What Are Some of the Key Processes in Equipment Lease Financing in Canada?

Let's review some the key documentation and processes around the lease financing approval process in Canada. The business owner or financial manager's knowledge of these processes and issues will assist in a more prompt and (hopefully) positive financing approval and smooth funding of your asset finance transaction.

In a previous article we had left off at the 'lease proposal 'document. The lease company has probably provided you with a letter outlining their proposed offer. This is usually not a legal commitment at this point; just a rough sketch of what they are proposing re the three key elements of your financing that should concern you. They are

Rate
Term
Structure/conditions

If you are working with a lease financing advisor or intermediary who is credible and knowledgeable then you should be able to rely on them that the above three issues are in essence the best market offer your firm can receive .

It all starts with the application. At this point, if you haven't completed on already your firms needs to provide the lessor with a properly completed application and any attachments and miscellaneous information as may have been requested.

The applications will identify properly your firm, the lessor, and in many cases reference the supplier or vendor you are working with on the transaction. As we have written on previously, in leasing and equipment financing size counts! By that we simply mean that small transactions are adjudicated and processed by lessors in a very prompt and efficient manner these days - a smaller transaction under, say, $ 50,000.00 can be completed in a day or so - consisting of a one page application and a similarly short lease document .

Larger transactions are, (surprise, surprise) more complex. In certain cases your firm might be asked to provide a commitment fee up front. Lessors do this to ensure you have valid intent, and are not just 'shopping around 'for a deal, or best rate, etc

We spoke of 'structure' above. Many lease transactions, certainly those that are larger in size, require some form of structuring. By that we mean there are negotiations between yourself and the lessor around the term of the lease, down payments or advance payments that might be required , and probably most importantly to yourself, any additional collateral or guarantees that might be required to facilitate the transaction .

The lessor will also want to specify that they are 'financing 'the asset you are procuring, but they do not 'warranty' the asset. That of course, is between your firm and the vendor.

Often times customers tend to hold the finance firm 'ransom' to a certain degree when performance problems with the asset arise. Naturally the finance firm did not manufacture or warranty the asset, but business owners tend to be blinded by that fact on occasion!

One of the key benefits of leasing and equipment financing in Canada is that many firms are able to pre-pay equipment on your behalf. Lease payments only begin once you have accepted the equipment. Careful attention to this entire process is very important to you the Canadian business owner.

In the current economic environment many firms are doing sale/leasebacks for equipment they already own - They are in fact 'mortgaging' the equipment to bring working capital and cash flow into the company. This entire process involves other documentation and processes which involve the lessor ensuring that your firm has correct title to the equipment and that there are no other secured registrations against it by your bank or other third party lenders.

By both co-operating with the lessor and providing complete and accurate details of your firm in the lease application you can significantly improve both the final approval of your financing request, and the ability of the transaction to progress smoothly from acquisition of the asset to final payment to your vendors . That creates a win/ win for you and your equipment le