Leasing
What is an equipment lease?
A lease is a contractual agreement where you (the lessee) agree to pay a monthly payment (for a specific amount of time – Term) to a leasing company (lessor) to utilize commercial equipment selected from an equipment vendor of your choice.
What equipment can be leased?
We have lenders in place to accommodate almost any type of equipment that can be used for your business. This includes construction/landscape equipment, trailers, vocational trucks and pick-up trucks, survey equipment, networking equipment and servers, machine control systems, office equipment, machine tools, woodworking equipment and much more.
Can used equipment be leased?
Yes, it can. Most of the lenders we work with can lease used equipment up to a certain age, and we have relationships with lenders who will consider significantly older used equipment as well.
What qualifications do I need to apply for a lease?
To apply for an equipment lease, the single biggest criteria is you must own a business. If you have an incorporated company, proprietorship, registered trade name, partnership, GST number, or are an owner/operator, we can likely find an appropriate financing source for your needs.
What are operating leases?
Operating Leases are leases for either new or used equipment where there is NO defined purchase option at the end of the term.
What are capital leases?
Capital Leases are leases on new or used equipment where there is a defined and documented purchase option at the end of the term.
What is a Sale / Leaseback?
A Sale/Leaseback transaction can apply to either recently acquired equipment your business has paid for from your own resources and now want to be reimbursed for 100% of the purchase price by converting to a lease or finance agreement. A sale/leaseback may also be available for equipment that has been owned for a longer period of time, with a loan-to-value amount of 50%-70% of the equipment value for an asset that has been owned for more than 3-6 months.
What is the interest rate?
Interest rates are determined by a huge variety of factors, so this really is an impossible question to answer. Rates are determined by: the credit quality of the business or owner of the business (owners info would be required if no business credit history exists), the length of time the business has been established, financial statement results (where applicable), nature of the asset being financed, nature of your business, and even the length of term you would like to do your lease for. Then lenders we work with take every detail of each unique credit request into account and provide the most competitive rates possible on every transaction.
Where do the lenders get their money from?
Our lenders are made up of a mix of companies owned by: Canada’s 5 major banks, credit unions, equity firms, privately held companies, and individual investors. Each lender has very specific strengths and niches in the marketplace.
Why should I lease my equipment?
There are several very good reasons to lease equipment, including conservation of the capital you have built up in your company, conservation of your existing bank credit lines/operating lines, ability to match monthly payments to your cash flow, which allows your business to acquire revenue–producing equipment with a minimal or $0 initial investment, potential tax advantages, and the ability to trade-up to newer larger equipment as your business grows.
How many years can equipment be leased for?
The typical equipment lease term is between 2-5 years, however, longer terms may be available for assets that have a very long life cycle.
What are the buyout options at the end of a lease?
Most equipment leases are structured as a lease-to-own with a pre-determined purchase option at the end of the lease term. The buyout can be a nominal amount such as $10, $250 or $500, or up to 10%-20% of the initial selling price of the equipment (a $50,000 machine could have a $5,000-$10,000 end-of-term purchase option if you would like a larger residual at the end of the term). Fair market value leases may be available in requested as well.
Can I buy my lease out early?
Yes, you can buy an equipment lease out at any time during the term. The early buyout policy of most lenders is balance of payments, so similar to an automotive lease, there is no financial advantage to buying a lease out early because the cost would be the same if you let the payments continue to the end of the term. The real advantages of a lease are the cash flow flexibility it affords your business and the potential tax benefits that may be realized by leasing your equipment.
Will my lease payments fluctuate from month to month?
No, equipment leases provide your business with a fixed-term, fixed-payment financing plan so you are not subject to any rate variances or fluctuations during the term of the agreement. This provides you with cost assurance on your monthly equipment financing costs so you can budget for expenses accurately.
Are seasonal payments available?
On approved credit, some lenders do offer seasonal payments to match your repayment schedule on your equipment lease to the months your business is producing the most cash flow. An example of this would be a payment arrangement for a landscaping company where regular monthly payments are made from March – November, and then payments of only $100 are made the months of December, January and February. That way the company is making payments on their equipment lease for the months when they have their most income coming in, and they are reducing their monthly expenses for the 3 months they would likely have the lowest amount of revenue.
Can payments be made at any other intervals other than monthly?
Yes, quarterly, semi-annual or even annual payments may be available on approved credit. It’s important to remember that the first payment would be due at the time you are taking possession of the equipment, and that could be a large amount if an annual payment stream is requested. These payment arrangements are most commonly requested for agricultural applications, and a majority of regular business leases are executed with a monthly payment stream.
How is GST/PST paid on leased equipment?
The applicable taxes would be paid on your monthly lease payments, and the application of those taxes is determined by the Province the equipment will be located and used in. For example, if your business is located in Saskatchewan or your business will be primarily using the equipment in Saskatchewan, then 5% GST and 6% Saskatchewan PST would be applicable to each monthly payment regardless of where the equipment is acquired. If your business had a head office in Saskatchewan, but your work was primarily done in Alberta and you are able to provide a verified Alberta address where this equipment will be located, then only 5% GST would be applicable to each monthly payment.
Can delivery or installation charges be included in my equipment lease?
Yes, in most cases, lenders will allow for a certain percentage of “soft costs”….up to approximately 25% of the transaction total. As an example, on a $40,000 approval, $30,000 could be the cost of the equipment and up to $10,000 could be installation and/or delivery charges on most approvals. The percentages of soft costs allowed differs slightly from lender to lender, and smaller maximum percentages of soft costs may be specified on the transaction approval as required by the lender.
How long does it take for an approval?
On most applications, from the time the completed application package is submitted to a lender, we will receive a reply within 1 business day or less. On a straight-forward request, the response may come within a few hours, but could take longer if the request is more complex or for a larger dollar amount. The key is to provide the lender with a complete credit request, including all required supporting documentation, such as financial statements, completed application, business profile, etc. on larger or more complex transactions to expedite the process and minimize questions from credit.
Do I need to fill out and sign an application?
A completed and signed application will be required for most transactions unless: your business is very well established and has had an active commercial credit bureau for at least 3 years, can provide accountant-prepared financial statements from the last 2 years, or the company is publicly-traded. In those cases, we can submit the request under the business name only as the lender will be able to evaluate the commercial credit bureau or financial statements and base their decision on that information.
What does Co-Lessee mean?
When the business owner(s) or majority shareholder(s) fill out and sign an application, they may be added as the co-lessee(s) on the transaction if the business doesn’t have sufficient credit history for an approval to be granted in the business name only. This simply means that owner’s name would be listed on the lease document as a co-lessee, and he/she would be responsible for paying out the balance owing on the equipment should the business be sold or dissolved or if payments fall into default.
If I’m a co-lessee on an equipment lease will that affect my personal borrowing power?
No, it won’t. The company is the primary lessee on the equipment, and only an inquiry from the lender will be shown on your personal credit bureau, so the lease/loan is not reported as a trade line on your personal credit bureau, which means it will not negatively affect your personal debt/service ratio.
What does the lender take as security on a lease?
The lender will register their financial interest in the equipment being leased, and that is their security on the transaction for a conventional commercial equipment lease. If there are deficiencies on a credit request such as derogatory information on the credit bureau report(s), lack of cash flow or equity reported on the company financial statements, lack of personal net worth of the applicant, or other limiting factors, some lenders may request additional security or collateral in the form of a security registration on another asset that is owned outright by the company or owner/shareholder.
Can I apply for a lease if I have a poor credit history?
Yes, you can; however, it’s important to understand the number of lenders who can structure a transaction for a business or owner with challenged credit history is very limited, and additional information and security will likely be required vs. a conventional credit request, and the additional risk the lender is taking will be reflected in their pricing.
Can I trade-in my leased equipment if I need a newer/larger/different piece of equipment?
Absolutely. Almost every lender has a trade-up provision in their equipment leases which would provide you with a discounted buyout amount as an incentive to trade-up your existing equipment as long as you are applying for approval on a new lease for the new equipment with the same lender.
How does the lender collect my monthly payments?
Monthly payments are set up on a pre-authorized payment plan for you. To set up the pre-authorized payment plan, we require a copy of a VOID cheque (cheque must be in the business name or name of one of the individuals listed on the lease) or a pre-authorized debit form from your bank showing the account holder’s name, account number and a stamp from the bank.
Do I need to come to the Carbon Capital office to sign my lease documents?
No, you don’t, but you are welcome to visit us by appointment anytime. Lease documentation can be handled over email or fax in many cases, or couriers such as Purolator or Fed-Ex can be used to return signed documentation to Carbon Capital when originals are required. One of our account managers would be glad to come see you in person to complete the documentation if we are located in the same general area. We understand your time is extremely valuable, and are committed to making the process as fast, convenient, concise and easy to complete as possible so you can concentrate on the business activities that make you money.
Do I need to purchase my equipment from a dealer?
Not necessarily, as some lenders are able to approve private sales. If equipment is being purchased from a dealer, the dealer is responsible for assuring the equipment has clear title before you take possession of it, so all lenders can execute transactions for equipment being sold by a dealer. The lenders who are equipped to approve private sale transactions will do an additional security search on the asset(s) being financed and the seller of the asset(s) to ensure they are free of any liens or encumbrances, so an additional administration fee may be applicable to cover the cost and additional time required to execute these searches and obtain the documentation required to clear title on the equipment being sold privately.
Do I need to make a down payment on my lease?
Down payments may be required by the lender depending on a number of factors, and the amount of the down payment will be determined by these same factors. They include: the overall strength of the application, the length of time your business has been operating, the dollar amount of the request and the nature of the asset on the request. In many cases, leases are approved with only the first and last monthly payment and one-time admin fee required at the beginning of the term. If you would like to make a larger down payment on a lease, we can certainly structure the request that way.
When will my lease payment start?
On a conventional lease, the amount due for your initial lease payment will be the first month, last month and any applicable one-time admin fee or the amount required by the lender as a down payment the same day you take delivery of the equipment. Depending on the specific conditions approved by the lender, the first payment could be: processed by the lender as a pre-authorized debit payment, accepted as a non-certified cheque made out to the lender, accepted as certified funds made out to the lender, or in some cases, may be made to the equipment seller as long as proof of that payment can be provided and a credit for the payment made is shown on the seller’s invoice.
Can I acquire equipment from a vendor outside of Canada?
There is no question equipment being sold by a Canadian seller simplifies the process and eliminates some variables, but leases are available on equipment being purchased from the US. There are some things to consider when equipment is being purchased from a US vendor such as the requirement of: a foreign exchange provision letter, approval of the US vendor by the lender, brokerage and importation of the equipment to Canada, payment of GST on the equipment as it crosses the border, payment arrangements to the US vendor that are agreeable to all parties involved, and your comfort level with the equipment if not able to actually view it in person before taking delivery of it in Canada. Once all of these factors are considered, if it’s determined an equipment purchase from a US vendor is the right solution for your business, we would be glad to assist in securing a lease approval for the transaction. If equipment is being acquired from a vendor outside of North America, financing may be available on a Sale/Leaseback once the equipment has been paid for and has arrived in Canada.
When does the dealer or seller get paid for the equipment?
Most of the leases we execute are conventional leases, where the seller is paid via cheque or electronic funds transfer from the lender within 24-48 hours of the time you take possession of the equipment. When warranted or required, lenders may be able to approve an early commencement structure where they will provide a deposit or even full payment on your behalf once we have signed lease documentation in place. Your lease payments would start at the time the deposit or full payment is advanced to the equipment dealer.
What insurance does my business need to carry on leased equipment?
Confirmation of both property and commercial liability coverage with the lender listed as an additional insured and first loss payable will be required for most equipment leases. If the asset is of the nature that it poses no liability risk, only confirmation of property coverage may be required. The lender will make that determination at the time of approval. Evidence of insurance will be required before equipment can be picked up on most lease transactions, and a copy of the provincial registration for licensed vehicles or trailers with the lender listed as the “Lessor” may be required prior to funding of the transaction.
Loans
Are loans available for commercial equipment?
Leasing will provide your business with the necessary commercial equipment that you need, when you need it, without making a significant down payment that is generally required by the banks and often times with more lenient credit requirements. This can be a huge benefit for your business.
When would a loan be required?
As a broker between the end-user and funder/underwriter of the transaction, Carbon Capital Corporation specializes in commercial equipment financing and commercial equipment leases. This includes; Leases (both operating leases & capital leases), Loan and Security Agreements, and Sale/Leaseback transactions.
What is a commercial equipment loan called?
The Carbon Capital team has vast experience in the commercial equipment leasing and financing industry in Canada. Our head office is located in Calgary, Alberta, where we have access to the most progressive lenders and investors in the industry. You tell us what commercial equipment you need and we’ll use extensive business relationships to get your equipment financing approved at the best rates possible.
Who owns the equipment if a loan is written for the transaction?
In most cases, that would be completely up to you. You could pay the taxes up front, or they can be financed as part of the loan. On a loan, taxes are not broken out monthly like they would be on a lease….the loan is for a value that is equivalent to the selling price of the equipment and applicable taxes, less any money paid to the seller.
Do I need to pay the taxes up front on a loan?
In most cases, that would be completely up to you. You could pay the taxes up front, or they can be financed as part of the loan. On a loan, taxes are not broken out monthly like they would be on a lease….the loan is for a value that is equivalent to the selling price of the equipment and applicable taxes, less any money paid to the seller.
What are the buyout options on a loan?
The most common early buyout option offered by lenders on an equipment loan is: an amount equal to the principal balance owning on the loan plus an amount equivalent to the next three (3) months interest. The loan is a fixed-payment agreement, so additional payments or lump sums paid on the loan will not reduce the monthly payments or term. It’s recommended to keep additional funds in your own company account unless you are paying out the entire remaining balance on the equipment loan.
Does a loan provide my business with any tax benefit?
How much money down is required on a loan?
While a down-payment may not be required on a loan agreement, it’s not un-common for a lender to ask for the taxes on the equipment to be paid up-front so taxes are not being included in the cost of financing
Is the approval process any different for a lease than it is for a loan?
Lenders evaluate lease and loan applications using the same criteria, so it’s not a case of one being easier or harder to gain approval on than the other. The availability of a loan is dependent on the lender the request is submitted to (if they offer it or not) and of the nature of the asset on the request (if the lender requires it to be on loan documentation for liability reasons).
What insurance is my business required to carry on equipment financed on a loan?
Property coverage showing the lender listed as the loss payable is typically the minimum requirement for insurance coverage on an equipment loan. The lender reserves the right to request evidence of additional coverages before funding if they determine it is required for the specific asset/transaction. A copy of the provincial registration for licensed vehicles and trailers with your name/business name shown as the registered owner may be required prior to funding of the transaction.
Still looking for some clarification? Drop us a line.
