Yes, taking a credit card cash advance is one option when you need cash quickly, but it won’t work when talking about business financial concerns. Canadian and U.S. firms finance billions of dollars of business assets via an equipment loan every year. Leasing companies provide some of the strongest benefits for capital acquisition than any other type of financing. Let’s examine what some of those advantages are, and provide you with some clear tips and advice on obtaining the best equipment financing rates and structures.
Your firm only has an advantage when it is benchmarked against another alternative. That alternative in business financing tends to be outright purchase of the assets.
Canadian business owners and financials managers tend to be less aware of the accounting and financial aspects of an equipment lease. The most obvious advantage is simply that you know on a monthly recurring basis what your payment is – which hopefully you have budgeted for in your cash flow and working capital outlays.
Some of the best advice we can provide clients with is tips on selecting the right type of equipment finance lease or loan transaction. That revolves around the concept of either ‘ owning ‘, or ‘ using ‘.
If you wish to own the equipment at the end of the lease term you need to pick what is known as a capital lease or ‘ full payout’ transaction as it is known in the industry. The concept is simple – The elements of the lease are the term, interest rate, end payment, monthly payment, and of course the value of your transaction. Using a financial calculator you can calculate any one of these key finance loan elements if you know the other data points.
Business changes constantly and so do financing rules on occasion. Many Canadian business owners and financial managers are not aware that there is an international accounting movement afoot to significantly diminish the value of operating leases, which is the other type of lease that leasing companies offer. This is a ‘ lease to use’ transaction, where you have the right at the end of the finance transaction to return the equipment if you choose.
Over the years the key advantage of operating leases was that you could record the transaction off your balance sheet, it was simply an expense, and didn’t alter your debt and equity ratios, etc. However, international accounting standards are now going to require that you show the transaction on your books.
So the best advice we can give you is to discuss that issue with your accountant. Quite frankly a lot of the other benefits of operating leases still probably make it worthwhile – they have lower payments than a regular lease, and you still have that option to return the asset when you no longer require it at end of term.
Additional advice on your leasing company search or negotiation revolves around the whole issue of cash management. Did you know that you can potentially structure your transaction for payment flexibility, as well as adding in several intangible items such as warranty, delivery, installation, etc?
So what’s our bottom line – simply to research which benefits make the most sense to your firm, pick the lease that suits your business and accounting needs, and speak to a trusted, credible and experienced Canadian business financing advisor about a leasing company that matches your firm’s needs.