The business owner or financial manager needs to investigate and understand thoroughly the concept of a ' residual value ' in any lease financing negotiation. These residual values may represent an additional significant profit to the lessor in the transaction. Naturally one can assume that additional profit to the lessor may mean loss of additional profit to the borrower! The residual value may also represent a significant portion of the lenders over all ' return ' on the transaction. Again, lessor return often equates to borrower shortfall. So what is that residual value? At the end of the term of a lease there are pre - negotiated options that any savvy borrower should both negotiate and understand.
Many business owners and financial managers are often faced with the consideration of utilizing a sale - leaseback to generate cash. This strategy became much more popular over the last year or so as banking and credit liquidity scenarios deteriorated. The overall strategy can be viewed as giving some operational flexibility to the business. The bottom line of course is that it brings additional cash into the company at a time when ash is king. The customer is of course, essentially 'tapping into equity 'that the firm has built up in the asset. What is that asset? Typically assets given up for consideration in sale leasebacks are manufacturing equipment, computers, and even a firm's real estate.
Most business owners and financial managers realize they can either purchase fixed assets out of equity, or finance those same assets on a long term lease. Business owners need to focus heavily on the use of the asset. Any company that acquires assets has either a long term view of the asset or a short term view. Lease financing is an excellent method of financing long term assets. From the company perspective a long term lease on the asset - typically 3-5 years, and sometimes longer, is simply a method of purchasing the equipment via a ' loan '. The company simply decides on which asset or assets they wish to acquire, and then negotiates a price with the vendor or manufacturer.
Some leasing companies are increasing their lease rates for the first time in many years. Does this mean interest rates must be increasing if lease rates are going up? No. Since the year 2000, long-term interest rates have dropped dramatically. In 2000 the three-year Treasury Constant Maturity was 6.22%. In October 2009 that same rate was 1.46%, a drop of 476 basis points. Lease rates are set by leasing companies based on a number of factors. Many of today's increases are due to the entire lending and economic condition of our country. Leasing is not exempt. If the cost of money is down, why are lease rates increasing? When you do a lease vs. buy analysis, it's important to understand the components that go into a lease rate factor.
If you're one of the thousands of business owners out there waiting for our elected leaders to offer you some help during the current economic crisis - keep dreaming! The fact is, those of us who keep driving forward, never even considering anything less than survival on our own will weather this cloud. We always do. But I know you're looking at every way to work smarter, cut costs where you can and run a tight operation. If you haven't heard of employee leasing, also known as PEO services, here's your business rescue plan. An employee leasing company handles all of the annoying headaches related to payroll management, workers' compensation, employee benefits and keeps you in compliance with all our on-going, never-ending governmental regulations.
The Canadian Finance and Leasing Industry is a major driver in the Canadian economy. Let us look at some of the changing trends in the industry and how they might affect Canadian business owners seeking long term equipment financing. First of all the lessor and lender borrower base has changed significantly over the years. Canadian businesses should be aware that there are over 190 + lease and asset based lenders in Canada. That's a lot to choose from. Our point is simply that the well informed business owner should be aware of the breadth of lender in the equipment financing marketplace, both geographically and by financing ' niche '. Whether a customer wishes to finance machinery, equipment of vehicles there is a much broader range of financing choice for the consumer - probably more so in recent years given that many specialty type lenders have emerged in different market segments.
Most Landlords and Letting agents have a clear idea of what their preferred tenant should be like. This tenant is professional, reliable, polite, prompt with rental payment, considerate to neighbours and overall causes no concern for the landlord or letting agent at all. But how do you find such a catch without running a tenant check? All of the above characteristics are very desirable, but above all these things, what a letting agent or landlord really needs in honesty and communication. A tenant that will communicate when there is an issue and work with you as the property owner to reach solutions makes everybodys life easier. On the other hand, having a tenant who does not answer correspondence, is not helpful when issues arise and cannot be contacted when the rent is due can become a nightmare very quickly.
As a general rule the most common place to get forestry equipment financing is your local dealership. Due to the recent recession however, most dealerships are losing their finance sources left and right. With the extinction of so many large investment banks, lines of credits have been drastically scaled back. You may now have to use alternative finance methods to get your forestry equipment loan. I still believe the first place to find a finance source will be your dealership or supplier. If you are buying from a brand name dealer like Deere or CAT, then they should have no problem providing finance at good rates. If you are at a local dealership, you may get lucky and they will have in-house financing.
We can safely say that all growing companies need financing to fund ongoing capital expenditures, commonly called 'CAPEX' by CFO's and Wall Street. It goes without saying, also, that even established companies need to replace assets at some point in time. When companies utilize lease financing they are in effect leverage their capital investments. They could clearly only buy so much with their own capital resources, but borrowing or leasing they can do more than might otherwise have been possible. There is a technical term called 'WACC', which accountants and financial analyst recognize as WEIGHTED AVERAGE COST OF CAPITAL. As fancy as that term sounds, it simply says that if a company understands how much it costs them to borrow, and then can earn more on a new investment than their borrowing rate, well, then It makes sense to lease.
TCO (Total Cost of Ownership) has been the buzz word for some time in the IT Hardware industry. All IT managers are frenetically searching for ways to reduce the cost of their IT hardware infrastructure and using all kinds of inventive ways of actually hiding as much cost as they can under the "Services" banner. In principle that is actually correct. The misconception amongst many financial officials in the corporate world is that most of the cost of the equipment resides in the acquisition thereof. Generally for every tech support person on staff, there are three or four [end users] in the business units who are helping with support. Those costs -- plus peer support, casual learning and self-support -- should also be calculated into TCO models.