Canadian business owners and financial managers are often faced with the decision of who to turn to when making decisions on equipment loan and asset financing. You have essentially 3 difficult decisions and one easy one which we’ll share with you.
The reality is that if you’re not a business equipment financing expert there are a large number of equipment lessors out there – the challenge is pretty simple – ‘which one is right for your firm?’. For those that aren’t fully aware of how the equipment financing market is structured in Canada it’s a case of really determining which lessor business model, and credit box (credit box?) fits your needs.
Let’s examine the things you need to know to get a ‘perfect fit’ in equipment loan and asset financing needs.
Potential partner # 1 -not who you might think it is. Canadian chartered banks. In recent years banks have invigorated their interest in equipment financing, and they compete strongly with independent commercial financing companies through leasing subsidiaries or divisions. Banks themselves can only write loans, so they use their lease subsidiaries to write real leases. The challenge to obtaining some of the best rates in equipment finance via a bank is your ability to meet credit criteria. In addition to the asset collateral banks will demand strong balance sheets and positive and sustainable cash flows. Note also that typically banks only write capital l eases, or lease to own transactions – operating leases generally not available.
Potential partner # 2- The main competition to the banks in Canada are independent commercial leasing companies. These may be small, large, Canadian, or U.S. owned. This is most likely where you will get the most creative structures and market pricing that fits your overall credit quality. Almost any asset can be leased in Canada, including technology and software. Unlike the banks operating leases are potentially available also.
Because these firms borrow from insurance companies or banks to fund your transaction the overall cost of financing is pretty well always going to be a bit higher. In Canada the equipment financing market is broken down into small ticket, mid ticket and large ticket transactions. We speak to a lot of clients who have wasted time by either choosing the wrong type of leasing companies, or who don’t understand the approval criteria of any given firm.
Potential partner # 3 – You’re being held captive here. Captive? Captive finance firms are divisions or entities of large vendors who sell to you. They have formed their own leasing division and asset financing vehicles to offer capital leases, operating leases, and in some case even rentals. Rates are generally quite competitive and the added advantage here is that they are incented to sell you their product also, not only finance it, so credit criteria is often relaxed a bit. These firms make acquiring their products simple, which is a benefit to the Canadian business owner.
Knowing which potential partner to utilize for your equpment financing needs is critical. But how do you not waste time in talking to, investigating, and sharing your firms confidential financial information with tens or hundreds of firms. That’s solution # 4- utilizing as a partner an independent Canadian business financing advisor who knows the entire market and can save you time and significant dollars in sourcing the right funding that matches y our needs.
Their services tend to be no charge to your firm and solid equpment financing advisors are well known and respected by the industry itself – therefore your transaction is a valued one. In searching for a great advisor spend time testing their market knowledge, contacts, and references.