Leasing has become the most common form of asset-based financing for an ever-increasing number of equipment and business-related solutions.
From large corporations to small one-person operations, equipment leasing has become a key financial tool in running a successful business. These successful businesses have also utilized leasing for a wide range of projects.
Equipment leasing is a powerful financial tool and a viable alternative to cash purchases and term loans. The difference between lease and loan financing lies in the structure of the agreement and the requirements of the lender.
Below is a brief description of some of the more common types of leases available in the market today:
Otherwise known as a “Full Payout Lease”. Title to the equipment is transferred to you for a nominal amount at the end of the lease term. The primary difference between Leasing and Conditional Sales Contract financing is that any sales taxes are paid on each payment instead of at the time of purchase.
This provides you with the option of returning the leased equipment at the end of the lease term and walking away from any future responsibility. These are attractive leases for those that do not want to have ownership. Or, prefer to upgrade equipment regularly without having to deal with the disposal of obsolete equipment.
These can be arranged to meet the specific requirements of your business. These transactions can involve: quasi-operating leases, multiple end of lease options, early out options, or just about anything reasonably required to make the lease work effectively for the business.
With traditional loans, banks or other financial institutions may at their option…
- Demand full repayment of the loan at any time during the loan term
- Require ongoing financial performance disclosure
- Require restrictive personal and financial covenants
With lease financing, you enjoy the use of the assets on lease for the term of the contract, at a fixed payment. In addition, you can expense your lease payments rather than depreciating them as a capital cost. Making your lease payments potentially tax deductable.
Before you write the cheque or submit a “traditional” loan application, consider these advantages of lease financing…
- A quicker approval process compared to traditional loans
- You can preserve operating lines of credit and cash for operating expenses, short term borrowing, and unexpected opportunities to improve your business
- You can acquire new or used equipment under a lease agreement
- A lease usually requires less “upfront” cash as compared to traditional loans. In most cases, you can finance 100% of the acquisition costs
- A lease allows you to better match your revenue with your expenses by paying for the equipment while it is used to generate income/profit
- You simplify your budgeting with a fixed payment schedule
- Delivery, installation and other soft costs can be incorporated into the lease
- Lease financing offers fixed payments, skip payments and other flexible payment terms to match your cash flow fluctuations
- Simpler documentation requirements compared to traditional loans
- You increase your buying power with lease financing. By reducing your equipment purchase to a simple periodic payment, you have leveraged up the buying power of your operating or capital budgets. You can also add extra features or accessories to your equipment for a very small increase in your scheduled payment
- When you purchase or finance equipment outright, you pay the GST and PST upfront. With lease financing, these taxes are spread out through the term of the lease
- You can acquire new technology and equipment sooner, increasing your productivity and maintaining your competitive edge
- Lease financing helps avoid any capital budget restraints
- Lease financing provides a hedge against inflation. Buy at today’s prices and repay with tomorrow’s income
At Canadian Dominion Leasing, we understand that each business is different. Give us a call and let us show you how to put the power of lease financing to work for you.