wHAT IS A LEASE?

In its basic form, a lease is a contractual agreement between the lessee (the customer) and the Lessor (the funder). The funder purchases the equipment from the supplier of choice of the customer and in turn leases it back to the customer at fixed, regular payments for a term with an option at the end.

hERE ARE SOME faqS ABOUT LEASING

What is a typical lease term?

Typically a lease can be set-up with a term of 24 to 60 months.

Does the equipment have to be purchased from a vendor?

No - the equipment can be purchase from a private seller just as easily as a registered vendor.

Isn't it more expensive to lease than borrow?

Like any finance application the cost of borrowing will be determined by the entity applying for the money. The stronger the applicant the lower the cost of borrowing. No different if an entity was to try and borrow the money.

What are the penalties to pay out a lease early?

The usual requirements for early pay out of a lease are balance of payments (including taxes) plus the purchase option (plus taxes).

What is the purchase option at the end of the term and what are my options?

To qualify as a lease, there must be a purchase option at the end of the lease term. This amount can very from $1 to a percentage of the initial value of the equipment (usually 10%).

What products and services can be leased?

When most people think of leasing they think of truck, trailers, forklifts, excavators, computers and the like. But leasing can included more abstract assets, such as software, point of sale systems, tenant improvements, professional services, and much more.

Isn't my company better to pay cash or borrow rather than lease?

Borrowing to purchase equipment makes the transaction a capital expense that allows the deduction of interest, depreciation and insurance costs.  Cash purchases are treated similarly without the interest deduction. Leasing usually allows a full expense deduction for the monthly payment including taxes.  This enables writing down the purchase over the term of the lease.  Additionally, retaining cash in your business means that inventory and other necessities can be bought.  Finally, cash in the bank earns interest - interest that can be used to make lease payments.

Are there any tax advantages to leasing equipment rather than buying for cash or borrowing?

Equipment leasing offers the following tax advantages: a) monthly payment is a deductible expense, b) faster tax write off than capital cost allowance, c) improves cash flow, and d) lower cost of acquisition than borrowing or paying cash

I think leases are for businesses that have no money and can't qualify for a loan at the bank... is this accurate?​

Whether or not a business has money, leasing can be a viable alternative to traditional financing.  When expenditure restrictions are imposed, needed equipment can be acquired via leasing.  Since leasing usually is 100% financing, other lines of credit can be protected and avoid the need to pledge inventory or receivable assets.  Leasing can enhance a business' credit ceiling or assist in establishing credit for a new business.