Tag Archives: commercial equipment lease

Equipment Lease Rates and Interest Finance Charges in Canadian Lease Finance….

What You Need to Know About Equipment Lease Rates and Interest Finance Charges in Canadian Lease Finance….

Although the Canadian equipment finance industry is very competitive many Canadian business owners and financial mangers don’t fully understand how equipment lease rates and interest finance charges are calculated… how they can be managed, and what issues affect your ultimate monthly pricing. Let’s examine some ‘ need to know ‘points that will allow you to fully maximize the benefits of lease financing assets in Canada.

We don’t blame clients for always wanting ‘ the best deal ‘… the ‘ lowest rate ‘… the ‘ smallest monthly payment ‘. Some of the variables that go into those issues are controlled by the lessor; some can easily be managed by you.

Asset quality is often a factor in Canadian lease finance. The ability of either yourself of the lessor to understand the ongoing value and the final residual value of the asset you are financing plays a key role in equipment finance pricing in the Canadian marketplace. A win win situation exists of course when both you and the lessor have a transaction that meets both of your needs.

Lessors refer to their profit on a transaction as their ‘ yield ‘. Many lease finance firms strive to earn a certain constant yield on their lease transaction they finance for Canadian business. It’s simply their ultimate profit for putting funds out on your transaction.

Canadian business mangers choose from only two basic lease types when acquiring and asset via a lease finance strategy. Its as simple as that, you are either selecting a capital lease, which is a ‘ lease to own ‘ strategy, or alternatively you are choosing and operating lease .The operating lease is a transaction wherein you have a stated intention to return or upgrade the asset during or at the end of the lease term . The true beauty of the operating lease is that it also gives you still the right to purchase the asset, even though that might not have been your original intention.

Put yourself in the eyes of the lease company, and let’s use a simple example of a 1000.00 transaction. If the final residual value of the asset at the end of the term of the operating lease is 100.00 and the lease firm estimated this as , lets say $50.00 then they have just realized a further $ 50.00 profit on the asset .

So who is the best to understand the actual true value of the lease at the end of the term? Quite frankly, sometimes its you, who understand your business only too well. Alternatively many lease equipment finance firms have significant expertise also. It depends,

The type of lease company you choose to work with also has a significant effect on your interest finance charges. Bottom line, your lease firms borrow funds also. In Canada that’s typically done through insurance companies and banks. So a general rule of thumb is that if your lease finance firm is larger, well funded, and well managed… the bottom line is that your chances of more aggressive lease rates increases.

We hate calling them ‘ games ‘ but the industry uses many nuances in pricing and structure and terms that significantly affect your overall finance charges . What are some of these?

A good example is advance payments you are asked to make, or security deposits. If you are asked me make a significant security deposit ensure interest accrues to your security deposit, at a rate commensurate with the size of the deposit.

Many assets are acquired on an interim rent basis… that has the lessor outlaying cash before you actually sign off on the final acceptance of the asset. It could be a complicated computer project that is being funded, or perhaps a production asset that is being assembled by your vendor in stages.

We’ve highlighted just a few of the basic issues that should come into consideration by your firm when you are concerned about getting those ‘ best ‘ equpment lease rates’ in the Canadian marketplace . There are others.

If there is a bottom line here it simply that it’s worth it to take some time and understand how some up front knowledge and consideration at the start of your lease finance process can positively impact interest finance charges in your favor as the lessee. Speak to a trusted, credible and experienced Canadian business financing advisor who can guide you to the appropriate lease finance pricing for your ongoing equipment needs.

The History of Equipment Leasing

Equipment leasing and how it works

All you needed to know about equipment leasing

Entrepreneurs may opt for equipmentt lease financingrather than investing cash in machinery that may become obsolete over time or increase overhead expenses. Technology, especially in electronics, changes so rapidly that corporations often prefer leasing computers, laser printers, copiers, and even telecommunications systems rather than buying. Business owners reason that money spent upgrading or purchasing new equipment to keep pace with technological advances every few years could be better

utilized by entering into either a “true” or a “finance” lease agreement. Another consideration for leasing over buying is simply to keep down overhead. Many companies, especially startups, cannot afford to furnish offices full of computer systems, desks and chairs, and file cabinets without breaking the bank. Long term rentals level the playing field between large corporate moguls with limitless funds versus small businesses with limited operating capital.

When businesses need machinery, computers, or copiers but lack the cash, they often opt for a true lease agreement which is similar to renting a piece of machinery or furnishings for an extended period of time with the intention of exchanging, or upgrading items at the end of the term or when newer models become available. Lessees have the advantage of having access to state-of-the-art tools and accessories without paying top dollar. True equipment lease financing may be more popular because monthly installments tend to be lower than a finance agreement, which works similar to buying on an installment plan. Companies which offer business accessories on a true lease can make more revenue by renting items again and again to various individuals and businesses. For example, a company leases a copier to a small firm for one year, at the end of which the lessee decides to upgrade to a pricier model with more features. The copier company has the option of leasing the older unit to another business owner, and another, until the original wholesale price of the copier has doubled or even tripled, especially when financing fees are added.

Certain types of long term equipment lease financingallows business owners to eventually own the machinery, computer, or copier at the end of the agreement or simply terminate the agreement and rent another piece of equipment. Finance leasing offers business owners an installment plan which works similar to buying an automobile or other big ticket item. All monthly payments go towards the purchase of the item; and lessees only need to make a buyout payment to transfer ownership, unless they decide to rent another piece of equipment under a separate agreement.
Unlike eternal life in Christ, copiers, telecommunications equipment, faxes, computers, and printers on long-term equipment lease financing are not expected to last a lifetime and usually require maintenance. Since rental agents retain ownership of all items, providing regular maintenance ensures that their investment is protected from user neglect or disrepair. Business owners who purchase machinery and supplies without leasing bear the burden of paying for maintenance and repair, usually covered under a separate agreement and subject to additional fees.

Flexible equipment lease financing can vary according to a business’ cash flow or longevity. Rental companies realize that a startup business may need time to realize a profit and make monthly payments, therefore some contracts start out with low payments which gradually increase over a period of time. Called a step lease, this kind of financing is more flexible than being locked into a rigid installment contract. As the business profits, lessees are more able to handle increased overhead expenses, including rentals. Some flexible plans might also offer lessees an opportunity to rent for one to three months without a payment in order to ease the financial burden of starting a new enterprise. Not uncommon are contracts which allow renters to keep merchandise for up to one year without making a payment; however when installment plans kick in, they can include some hidden fees and interest rates.

Long-term equipment lease financing also has its advantages at tax time. The value of purchased machinery and computers must be depreciated each year; however rental payments are 100% tax-deductible if utilized solely for business purposes. Owners can realize a tax break by deducting monthly payments, maintenance fees, and supplies as part of overhead expense. However, state and federal revenue departments may view rental payments as installments towards a purchase and require that equipment be depreciated, rather than deducted at 100% of its value. Entrepreneurs considering long term leasing may want to consult with tax professionals or certified public accountants to determine which type of agreement offers the best deduction.

Dealers or manufacturers of office furnishings or machinery usually have an in-house department or an independent agency which specializes in equipment lease financing. The independent agency or onsite department buys the item and loans it back to the customer for a specific monthly installment deducted from the purchase price at the end of the term, or a monthly rental without expectation of a buyout. Individuals and corporations who opt for lease financing will need to have good to excellent credit and submit banking information to rental companies. Consumers can find leasing firms online or in the local business directory; however most local dealers and suppliers will refer customers to a preferred agent. Before signing on the dotted line of short- or long-term contracts for equipment lease financing, entrepreneurs should read the fine print, especially when it comes to terminating the agreement before the end of the contract, maintenance and repairs, consumables, and buyouts.