Did you hear the one about the Canadian business owner and financial manager who couldn’t make a decision when it came to equipment leasing and lease finance options. Actually, we’re quite sure that same conundrum faces hundreds, perhaps thousands of business owners in Canada when it comes to selecting an asset financing strategy that works… especially for their needs.
Let’s examine some of those options and help you out in two clear phases of business financing decisions – the lease or buy decision, and of course picking the right lease finance option if in fact you have made that decision to move forward with one of Canada’s most popular financing strategies.
So, lease..? Buy? Which one works for you? A good rule of thumb is to first consider what we can call the useful life of the asset when facing that decision. An even better rule of thumb is to think of purchasing outright if you have a strong level of confidence that the asset will last beyond a typical financing term. In Canada equipment leasing terms, (aka amortizations) are typically 2 to 5 years. (Make that 20 years if you are purchasing a corporate jet, but that isn’t really an everyday purchase!)
So that’s the ‘ buy ‘ decision. What factors can impact your decision to purse a lease finance strategy. Here our rule again is somewhat common sense oriented (we love common sense). If you think you wont use the equipment for the after a typical financing term, or if you think it might needed to have an upgrade or an add on then certainly consider an asset financing option via equipment finance leases.
Naturally there are advantages to each of our two lease and buy options. Let’s examine buying first. Purchase decisions, if done via a loan option, typically have blended payments of principal and interest and are simply spread over the life of a loan.
Although loan financing can in some cases be on a 100% basis you typically might be expected to make a down payment, in certain cases sizeable. That down payment of course lowers your monthly loan payment amount. Purchasing an asset outright, or using a term loan keeps the asset on your balance sheet, enhancing your overall fixed asset based. In many cases you can take advantage of depreciation and tax scenarios to enhance the ownership of an asset.
Lease financing. The benefits are somewhat ‘ classic ‘ in nature. In the majority of cases the asset is 100% financeable, with down payments being minimal. You have just completed a great obsolescence hedge, especially when acquiring tech type assets – think computers, servers, cloud financing, etc.
Don’t let the lease or buy decision confuse your asset acquisition strategies. Speak to a trusted credible and experience Canadian business financing advisor who can assist you with your business finance needs.