Commercial Leasing Resources
Can new equipment be added to an existing lease?
Provided you have an acceptable payment history and there is no adverse change to your credit profile, new equipment can often be added to an existing lease.
How does the credit approval process work?
At Castle Group, credit approval is determined by a number of parameters, including the length of time you’ve been in business, references from your bank and credit ratings.
Shouldn’t I just borrow the money to buy the equipment?
The money you could borrow to purchase the equipment will often earn higher returns than the cost of the lease payments, making leasing a sound financial choice. You can also “expense” your lease payments, offering a substantial tax benefit.
What is a lease?
Leasing, in its simplest form, is an agreement allowing an individual or business to pay “rent” during a scheduled time period to use a piece or selection of equipment. At the end of the lease, the party leasing the equipment has the option to purchase the equipment, renew the lease or return said equipment to Castle Group Leasing.
Who can lease?
Any party using the equipment for business or commercial needs can lease. This includes companies, corporations, associations, proprietorships and self-employed individuals. Castle Group does not lease equipment for personal use.
Getting approved is too difficult.
While having good credit will definitely increase your approval possibilities, we also take into account your time in business and comparable business credit. Castle Group Leasing has a very high rate of credit approval.
Leasing is for people who can’t pay cash or get traditional financing
Not true! The reason many people choose leasing is based around the fundamental idea of “lease what depreciates, buy what appreciates.” For many businesses, operating capital is essential and worth more invested in the business than in equipment. In most cases, leasing costs less than traditional financing methods and the tax advantages often lead to lower monthly payments.
Leasing is too complicated.
Leasing is more widespread than ever, and we make it simple at Castle Group. There is currently more than $103 billion of financing in place with Canadian businesses and consumers, and the asset-based financing industry is the largest debt financing provider after traditional lenders. In most cases, applying for and receiving lease financing is easier than receiving bank financing.
You can only lease brand new equipment.
We tailor all leases to the needs of our customers, and lease both new and used equipment.
Please click on a term listed below to read the explanation.
ANNUAL PERCENTAGE RATE (APR)
The total carrying cost paid by a consumer lessee over the term of a consumer lease expressed as an annual rate. For the purposes of statutory consumer cost of credit disclosure requirements, the APR is intended to be similar to the cost of borrowing charges on a consumer loan. (Turning the Lights on Leasing, a Consumer Guide to Vehicle Leasing)
A document that describes in detail the asset being leased. It may also state the lease term, commencement date, repayment schedule and location of the asset. (U.S. Equipment Leasing Association)
The financing of equipment and vehicles and of related items or services, primarily by way of lease, but also by secured loan or conditional sales contract. (CFLA)
Larger than normal payments, usually occurring at the end of the lease term (sometimes called a “bullet”). (Leasing in Canada [Third Editioon], Ralph Selby FCA, Butterworths, 1999).
BARGAIN PURCHASE OPTION
[see also Bargain Renewal Option, Fair Market Purchase Option, Fixed Purchase Option, and Purchase Option]
A provision allowing the lessee, at its option, to purchase the leased property for a price which is substantially lower than the expected fair value of the property at the date the option becomes exercisable. (KPMG LLP)
A market segment generally represented by lease financings over $1 million / over $2 million in the United States (U.S. Equipment Leasing Association)
A company or person who arranges, for a fee, transactions between lessees and lessors of an asset. (U.S. Equipment Leasing Association)
CAPITAL COST ALLOWANCE (CCA)
Capital Cost allowance is the annual amount which a taxpayer may deduct in computing taxable income. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
CAPITAL COST ALLOWANCE RECAPTURE
The excess of the sale price of a leased asset over the asset’s remaining undepreciated capital cost (UCC). If the sale price is less than original cost, this amount is subject to tax in full. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
[See Finance Lease; compare Operating Lease]
An accounting term meaning a lease which transfers substantially all of the risks and benefits of ownership of the leased property to the lessee. The criteria set out in the Canadian Institute of Chartered Accountants handbook provide that a lease will be treated as a capital lease if it meets any of the following criteria:
title passes automatically at the end of the lease term;
the lease contains a bargain purchase option (i.e. less than fair market value)
the lease term is greater than 75% of the estimated economic life of the leased property; or
the present value of the minimum lease payments is greater than 90% of the leased property’s fair market value at the inception of the lease. (Blake, Cassels & Graydon LLP)
Tax based on a firm’s taxable capital; tax rate varies among provinces (see also federal Large Corporation Tax) (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
A frequently-heard industry term used to describe the sales finance division or subsidiary of a manufacturer. The primary role of the captive is to provide financing to support customers in acquiring the manufacturer’s products.
CASH-FLOW-BASED CREDIT ANALYSIS
Cash-flow-based credit analysis is a primary financial innovation of the asset-based financing industry. Because a leasing company retains ownership of the leased equipment or vehicle, at least until the end of the lease, it enables a lessee to qualify for use of the asset leased based on its generated cash flow rather than the lessee’s credit history, assets or capital base. (CFLA)
CERTIFICATE OF ACCEPTANCE
(Delivery and Acceptance)
A document whereby the lessee acknowledges that the equipment to be leased has been delivered, is acceptable, and has been manufactured or constructed according to specifications. (U.S. Equipment Leasing Association)
[Compare to Open-end Lease]
A lease where at the end of the lease term, the lessee is not obligated to make any adjustment payments to account for the residual value of the leased property. (Blake Cassels & Graydon LLP)
[see also Installment Sale]
A conditional sale occurs when possession of property is transferred, but ownership passes only after the sale meets certain conditions, such as full payment of the purchase price. A conditional sale is not a lease. (PricewaterhouseCoopers LLP)
CONDITIONAL SALE CONTRACT (CSC)
A sale agreement for goods by which possession of property is transferred, but ownership passes only after the sale meets certain conditions, such as full payment of the purchase price. A conditional sale is not a lease. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
“Consumer means a natural person who is offered, acquires or uses a good or service primarily for personal, family or household purposes;” Article 810 of the federal-provincial Agreement on Internal Trade (AIT).
Rental based on a factor other than the passage of time. (KPMG LLP)
DIRECT FINANCING LEASE
A capital lease where, at the inception of the lease, the fair value of the leased property is the same as its carrying amount to the lessor. (KPMG LLP)
Estimated remaining period during which the property is expected to be economically usable by one or more users, with normal repairs and maintenance. (KPMG LLP)
EFFECTIVE LEASE RATE
The effective rate (to the lessee) of cash flows resulting from a lease transaction. To compare this rate with a loan interest rate, a company must include in the cash flows any effect the transactions have on federal tax liabilities. (U.S. Equipment Leasing Association)
The owner participant, trustor owner, or grantor owner. (U.S. Equipment Leasing Association)
The costs related to the operation of the leased property (insurance, property taxes, maintenance) paid to the lessor. (KPMG LLP)
There are assets that are exempt property from the April 1989 tax changes and include much office furniture and equipment, computers costing less than $1 million, furniture and equipment for residential use, automobiles, vans or trucks, most buildings and railway cars. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
FAIR MARKET PURCHASE OPTION
[see also Bargain Purchase Option, Bargain Renew-al Option, Fixed Pur-chase Option, and Purchase Option]
An option to purchase leased property at the end of the lease term at its then fair market value. The lessor cannot retain title to the equipment if the lessee chooses to exercise the purchase option. (U.S. Equipment Leasing Association)
FAIR MARKET VALUE
The amount that a “reasonable person” would pay in a competitive market. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
FAIR VALUE OF THE PROPERTY
The price for which the leased property could be sold in an arms’s length transaction (usually normal the selling price if manufacturer or dealer or the cost to the lessor). (KPMG LLP)
[See Capital Lease; compare Operating Lease]
Typically, a finance lease is a full-payout, non-cancellable agreement, in which the lessee is responsible for maintenance, taxes, and insurance. (U.S. Equipment Leasing Association)
FIXED PURCHASE OPTION
[see also Bargain Purchase Option, Bargain Renewal Option, Fair Market Purchase Option, and Purchase Option]
An option given to the lessee to purchase the leased property from the lessor on the option date for a guaranteed price, determined at the inception at the lease. (Blakes Cassels & Graydon LLP)
FULL PAYOUT LEASE
A lease in which the total of the lease payments pays back to the lessor the entire cost of the leased property including financing, overhead and a reasonable rate of return, with little or no dependence on a residual value. (Blakes Cassels & Graydon LLP)
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
Accounting practices which have been codified in the (Canadian Institute of Chartered Accountants) CICA Handbook, or which are in common usage. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
GOODS & SERVICES TAX (GST)
A national value-added tax imposed on taxable supply of goods and services provided in Canada. Supply is defined to include sale, transfer, barter, exchange, licence, rental, lease, gift or disposition. (PricewaterhouseCoopers LLP)
These contractual provisions essentially require that the lessee perform its obligations under the lease without right of setoff, deduction, abatement, compensation or counter-claim for any reason whatsoever. For the lessor, the purpose is to ensure that it will invariably receive its monthly rental payment. (Gowling Lafleur Henderson LLP, Montréal)
INDENTURE OF TRUST
An agreement between the owner trustee and the indenture trustee: The owner trustee mortgages the equipment and assigns the lease and rental payments under the lease as security for amounts due to the lenders. Same as security agreement or mortgage. (U.S. Equipment Leasing Association)
INITIAL DIRECT COSTS
The costs incurred by a lessor directly associated with negotiating and executing a specific leasing transaction (i.e., commissions, legal, documentation). (KPMG LLP)
[See Conditional Sale]
An instalment sale occurs when a vendor transfers ownership and possession to the purchaser immediately. The purchaser agrees to make payments over a period of time. An instalment sale is not a lease. (PricewaterhouseCoopers LLP)
Insurance means the undertaking by one person to indemnify another person against loss or liability for loss in respect of a certain risk or peril to which the object of the insurance is exposed, or to pay a sum of money or other thing of value upon the happening of a certain event. (Ontario Insurance Act)
Premium means the single or periodical payment under a contract of insurance and includes dues, assessments, administration fees paid for the administration or servicing of such contract, and other considerations. (Ontario Insurance Act)
Risk means a chance of loss.
Speculative Risk – exists when there is a chance of loss and also a chance for profit i.e. gambling at a casino – these risks cannot be insured against.
Pure Risk – exists when there is a chance of loss but no chance of profit i.e..: driving an asset- these risks can be insured against.
Broadly, there are three choices:
(1) Eliminate the risk: implement preventive measures to reduce risk i.e..: fire alarms, sprinklers, seat belts.
(2) Assume the risk: bear the cost of losses as they occur or set aside an amount of money periodically in order to self insure against losses.
(3) Transfer the risk: transfer the risk to someone whose financial capability to handle a loss is greater than your own. This risk transfer comes at a price and is called insurance. (Hunter Keilty Muntz & Beatty)
INTEREST RATE IMPLICIT IN THE LEASE
The discount rate that, at the inception of the lease, causes the aggregate present value of (a) the lessor’s minimum lease payments excluding executory costs; and (b) the unguaranteed value accruing to the benefit of the lessor to be equal to the fair value of the property at the inception of the lease. (KPMG LLP)
INTERNAL RATE OF RETURN
The rate of return on an investment, calculated by finding the discount rate which equals the present value of future cash flows to the initial cost of the investment. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
LARGE CORPORATION TAX (LCT)
Large Corporation Tax is a federal tax imposed on corporations with capital over $10 million. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
A contract in which one party conveys the use of an asset to another party for a specific period of time at a predetermined rate. (U.S. Equipment Leasing Association)
The periodic rental payment to a lessor for the use of assets. Or the lease rate as the implicit interest rate in minimum lease payments. (U.S. Equipment Leasing Association)
The lease term is the fixed non-cancellable term of the lease plus:
all periods covered by bargain renewal options;
all periods for which failure to renew would impose on the lessee a penalty sufficiently large that renewal appears reasonably assured;
all periods covered by ordinary renewal options where the lessee has undertaken to guarantee the lessor’s debt related to the leased property;
all periods covered by ordinary renewal options preceding the date on which a bargain purchase option is exercisable; and
all periods representing renewals or extensions of the lease at the lessor’s option. (KPMG LLP)
The party who is obligated to pay rental to the lessor in exchange for use and possession of the leased property. (Blake Cassels & Graydon LLP)
LESSEE’S INCREMENTAL BORROWING RATE
The interest rate that, at the inception of the lease, the lessee would have incurred to borrow (using similar terms) to purchase the leased asset. (KPMG LLP)
The party who has legal title to the leased property and grants the lessee the right to use and possess the leased property in exchange for a rental amount. (Blake Cassels & Graydon LLP)
In this type of lease, the lessor provides an equity portion (usually 20 to 40 percent) of the equipment cost and lenders provide the balance on a nonrecourse debt basis. The lessor receives the tax benefits of ownership. (U.S. Equipment Leasing Association)
A contract where the lessee leases currently needed assets and is able to acquire other assets under the same basic terms and conditions without negotiating a new contract. (U.S. Equipment Leasing Association)
MIDDLE MARKET (or Mid-Ticket)
A market segment generally represented by financings over $100,000 but under $1 million. Over US$100,000 but under US$2 million in the United States. (U.S. Equipment Leasing Association)
MINIMUM LEASE PAYMENTS
Lessee: The minimum rental payments called for by the lease over the lease term; plus
any guarantee by the lessee of the residual value of the leased property at the end of the lease term; and
any penalty required to be paid by the lessee for failure to renew or extend the lease at the end of the lease term.
If a bargain purchase option exists, then only the minimum rental payments and the bargain purchase option are included in the lease payments.
The minimum lease payments for the lessee as described above and any residual value or rental payments beyond the lease term guaranteed by a third party unrelated to the lessee or lessor. (KPMG LLP)
A lease wherein payments to the lessor do not include insurance and maintenance, which are paid separately by the lessee. (U.S. Equipment Leasing Association)
NET PRESENT VALUE
The sum of a series of future cash flows, discounted at an appropriate rate to a current value. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
In a leveraged lease, the lenders cannot look at the lessor for repayment. The lender’s only recourse is to the lessee and, therefore, the lessee’s credit rating is of prime importance. (U.S. Equipment Leasing Association)
[Compare Closed-end Lease]
A lease where a lessee guarantees that the lessor will realize a minimum value from the sale of the asset at the end of the lease. (U.S. Equipment Leasing Association)
[Compare to Capital or Finance Lease]
A lease which does not transfer substantially all the benefits and risks incident to ownership of property. (KPMG LLP)
The leasing company, investment banker, or broker who arranges a leveraged lease. (U.S. Equipment Leasing Association)
Refers to exempt property and assets with a fair market value of $25,000 or less per lease. It is used for the purposes of the federal Income Tax Act Section 16.1 lessor/lessee election introduced in April 1989. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
This is the interest rate applicable to determine the portion of lease payments that are treated as notional repayments of principal under the April 1989 income tax revisions. The rate is set monthly and is one point greater than the long-term Government of Canada bond rate of the month before the immediately preceding month. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
The current equivalent of payments or a stream of payments to be received at various times in the future. The present value will vary with discount interest factor applied to future payments. (U.S. Equipment Leasing Association)
[See also Bargain Purchase Option, Fair Market Purchase Option, Fixed Purchase Option]
A provision by which a lessee has the right to purchase the equipment at the end of the lease. The purchase option may be stated at a specified amount or at fair market value. (U.S. Equipment Leasing Association)
The requirement to purchase an asset at a particular time and at a predetermined price. In a lease transaction, this is a lessor’s right to require the lessee (or some third party) to purchase the asset at the end of the lease term. (U.S. Equipment Leasing Association)
The estimated fair value of the leased property at the end of the lease term. (KPMG LLP)
The sale of a property with the purchaser leasing the property back to the seller. (KPMG LLP)
A capital lease which at the inception of the lease, the fair value of the leased property is greater or less than its carrying amount resulting in a profit or loss. (KPMG LLP)
Payments which are not required to be made during a specified interval (e.g., the first payment may be due in 90 days, which would be a “three-month skip”. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
Typically, financing transactions under $100,000. (U.S. Equipment Leasing Association)
SPECIFIED LEASING PROPERTY
Essentially, depreciable property leased by a lessor to a lessee for a term of more than one year. Leasing having a fair value of $25,000 or less per lease are excluded and it does not include intangible property, including systems’ software, certified feature films or certified productions. (Leasing in Canada[Third Edition], Ralph Selby, FCA, Butterworths, 1999)
An agreement whereby the lessee has the option, at the end of the primary lease term, to either extend the term of the lease or purchase the asset; should lessees choose to extend the term, they have no purchase option later; the present value of the extended rent usually equals the value of the option price. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
One of a variety of agreements designed to simulate a lease. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
A bank or trust company that holds title to or a security interest in leased property for the benefit of the lessee, lessor, and/or creditors of the lessor. A leveraged lease often has two trustees: an owner trustee and an indenture trustee. (U.S. Equipment Leasing Association)
UNGUARANTEED RESIDUAL VALUE
That portion of the residual value of leased property which is not guaranteed (or is guaranteed by a party related to the lessor). (KPMG LLP)
The replacement of an asset with a similar but more serviceable asset, generally in an attempt to forestall or correct obsolescence. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)
The working relationship between a financing source and a vendor to provide financing to stimulate the vendor’s sales. The financing source offers leases or conditional sales contracts to the vendor’s customers. The vendor leasing firm substitutes as the captive finance company of a manufacturers or distributor through the extension of leasing to customers, provisions for credit checking, and performance of collections and operational administration. Also known as lease asset servicing or vendor programs. (U.S. Equipment Leasing Association)
Source: CFLA Leasing Glossary