How To Get Equipment Financing and Leasing in Canada?

Equipment financing is a financial arrangement that allows businesses to acquire necessary equipment without making an upfront purchase. Here’s how it works

Types of Equipment Financing:

There are two options for financing new equipment for a business

Equipment Leasing

Leasing involves purchasing equipment and leasing it back to the borrower for a flat monthly fee. Interest rates and terms vary depending on the leasing company and credit profile. Equipment leases typically come with a fixed interest rate, but can vary depending on the lease.

Equipment Financing

Equipment financing involves borrowing funds to purchase equipment. The business repays the loan over time, typically with interest. Equipment loans can be obtained from various sources, including commercial banks, credit unions, online lenders, and equipment financiers. The terms and terms of these loans depend on the borrower's credit worthiness and the nature of the equipment being purchased. Traditional lenders may require a down payment, while online lenders offer quick responses and can deposit funds within 24 hours. Equipment loans can be for smaller amounts than typical bank loans, making traditional financing an option for qualified small business borrowers.

Here is the process:

Application

The business applies for equipment financing through a lender or specialized equipment financing company.

Approval

Once approved, the lender provides the necessary funds.

Equipment Acquisition

Leasing: The business receives the equipment and pays regular lease payments.

Financing: The business purchases the equipment outright using the borrowed funds.

Repayment

Leasing: Lease payments continue throughout the lease term.

Financing: Loan repayments (principal and interest) occur over the agreed-upon period.

Ownership

Leasing: The business doesn’t own the equipment but has access to it during the lease term.

Financing: The business owns the equipment after repaying the loan.

Tax Implications

Leasing: Lease payments may be expensed as operating costs.

Financing: Depreciation and interest deductions apply.

End of Term

Leasing: Options include returning the equipment, purchasing it, or renewing the lease.

Financing: The business fully owns the equipment.

Benefits

Preserve Capital: Equipment financing allows businesses to preserve cash flow and working capital.

Quick Approval: Equipment financing providers often offer faster credit decisions than traditional banks.

Tax Advantages: Depending on the financing type, tax benefits may apply.

Flexible Terms: Choose lease or loan terms that suit your business needs.

Remember to explore different financing options, compare terms, and consult with financial experts to make an informed decision for your business.

Equipment financing and leasing: key considerations

In Canada, equipment financing and leasing are common methods for acquiring equipment for your business. Let’s explore the key considerations for each option:

Equipment Financing

Ownership: When you finance equipment, you own it outright. It becomes a company asset.

Accounting: The equipment’s cost is recorded as an asset, and its amortization (reduction in value) occurs over its useful life. Loan payments are split into principal (reducing the liability) and interest (an expense).

Tax: Capital cost allowance (CCA) deductions are based on the estimated useful life of the equipment. Loan repayments are not deductible, but interest paid is.

Bottom Line Impact: Financing affects your financial statements and tax return. Consider cash flow, tax situation, and lender covenants.

Operating Lease

Ownership: You don’t own the equipment; it remains with the leasing company.

Accounting: Operating leases don’t show up as assets on your balance sheet. Lease payments are treated as expenses.

Tax: Lease payments can be fully written off as business expenses.

Bottom Line Impact: Operating leases impact your financial statements differently than financing. They offer flexibility but no ownership

Capital Lease

Ownership: Similar to financing, you gain ownership at the end of the lease term.

Accounting: Capital leases are treated as assets and liabilities. Amortization occurs, and loan payments are split into principal and interest.

Tax: CCA deductions apply, and interest paid is deductible.

Bottom Line Impact: Capital leases provide ownership benefits while spreading costs over time.

Remember that the choice between financing and leasing depends on your specific business needs, cash flow, and long-term goals. Consult with financial experts to make an informed decision.

In Canada, obtaining equipment financing and leasing involves several steps. Let’s explore some options:

BMO Equipment Finance & Leasing:

Expertise: BMO offers tailored solutions for various equipment financing needs, considering factors like tax implications, cash flow, and future growth. Their specialists guide you through the process, from proposal to end-of-lease options. They provide financing for new and used equipment, including agriculture, construction, healthcare, and more.

Smarter Loans:

Research: Smarter Loans provides a list of companies offering equipment financing in Canada. Evaluate their offerings, fair market value, terms, interest rates, and customer reviews to make an informed decision.

Understanding Equipment Financing:

Sources: Equipment loans can come from commercial banks, credit unions, online lenders, or specialized equipment financiers. Collateralizing the loan with the equipment itself is sometimes possible.

HSBC Canada:

Lease Financing: HSBC offers 100% financing for equipment purchases. It allows you to protect your cash while acquiring productive assets. Consider their green equipment finance options.

Here’s a table listing some common sources for equipment financing and leasing in Canada:

Remember to evaluate each option based on your business requirements, credit profile, and long-term goals. Consult with financial experts to make an informed decision.

Equipment financing lenders accept various types of collateral, including but not limited to:

1. Equipment: The equipment being financed, or other assets the borrower owns or is purchasing, may serve as collateral, provided it has value and marketability.

2. Property: This could be real estate, a home, or any other property that can be sold or valued.

3. Accounts Receivable: A borrower’s outstanding or unpaid invoices may serve as collateral for financing.

What are the typical terms and conditions for equipment leasing?

When considering equipment leasing, it’s essential to understand the terms and conditions outlined in the lease agreement. While specific details may vary, here are some common aspects:

Lease Agreement Duration (Term):

The lease agreement specifies the start and end dates of the lease. For example, if the agreement commences on March 26, 2024, it will continue until March 26, 2024

Rent:

The rent amount, inclusive of GST, is typically paid in monthly installments. These payments are made in advance, usually on the first day of each month throughout the lease term.

Use of Equipment:

The lessee must use the equipment in a good and careful manner.

Compliance with the manufacturer’s requirements and recommendations is essential.

Adherence to applicable local, state, or federal laws (including environmental and copyright regulations) related to equipment use is mandatory.

The equipment should be used for its intended purpose and not for any other use without prior written consent from the lessor.

Any alterations, modifications, or attachments to the equipment require consent and should not damage its functional capabilities or economic value.

Repair and Maintenance:

The lessee is responsible for keeping the equipment in good repair, appearance, and condition (normal wear and tear excepted).

Regular maintenance ensures the equipment remains functional and extends its lifespan.

Casualty Value and Total Loss:

The lease agreement defines terms related to equipment value:

Casualty Value: The market value of the equipment at the end of the term or in the case of total loss.

Total Loss: Irreparable damage or damage exceeding the market value of the equipment.

However, lease agreements can be customized based on the specific equipment, business needs, and legal requirements. Consulting legal professionals or using customizable templates can help ensure clarity and protection for both parties.

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