Equipment Lease Rates . How Your Leasing Company Prices Your Transaction

Equipment lease rates in Canada via a leasing company sometimes seem to provide clarity that is..

. well... clear as mud! So let's examine some key issues that allow the business owner and financial manger to achieve solid lease pricing based on the asset type and credit quality of their company. And trust us... there is a leasing solution for every type of credit quality from blue chip to ' bad credit ' scenarios.

While most business people associate the lease pricing ' only ' with the actual interest rate on the transaction numerous other issues need to be covered off.

As a starter you need to have a good handle on what is known as ticket size in the industry. Three types of asset or ticket size dominate the Canadian industry. They are small, mid and large - no real secret there. But each of the companies that service that industry has different credit profiles that dominate how they price your transaction. Small transactions under $50,000.00 can be approved and priced within hours, rarely more than a day. Larger transactions are subject to a lot more analysis and documentation as we can imagine.

The actual documentation of each of our three ticket sizes varies and has price implications. Pricing can sometimes be affected by usage, maintenance requirements, and return language. All of these are key elements of the leasing company might price your transaction, many time with no discussion with yourself, as it affects your transaction.

Higher rates actually are many times associated with small deals, which may seem like a mystery to the business owner and financial manager. One simple reason is that while these small deals are approved quickly they have less credit due diligence associated with them - as such the lease companies have higher losses in this area - which of course affects overall pricing . If we are making one point it's simply that you need to understand which companies service which ticket size - because that is what reflects your final pricing.

Generally shorter term lease arrangements are never less than two years. That is because your lease company has also borrowed their funds, probably from a bank or insurance company, and they are striving to get a reasonable yield and profit.

Part of the whole exercise in lease pricing revolves around the ' lease vs. buy' scenario. That's where you the business owner/manager should spend some time evaluating leasing as an alternative. If you're uncomfortable or experienced with that process your accountant or a Canadian business financing advisor can assist you in wading through cash flows, term loans as an alternate option, etc

As we said previously the business person tends to only associate the implied interest rate on the deal as the pricing determinant. But other issues to consider are:

Tax / Accounting implications

Down payments

Upgrade formulas that change the rate

Excess usage charges

Operating lease price implications

So, is it always about the ' low monthly payment '? Definitely not! Seek out and speak to a trusted, credible and experienced Canadian business financing advisor as to how equipment lease rates via your leasing company work... against you... and for you!

by: sprokop

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