Capital equipment finance choices in Canada. One of the basic issues often simply is ‘ Should the business owner lease or buy ‘ business assets, and if they choose ‘ finance ‘ why is equipment leasing a suitable and recommended options?

There are really 3 key concepts when it comes to deciding whether leasing or outright purchase is the way to go when it comes to financing your firms fixed assets. The 3 areas you should focus on are:

Managerial Issues

Accounting and Financial Issues

Financing and Tax Issues

When you have a handle on those three you’re poised for business asset acquisition success!

The financing and tax issues are quite often perceived as the most important buy the Canadian business owner and financial manager. They are concerned with things like the financing rate within the lease (we believe that is often the least important in most cases as your credit quality will always give you a ‘ competitive ‘ rate), and the way the lease is shown on their books for tax and accounting reasons.

You should always know, and consider what type of lease you actually need, or want to enter into. In Canada it comes down to operating versus capital leases, and not all business owners are aware of the nuances of each.

When we talk to clients the simple way we describe an operating lease is simply to suggest that the client view this finance as simply an asset that is on rent. The rental payments are of course expensed , and in the old days a significant amount of emphasis was placed on your firms ability to ‘ hide ‘ the transaction off your balance sheet, thereby improving a lot of the equity and operating rations that lenders and investors look at .

Unfortunately, with a lot of the new accounting rules that particular one benefit has diminished, but the reality is that operating leases for assets such as technology and heavy equipment are as popular as ever. Payment tend to be lower ,and the flexibility of having 3 choices at the end of the term of the lease is perceived as positive by companies that are capital intensive when it comes to both technology or heavy equipment, our two chosen examples .

Oh, and by the way, those 3 choices..? They are your ability to purchase the asset at the end of the lease, return it, or extend /upgrade the asset. Talk about financing flexibility!

Your firm might choose a capital lease when it comes to your firms desire to own, rather than ‘ rent ‘ the asset. These leases are non cancelable, might have a higher payment attached to it because of your ownership right, and this type of lease has to satisfy several accounting criteria around ownership, useful life, and financing charges.

The managerial issues around capital equipment finance tend to revolve around flexibility of financing, technology obsolescence protection, and your ability to access other sources of credit other than ‘ the bank ‘.

Not every finance solution in Canada is perfect for all situations. Some Canadian businesses associate leasing with a higher cost, and they don’t necessarily want another firm or institution to benefit from the residual value of the asset in question. They want that profit for themselves!

We always encourage clients to talk to their tax person or accountant when it comes to tax avoidance via leasing ( that’s avoidance , not evasion by the way !) , accounting treatment, expensing payments, etc.

If you have properly addressed the ‘ lease or buy ‘ decision in Canadian asset acquisition consider speaking to a trusted, credible and experienced Canadian business financing advisor who can assist your with the proper financing of your transaction,