The advantages of leasing equipment to grow your business

You need equipment to grow your business, but it can be hard to decide how to get this equipment.

Should you buy, lease, or finance it? What are the advantages of each option? It is also critical to consider the effect this decision can have on your business’ cash flow.

Read on to find answers to these questions and to learn everything you need to know about equipment financing.

Click the links below to jump to specific topics:

• Equipment leasing benefits
• Lease vs. Loan
• Your equipment leasing questions, answered
• Tips to get your lease application approved
• Why choose CWB National Leasing?

 

Equipment leasing benefits

We’ll start with the basics. We serve many industries — agriculture, construction, transportation, health care,  forestry and golf to name a few. Leasing equipment may make sense for you, especially if you’re a construction company that can benefit from tailored offers that allow for skip payments, but most of the main advantages apply wherever you do business.

Let’s look at the main benefits of leasing your equipment. (Don’t let the word lease fool you – you can own your equipment at the end of your lease for as little as $1).

Get your equipment fast

How fast? We’ll typically notify your equipment dealer that payment is on its way upon 24 hours of finalizing your documentation. You just sit back and wait for them to deliver your equipment.

Increase buying power

Leverage your buying power and free up cash with periodic payments rather than one upfront purchase. You can also add extra features or accessories to your equipment for a small payment increase. Now that’s putting the POW in Buying Power!

Control your cash flow

Relatively small payments over the term of your lease means your equipment will start earning you money while you pay it off, making it easy to balance your expense to revenue ratio.

Seasonal payment options

At CWB National Leasing, we’re all about flexibility. That’s why we’ll structure your payments, seasonally, semi-annually or annually to match your revenue.

Potential tax savings

In many instances, leasing provides a business with income tax benefits by allowing you to expense lease payments rather than depreciating the capital cost of equipment. Always consult your tax advisor to find out how leasing can benefit the tax position of your business.

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Lease vs. Loan

Lease vs. Loan: the classic dilemma. Should you lease or loan for your commercial equipment?

The simplest answer is, “it depends.”

Both options offer the advantages of financing (yes, leasing is financing) but each decision has its own financial nuances that affect your business’s finances differently. Use our comparison table below to learn the differences between the two so you can make an educated decision.

	Lease	Loan
How do my payments affect financing?	Lease payments either act as rental payments through an operating lease or repayments with interest through a capital lease.	Your payments are repayments with interest that reduce the principal of your loan.
Will I own the equipment?	The leasing company owns the equipment during the lease and you pay the equivalent to rental payments; however, most leasing companies (like ours!) provide the option to purchase the equipment at the end of the lease term.	During a loan, you assume all ownership responsibility of your equipment.
Will I make a down payment?	No down payment is usually required.	Loans usually require a down payment. You’ll then finance the remaining equipment cost.
How frequently do I pay?	You can usually structure your payments to best match your cash flow with monthly, seasonal, semi-annual or annual payments.	You’ll generally pay monthly but depending on the flexibility of your financial institution, you may structure your payments to better match your cash flow.
Will I need to pledge any collateral?	A lease usually requires no collateral since the equipment leased serves as collateral.	Depending on your credit, you may need to pledge other assets as collateral before securing financing.
How does my equipment depreciate and what are its tax implications?*	With an operating lease, you’ll make the equivalent of rental payments for your equipment and you can often write off the full portion of your lease payments as an expense. With a capital lease, you’ll assume liabilities of ownership for accounting purposes; however, you can likely deduct the full amount of your lease payments. *always consult your own professional tax, legal and accounting advisors before engaging in any transaction.	You’ll claim tax deductions for the interest paid on your loan and, since you own the equipment, you’ll amortize the equipment over its useful life. This means you’ll write off the annual amortization based on the equipment’s Capital Cost Allowance determined by Canada Revenue Agency.
What happens if my equipment becomes obsolete?	You can regularly trade up your equipment at the end of your lease and structure new financing. Sometimes, it’s even possible to refinance a trade up during your lease, protecting you from your equipment becoming outdated.	Because you assume full ownership with a loan, you’re left with the equipment and bear the risk of obsolescence.
Does this affect my line of credit?	Leasing preserves your line of credit for other opportunities.	You may increase your credit exposure if you secure your loan at the same institution where you hold your line of credit.

 

What kind of financing is available through CWB National Leasing?

Leases are our most common form of equipment financing. Our equipment financing specialists work with you to determine your equipment needs and business goals and help you determine the right financing for your situation.

Loans are available in certain situations depending on the applicant’s industry, credit and equipment choice. We’re here to help – and that includes helping you select the financing that’s right for you.

So, should I get a lease or loan for my equipment?

Both options will preserve your cash flow and keep your business financially flexible but your business’s financial situation and equipment needs will determine which choice is right for you.

If your equipment requires regular upgrades, the trade-up option from leasing is a major benefit.

If you prefer tax deductions in the long run, rather than in the short term with leasing, perhaps a loan is your best choice.

Lucky for you, whichever financing option you decide on, we can help. Get in touch today and let’s talk options!

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Your equipment leasing questions, answered

Below, you’ll find our complete guide to leasing. This collection of frequently-asked questions should equip you with everything you’ll need to know for your next equipment lease.

Equipment Leasing Frequently Asked Questions

What is equipment leasing?

Equipment leasing is a form of acquisition that’s an alternative to purchasing or traditional lending. The leasing company purchases equipment and then lends it to the user in exchange for periodic lease payments. Users can either enter into an operating lease, which is similar to a rental, or a capital lease, where the user assumes the benefits and liabilities of ownership.

How does it work?

First, you’ll shop around and find the equipment your business needs. Almost any type of equipment is available to lease with some dealers even offering in-house leasing for their equipment. If leasing isn’t offered, you can contact your leasing company. They’ll work with you to structure a lease for your business and then work with the equipment dealer to get the equipment in your possession.

How will my payments work?

Before the lease, you and the lessor (the company providing the lease) will structure payments to match your business’s needs. Payments are flexible and can be scheduled in monthly, semi-annual or annual installments. Depending on your situation, special schedules that allow you to skip payments can be set up. Learn more about our current skip payment offer for construction businesses here.

Do I need to make a down payment?

Generally, no down payment is required. But making one will lower the cost of your payments and may be necessary depending on your credit.

Are there any sort of tax benefits?

You can potentially claim your lease payments as a tax-deductible expense; however, always consult your accountant to see what’s possible.

What if I’ve already purchased my equipment but still want to free up my cash?

Some leasing companies (like ours) offer sale-leasebacks. The leasing company will buy your equipment and lease it back to you so you have cash for other business expenses. Some conditions apply so make sure you speak with your lessor to see if you qualify.

What happens at the end of my lease?

You can choose from a number of end of lease options, but don’t let the “end of lease” part fool you. You’ll determine your end of lease option at the beginning of your lease before you get your equipment. You’ll see all your end of lease payment options here, but a few of the more popular ones are the $1 buyout, Fair Market Value option and 10 per cent buyout.

What are some advantages of leasing over traditional financing or buying?

There’s no consensus; instead, the more optimal choice will depend on your business. We cover leasing vs buying here, but you should answer some important questions about your business before making your financing decision. Ask yourself how sensitive is your cash flow or line of credit for equipment purchases? Does your desired equipment have a high rate of obsolescence? Do you want to possibly claim your tax benefit in the short term through leasing or long term through depreciation?

If you prefer to keep your cash for other business expenses and potentially claim your tax benefits in the short term, leasing may be more optimal for your business. Your best bet is to speak with your accountant and explore your options.

 

Tips to get your equipment lease application approved

Few things will sap your motivation and momentum on a project more than having a lease application rejected. Progress can grind to a halt while you scramble to regroup, potentially missing deadlines and maybe even losing money.

It doesn’t have to be that way! Here at CWB National Leasing, we make every effort not to turn down a lease application, especially when the reason for rejection may be something simple -- and easily correctable. Here are some tips to help you get approved!

Tip 1: It’s all about the details

This may seem like a really obvious one, but believe it or not, lack of information is one of the most common reasons applications are turned down or require more time to review. It’s as simple as making sure you’ve filled out every possible field on the application before you submit.

Along with completing your application fully: always provide as many details as possible on your lease application. The more details you give us, the more likely you’ll be approved (and with fewer delays). For example, when we ask about which industry you’re in, you might list “construction”. But what kind of construction is it? Road construction, home construction, or something else entirely? Providing extra detail goes a long way toward getting us to a comfort level where we can approve you. Vague answers simply don’t give us enough information to go on.

Tip 2:  New business? You may need a personal guarantee

You might be surprised to learn we need a personal guarantee before we’re able to approve an application for a brand new business. To provide a personal guarantee, you have to submit personal information like your full name, home address and date of birth, which allows us to pull a credit bureau report, and the expectation is that you’ll become a party to the lease.

A lot of people think their business lease can only be done in the name of the business, but if the company is too new, your personal guarantee may provide the additional support needed to approve the application. 

Tip 3: Tell us your story

Another item that can help new businesses with approval is to provide a business plan or a backgrounder describing your related experience. Although those things may not seem like they fit on a business lease application, if you don’t have established credit history or financial statements, we need to understand how and why you’re going to be able to pay for the lease. Once again, the more info you can provide, the better.

Tip 4:  Be in good standing

With all applications, we look at commercial credit reports and sometimes personal credit bureaus as well. We encourage all applicants to manage the level of debt they’re carrying, like not carrying really high balances or showing really high utilization of credit lines. Also, we want to see that you’re paying trades on time because that shows us two things: capacity and character.  

Along with being in good standing with the credit reporting agencies, we also encourage you to keep your corporate registration and tax filings up to date. With businesses, sometimes we see corporate registrations or filings aren’t up to date, which can cast some doubt about the legitimacy of the business.  

Tip 5: Handle credit issues responsibly

If you’ve had prior issues with credit, what’s important is how you managed it. We know businesses run into hiccups from time to time and we totally understand that; whether an owner goes through a divorce or there’s an economic downturn in a region, we know things can happen that are out of your control. It’s how you manage those struggles that matters. Don’t avoid your creditors and be sure to take care of any ongoing issues before you make your lease application.

Tip 6:  Get your statements prepared by an expert

One thing we require on larger transactions is financial statements. With those, we encourage an accountant to do your statement as opposed to providing an internally prepared statement. Not everyone can afford to hire an accountant to do it, but if it’s possible, it just provides another level of validity to the numbers and what’s being presented to us. Once we get those statements, we’re looking for healthy balance sheets and demonstrated cash flow.

Tip 7: Don’t take it personally

When we ask for additional information, please don’t take it personally! It’s just part of the process that gives us a better understanding of your business and your ability to make your payments. It isn’t a sign that we’re doubting your business or questioning you; it’s simply us doing our due diligence.

Now that you know what’s expected to successfully submit a lease application, I hope the process goes smoothly for you and we’ll be working together soon!

 

Why choose CWB National Leasing?

Naturally, a company’s blog is going to put its best foot forward. We certainly believe our 40+ year track record and ongoing relationships with business owners prove that we’re the best choice for equipment financing in Canada. But why don’t we let our actual customers be the judge of that?

Watch this video of a long-time customer and farmer, he uses CWB National Leasing for his grain storage and speaks to the personal touch that keeps him coming back. With a lot of hard work, and some help from us, he’s grown his farm to the place he wants to be in the agriculture industry.

 

Our stellar rating on Trustpilot is a testament to our unrivaled service, flexibility and reliability. We’ll go the extra mile to help make sure your equipment lease works for you and helps you on your growth journey.

 

Over to you!

If you’ve read through all this leasing information, you’re in a very good place to make an informed decision about the advantages of leasing equipment for your business! If you’ve decided to finance your equipment, we’re here to help. Get in touch or apply online today!

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