Understanding Leasing: Types, Benefits, and Features
1. Concept of Leasing
Concept Leasing is an agreement granting the right to use an asset for a specified period. The typical lease is concluded between two parties: the owner (lessor) and the party that contracts to use the asset (lessee). Leases have become important alternatives to purchasing goods due to tax advantages, cash flow benefits, and other factors, especially when the company (lessee) needs assets for operations. Leases include contracts which, though not nominally lease contracts, also transfer the right to use a good (e.g., contracts supplying heat for buildings), and agreements that transfer this right even if the contractor provides important services related to the operation or maintenance of assets.
2. Characteristics of the Lease
Goods are purchased to be leased, as requested by the lessee. During the contract, the tenant is responsible for maintaining the leased property and paying insurance premiums. The rental duration must be equal to or less than the estimated useful life of the asset. The amount of rent is set to write down the value of the rented property during the period of use in the contract. The contract allows the lessee to acquire the property at the end of the lease period by paying a surrender value that corresponds to the residual value of the asset. It must be related to production equipment or goods that the lessee will use for productive and professional purposes.
3. Types of Leases
Leasing Furniture
A businessman contacts the distributor of the required equipment, and once selected, talks to the Bank, which purchases the good through a lease and leases it for use during a specified time directly related to the economic life of the assets. After the time period stipulated in the contract expires, the customer exercises the option and acquires the property.
Real Estate Leasing
The same as above, except that the asset acquired is a building used for production or professional purposes, such as buildings, warehouses, shops, or offices. The term of this type of operation is usually longer than furniture leasing, due to the amounts involved and the impact of quotas on the cash flow of companies.
Advantages of Leasing for the Client
Financial
- It affects the Balance Sheet: assets are owned by the bank and therefore do not appear in the customer’s assets, nor does the amount owed on the lease appear on the liabilities.
- Affects Profit and Loss, where you should see the payments made as fees.
- Supports financial indicators of solvency, indebtedness, return on equity, and return on assets.
- Allows accelerated depreciation when the contract term is less than the object’s lifetime.
Tax
- 100% of the lease payment is a deductible expense for Income Tax.
Cash Flow
- Allows the company to acquire productive assets they need without diverting substantial funds while preserving their working capital through organized cash flow management.
- Provides working capital for operations in cases of sale and leaseback.