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.
There are numerous reasons to consider equipment lease financing in your business, but for the sake of brevity, we’re only going over the most common reasons we find that business owners and managers utilize equipment leasing.
Deferral of Tax.
When you purchase an asset, you are required to pay the respective sales taxes at time of purchase. With a lease, the leasing company is the owner of the asset at time of purchase, so they pay the sales tax. You pay sales taxes on each lease payment, deferring your tax liability years into the future.
As compared with equipment loans which tend to run around 36 months, equipment leases are more readily available for terms of 5 years and beyond, depending on the asset, age, and condition.
No Down Payment Required.
In many cases, the leasing company will only ask for one or two payments in advance, greatly reducing the drain on cash flow.
True 100% financing
Unlike traditional equipment loan products, most lease programs will allow you to include the costs of installation and freight into the lease financing total, once again saving on your out of pocket costs. The ability to finance these “soft costs” can be the difference between making the capital investment or not.
Because the lease company owns the underlying asset and specializes in financing the asset type, there is considerably less red tape to go through in the application process. And for smaller ticket items, approvals can be accomplished in a matter of hours with very little paper work involved. More support is required for larger purchases, but compared to a traditional bank application the degree of complication and time required pales in comparison.
Conserve on cash.
In addition to the cash saving features mentioned above, most leasing companies will allow you to purchase an asset for cash and then turn around and sell it to the lease company in return for an equipment lease. There may be times when you can get the best deal with a cash purchase. And sometimes a great deal may not be around before you get financing approved. So this sale and lease back process puts cash back in your hands after the transaction has been completed, allowing you to take full advantage of a cash transaction.
In some cases, you may have even had to use your line of credit to buy the asset in the time you had to work with. Similar to the above cash purchase, the acquired asset can be sold to the leasing company in return for an equipment lease with the proceeds from sale being used to bring your line of credit back down and making the funds available for other operational requirements.
If you’d like to get more information on equipment leasing, please give us a call and we’ll get all your questions answered.