5 Dangers of Financing Equipment - From Technology to Machinery - Avoid These Mistakes With your finance company or leasing firm.

You've seen the sign - it reads ' Danger Ahead ' !No we're not talking about a curve in the road but rather discussing 5 key areas where Canadian Business makes thousands ( or millions ?) of dollars in poor judgment around critical areas of financing equipment via a third party finance company - and our discussion covers all assets from machinery to technology .

Let's review 5 key dangers areas in equipment financing in Canada and provide you with solid real world tips on how to successfully navigate these areas to better enhance your company’s ability to maximize on lease finance company benefits.

Item 1 - Structure - Lease financing is all about structure. Unfortunately most clients we deal with only always focus on 1 of the 5 elements of a lease transaction. (By the way, those are: term of lease, lender interest rate, value of transaction, payment, and obligation at end of term)

Let's use a quick example - we'll take a sample 100,000$ transaction. On a 3 year capital lease to own scenario your monthly payment at an assumed rate of 8% is 3112$. However, if you chose an operating lease (i.e. use equipment and not own it) your payment would come in at around 2490$/mo. And if you took our first example, and either were required, or voluntarily put down 10% the monthly payment is now 2801$. Same deal, different payments. Which one is best? That is only for you to decide based upon your unique asset acquisition situation.

So interesting calcs, but what’s our point you say? Simply that by understanding how the finance company utilizes structure to provide you with a ' monthly payment ' can arm you with knowledge that will ultimately translate into a payment scenario that works for your firm. Bottom line - understand how the lender views and utilizes the five elements of your final lease calculation.

Danger Item # 2- Pricing! We suppose that the late famous Vince Lombardi might say ' Lease pricing isn’t everything, it’s the only thing!' Sorry Vince, we couldn’t disagree with you more. Your ability to match the right term of the lease with the right finance company and type of lease you choose (there are several) can pay for itself many times over . Its now always about rate and pricing because if it was always about price we would all be driving low end compact cars - many of us dont , because we have financial options and alternatives . And by the way, its a competitive market , so by positioning your firms credit quality properly you will always receive a competitive rate .

Danger - Item 3- Credit approval . Most clients simply aren’t aware of how to position their financials properly in financing equipment . Whether you are acquiring heavy machinery, construction equipment, or high end software applications you need to understand what drives credit approval . Those factors are the asset you are financing, your historical cash flow, your current and sustainable cash flow, and your ability to work with your finance company to structure a deal via down payments, outside collateral, etc that make the transaction a win win for yourself and the finance company .

Danger - Item # 4- Conditions . Its all about the fine print, but many customers don't read the fine print, As a result they are subject to thousands of dollars in misc admin fees, renewal fees, possible appraisal requirements, and most importantly early pay or termination fees . Ask your finance company or Canadian business financing advisor to ensure you understand who is paying what .

Item # 5- Our last danger point ! What is it ? Simply that financing equipment is great, but in many cases are you sure you understand all your alternatives to this type of financing . They might include an asset based loan, or even a temporary bridge loan on the asset .

In summary, financing equipment in Canada occurs everyday, from assets from 5k to 50 Million dollars . Understand the hot points of what a finance company focuses on when they are leasing machinery , business equipment, or any type of business asset you need to acquire . Unsure of that Danger Sign in the road ahead ? Speak to a trusted, credible and experienced Canadian business financing advisor for navigational assistance!

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Stan Prokop is founder 7 Park Avenue Financial ; see

http://www.7parkavenuefinancial.com
Originating financing for Canadian companies,specializing: working capital, cash flow, and asset based financing , the 6 year old firm has completed in excess of 45 Million $ of financing for companies . For info / free consultation on Canadian business financing / contact details see:

http://www.7parkavenuefinancial.com/financing_equipment_finance_company_machinery.html

Are Working Capital Loans What Your Company Really Needs? What Type Of Finance Company Can Help?

The shock has probably worn off by now. We're referring of course to the business owner and financial managers realization that sales don’t equal cash flow and that your management of working capital might just be your key to short and long term survival.

So what type of finance company or institution can help you in the access to liquidity? The reality is that every industry needs a different level of working capital. That relationship of your assets to your turnover to your cash on hand is what is going to make the final call on what type of loans you might need for your cash flow management solution.

And we will add that you might find that ' loans' or bringing on additional debt to your balance sheet is not only the wrong solution, but you have alternative non loan solutions!

The reason you are looking at your working capital situation hinges probably on two areas, your firm is growing too quickly, or you have asset management challenges or problems with inventory and receivables. So hopefully you can now see that what working capital management is all about comes down to matching the financing you need to the assets and equity you have on your balance sheet. As your business and profits grow the owner equity component grows also

So are loans the solutions to your cash flow challenge (or crisis?!). Sometimes, but definitely not all the time. The long term solution to a cash flow management solution might in fact be a working capital term loan, in effect injecting long term capital into your business. If you can qualify for this loan, which is more often than not unsecured, it certainly is an option. Larger loans of this nature are called subordinated debt, but cash flow term loans are available for almost all firms - generally the minimum being 50k , but as we noted, going to several million dollars depending on the size of your firm .

But why would you borrow externally and bring debt onto your balance sheet when the solution is inside your business, not outside? Clients are often surprised when they find out that two other solutions, and not loans, are possible.

We're talking about asset based lines of credit, which are generally non bank in nature, meaning they are offered by private finance firms. Rates on such facilities can be competitive to bank rates, but more often than not come at a premium. However your ability to, in many cases, double your working capital liquidity can significantly increase profits and sales. Just think about it, if you can double sales, keep your overhead costs relatively fixed, the additional profits you generate can easily cover your new increased financing costs.

The other solution we will mention is the sales of receivables. This type of financing brings zero new debt on to your balance sheet, improves your cash position, and provides immediate cash flow for growth. Perceived as expensive and non traditional it is gaining traction with Canadian business every day. In effect it is the trade off you have between growth and survival and additional financing cost, of a non loans nature.

In summary, working capital loans can come from external finance company sources. Alternatively you can become your own finance company by managing and monetizing your assets in a variety of ways. Speak to a trusted, credible and experienced Canadian business advisor to determine which solutions work best for your firm.

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Stan Prokop - founder of 7 Park Avenue Financial -
http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/working_capital_loans_finance_company.html