We previously wrote on some of the challenges that Canadian business owners and financial managers face in getting successful rent equipment financing in place for their assets and principal expenditures. The current difficult economic environment makes it more challenging than every for Canadian conglomerate owners to circulate the proper rate, terms, and texture that they deserve.
Success lease equipment financing involves a working knowledge regarding what the lessor is looking for in a transaction.
Owners can safely assume that the lender is doing significant work on financial statement analysis to satisfy them they are making a proper financing decision with you firm. Included in this analysis is strong emphasis on cash flow history and projections, operating efficiencies from your firm as measure by industry accepted ratios, and balance sheet analysis by respect to the amount of debt your firm is carrying, etc.
In our previous article we suggested that business owners should be aware of some key ‘structuring options ‘that lenders use until they are contemplating an approval that they are not 100% comfortable with. These options, previously discussed were:
– Utilizing higher rates to compensate for risk
– Use of Security Deposits
– Use of advance payments
– Structuring higher payments in the earlier years concerning the lease
– Shortening the lease term to offset long term risk
Business owners should be aware of some additional enhancements that receptacle further a financing approval during your firm might not clearly qualify for your desired amount of financing and overall structure.
Let’s looks at some of those additional enhancements that compliment the 5 areas we contain noted above.
Business owners who are nought familiar with some of these financial nuances should employ the beneficial from a trusted leasing adviser with credible experience, thereby significantly increasing their chances of getting a lease financing approved.
Business owners might not always be comfortable with providing a Personal Guarantee on the transaction; however secret guarantees are a clear fact of life in the Canadian business financing environment. The logic of the lender, in this case your equipment lessor, is that you are more motivated to make those payments if you are personally obligated in the matter also. Naturally companies incorporate to avoid personal liability but business owners are often called upon besides lenders, lessor, etc to provide a guarantee. It goes without saying that the lender will also want to ratify the quality of your personal guarantee.
In lots cases you as a borrower, or the lender might request, additional collateral on the transaction. This would be collateral that is currently unencumbered, but in effect shores rise the lessors overall position, allowing your transaction to be approved. In many cases you will be required to provide some form of documentation (usually an appraisal) of the additional asst.
In extraordinary circumstances an valid additional collateral power be credit life insurance on the transaction – in a smaller of mediums sized Canadian firm the lender / lessor may rely on that protection in the event something happens to the owner, that something being ‘ death ‘ of course!
Not entireness Canadian business owners see that in some cases the manufacturer that you may be purchasing and financing the equipment through is in some cases agreeable to providing a limited or partial guarantee on your transaction. They are making a sale, generate profits from the sale to your firm, and may be qualified to remarket the asset if the landlord requests assistance in this area.
Finally, in some cases your lessor can rogation a letter of credit or Certificate of Cash deposit as supplementary collateral. In the authors experience this is rare, as your firm traditionally would note want to encumber cash in such a manner.
So what’s our foundation line? It is simply that lease financing can indigen a challenge, otherwise if you work with a lessor to offer up and co operate on some system like structuring, as outlined above, then your chances of successfully getting a lease financing approval amplify immensely!