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Lessors are being more and more cautious in financing equipment and other capital expenditures required by Canadian businesses. If that's the case, how can Canadian business owners and financial managers increase their chances of getting their business financing approved > Canadian firms must understand that depending on the size of their transaction either a significant amount of credit analysis is performed on their firm, or , the alternative, the lessor employs statistical scoring models based on such factors as your years in business, your payment record with other secured creditors, the credit scores of the principals, etc .Technology has evolved to the point where many leases in Canada, as an example, under $ 50,000 .00 are approved in minutes using state of the art scoring type technology . If your transaction is larger, and your firms has had some challenges we can suggest a number of ways to improved chances of a satisfactory lease financing approval –but let' step back for a moment and understand how the lessor is thinking . We can comfortably say that in Canada, and quite frankly elsewhere, the focus lease financing approval is based on cash flow. There is a bit of challenge to the business owner in that statement because the lessor is looking at 'historical 'cash flow, that's of course last year, not this year and next year! The lessor is attempting to determine the overall level of risk and then assure that a combination of the asset being secured, as well as the cash flow allows the firm to make a solid credit decision and financing approval. If a customer finds himself on the ' cusp' of an approval, but realizes that the absolute best rate, term and structure might not be offered by the lessor, there are several issues that can be table in a productive manner with the lessor in order to obtain : 1. An approval 2. The best approval based on your firm's credit quality. What techniques can a company employ to ensure an approval then what we are talking about is known technically as 'structured leasing '. What is structured Leasing? Well it is the addition of credit enhancements to the transaction that will result in a win win scenario. A proper lease transaction is one of course where the lessor is comfortable with the final credit decision, and has a reasonable expectation of profit on the transaction – on the other side of the house it's a business customer obtaining the required approval to finance the asset which will hopefully allow revenues and profits to be contributed to the business by virtues of the asset. What we are suggesting then is that the owner takes a positive step in initiating discussions with the lessor around certain key issues. Those issues are as follows: Rate - some lessor will be willing to take on additional risk or fiancé a large amount if they can increase their yield to compensate. So the borrower should be prepared to engage in a higher rate discussion if necessary. Please remember thought that the highest rate in the world won't offset a full loss to the lessor if your transaction goes bad. Some lessor will very comfortably accept a Security deposit as a means of providing a final lease approval. There are many ways this deposit can be structured, and naturally it's only a 'deposit ', so it's returned to your firm. Another method of accelerating an approval is your firm's agreement to prepay several lease payments in advance; this gives the lessor comfort and decreases their overall exposure. There are a number of other scenarios in which you can also be creative on the payments you are willing to make – payments can be ' stepped down ' – meaning that payments , instead of being the same for the term of the lease could be higher in the first year or two . Most Canadian lease transactions are written on a 36, 48, or 60 month term. If you offer to shorter the term you requested the lessor risk decreases, and the weight of evidences is shifted to a more profitable transaction where the lessor is .made whole 'earlier. More often than not lease finance approvals are an art, not a 'scoring 'science. Therefore using the techniques above Canadian business owners can engage in positive dialogue with their lessor to improve their chances of approval. Business owners who are not familiar with some of these financial nuances should employ the use of a trusted leasing advisor with credible experience. Stan Prokop is the founder of 7 Park Avenue Financial. See www.7parkavenuefinancial.com The company originates business financing for Canadian companies and is a specialist in working capital, cash flow, and asset based financing of all types . For more information or contact details please see : http://www.7parkavenuefinancial.com/Home_page.html
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Candian lease financing, equipment financing, Leasing in Canada,
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