While the typical equipment leasing spectrum tends to cover off virtually any type of asset and almost any level of credit, in Canada, this full range of equipment lease choices is really limited to Ontario.
The size and diversity of the Ontario economy can support a large number of equipment financing companies due to the ability of each lender or lessor to become more specialized on certain asset groups, industry types, credit rates, and even regions within the provincial geography.
To this last point, businesses located in the outlying areas of northern or northwestern Ontario will not be afforded the same financing opportunities as those in the Greater Toronto Area (GTA), but in most cases, they will still have more options than many other parts of the country.
Ontario has a significant number of boutique equipment lenders that are relatively small in size in terms of dollars in their lending portfolios. But collectively, they provide tremendous coverage of all the different possible borrower profiles and equipment types.
And for many asset types, the competition can be significant, providing more choices and options for business owners and managers.
While the size and diversity of the provincial economy drives the overall equipment financing market, there are a few key aspects of a large economy that make it more appealing to lease companies.
First, industry diversity allows a finance company to specialize on the specific asset types in a given sector. This is important to better understand how to value used equipment offered as security and how to liquidate assets to cover off outstanding balances should the need arise.
Larger industries will have active resale markets. For leasing companies, this provides a market for not only disposing of assets on a timely basis, but also creating a secondary market for financing used equipment.
Second, large diverse economies are less impacted, on average, by economic shocks. While the current recessionary impacts are definitely felt in Ontario and across Canada, the Ontario market impacts are always going to be smaller for a number of reasons. 1st, recessionary forces shut down lenders as the money supply becomes constricted. If you’re located outside of Ontario and you lose a key lender that’s available to you, the impacts on your business can be significant if there’s no close alternative. 2nd, a diverse economy will absorb financial shocks better than one focused only on one or two industries.
Third, larger economies tend to offer more sources of capital to lenders. When economic pressures build up, one of the biggest challenges an equipment finance company can have is maintaining sources of capital for their leasing activities. If you’re a leasing company and only have one source of capital that gets impacted by recessionary forces, you can quickly be out of business. While this will also happen to Ontario based equipment leasing sources, it will likely happen less often, and when it does happen, there will be alternative equipment leasing companies ready to step in to gain market share.
The bottom line is that business owner in Ontario may have several equipment financing sources to choose from at any given time.
The key is focusing on relevant lenders that are the most suitable for the equipment you want to finance and the overall financing profile of your business. The best way to get the best results and avoid many of the more typical mistakes, is to work with an equipment financing specialist.
Equipment financing sources can be categorized in a number of different ways.
First, the actual type of financing facility available to finance equipment is either a loan or a lease. For an equipment loan, the actual piece of equipment is owned by the business and is financed by a loan provided by an institutional lender that is also the responsibility of the equipment owner.
In the case of an equipment lease, the actual piece of equipment is owned by the leasing company who in turn provides the business with a lease and the right to use the asset. Leases can be written as either operating leases and capital leases, each with their own specific requirements and conditions that can also vary from one country tax jurisdiction to another.
Equipment financing is further categories by equipment type and industry application. Through specialization, lenders have a better idea of the resale value of the their underlying security in the event they have to take a collection action against a borrower or lessee in default.
The last major type of categorization is connected to the credit profile of the borrower. Providers of equipment loans, for instance, tend to only focus on low risk lending scenarios where borrower credit is considered to be good to excellent.
The credit spectrum can be categorized from AA to C levels of credit. For each type of credit, there are borrowers that will focus on that level of credit risk and will charge a cost of financing that is in keeping with the level of credit where lower levels or credit get charged higher costs of borrowing.
The Canadian equipment financing sources primarily include banks, credit unions, and leasing companies. Depending on the area and related industry, there can be a very diverse group of lending sources for equipment. At the same time, for remote areas, the number of available sources will likely be less as many providers of equipment financing function on a regional basis only.
While there are many sources to consider, not all providers have their own retail services, relying on equipment financing brokers to bring and administer their products in the market place.
In these cases, the only way to get access to certain lender programs will through an equipment financing broker.
A good broker will not only provide you with greater access to capital sources, but can greatly assist you by only focusing on relevant lenders and helping you properly structure your equipment financing application.
Like anything else, there are good brokers and those with little to no experience. Securing the services of a broker that is more of an equipment financing specialist can definitely save you both time and money.
If you have any questions regarding equipment financing, please give use a call and we’ll make sure all your questions get answered.