are to purchase the equipment outright, while the other options might just be a term loan strategy.
If there was in fact on perfect method of financing fixed assets, trust us... we'd be all over it. However the real world suggests that it's always about some pros and cons where you as the business owner or financial manager have to weigh in.One of the most obvious benefits of those who have used leasing before is simply that it more efficient and less time consuming than seeking loan financing.
The industry in Canada is basically categorized as ' document efficient'... smaller transactions can almost always be approved in a day or so ... sometimes within hours if you're at the lower end of the spectrum.One other key advantage of asset finance via a lease strategy is your ability to manage what is known as the obsolescence factor. Because you're paying over time and the lessor owns the asset it becomes the risk of your leasing company when it comes to declining asset values.
Most of us know that 99% of busines assets depreciate, not appreciate in value.One solid example of the whole issue of obsolescence is the technology area. Whether its computers, software (yes software and software licenses can be financed) and telecom equipment are prime examples of expensive higher ticket items that can lose their value almost overnight given changing technologies.
So to pay for them in cash or to lock into a term loan that has no flexibility is simply... not recommended!Many companies in the manufacturing sector rely on production assets to run their company. These quite often need to be upgraded, if simply for the wear and tear aspect something mechanical. So the idea of flexibility in a lease to return, upgrade, trade in, and then refinance is a highly sought after financing strategy in Canadian business.
Not all fixed assets that your company needs will be needed for a long time... in some cases they may even be project oriented. That's when a shorter lease term with an aggressive depreciation policy makes solid sense.That's just a couple advantage of leasing in Canada. But should you always be using this option?
We do like to present a balanced picture!If there are situations when you can maintain residual upside in the value of the equipment or asset (perhaps your company jet?!) then by all means consider an operating strategy or a term loan scenario. Also, if you are in a position to pay cash and not hinder your overall cash flow situation then there is some accounting and cost advantages to outright purchase.
So, bottom line today? It's simply to manage and understand the weight of evidence that come with any lease vs. buy strategy. Need help? Speak to a trusted, credible and experienced Canadian business financing advisor today for your lease equipment needs.