Interested in Why Equipment Lease Rates and Low Leasing Payments Might Not Be Important?

You tell us, because we sure don't know. We're talking about equipment lease rates and why clients are almost always under the distinct impression that the concept of a "low payment" or a "great rate" via leasing finance in Canada is their sole focus .

We recently came across some great information on that very subject, so let's try and put that in perspective from the viewpoint of the Canadian lessee and in the context of lease finance in Canada. (It differs considerably from the U.S. via types of leases, market players, etc.)

If there is one major point we're trying to make, it's simply that many Canadian business owners and financial managers don't quite understand the difference between pricing, the proverbial "low monthly payment," and the element of "structure" in an equipment finance transaction.

One key factor in the concept of lease rates and pricing, and we can forgive clients for not addressing this, is the fact that many borrowers don't address the end of the lease term with the same focus as all the due diligence and effort they put into getting a lease transaction in place.

The end of term option is critical when assessing equipment lease rates, and never more so if you are focusing on an operating lease as opposed to the alternative, the capital lease, aka lease to own.

Naturally the asset at the end of the lease term has value, and structuring your lease properly will significantly enhance the value of that asset to either yourself, or the lessor. (We're on your side, i.e. the lessee, by the way).

The majority of lease leasing of assets in Canada is under and unregulated financial services. So it's up to you to determine what amount of information you need to achieve your asset financing goal.

Here's the $64,000 question. Do lessors in Canada tell you what your options are at the end of a lease term in a proper manner, allowing you to plan in advance on asset disposition, re-financing, return of equipment, etc? We assure clients (because we've been there) that major corporations spend a lot of time on their leased assets portfolio, reporting, etc. It's in that management of the equipment lease that thousands of dollars are saved, or lost.

We talked before about how equipment lease rates and the concept of a "low payments" are often intermingled with other issues forgotten or not known by the lessee. What are some of those other issues?

Naturally, the actual interest or borrowing rate drives a significant part of the transaction, but other factors include any payments you make in advance, including security deposits. Also, the way you structure your payments or cash flows ultimately affects the lessors yield and your overall pricing. We're spoken of the residual value at the end of the lease, particularly when it comes to operating leases, as well as other structures such as a bargain purchase option.

So, complicated? It could be if you let it. But our key take away today is simply that you should consider leasing and that "low monthly payment" in the context of many other factors that drive a lessor's profit on your borrowing via a lease financing transaction.