Leasing

The lease (leasing agreement) is the relation between two parties - the Lessor and the Lessee in the form of written lease agreement covering all terms and conditions in relation to the transfer of usage of the leased equipment and repayment of lease payments to the Lessor. Lessee - the party that purchases the usage rights of the equipment in leasing transactions against the lease payments determined in advance with a contract. Lessor - is the party that possesses the legal ownership of the equipment subject to leasing and that transfers the usage of the equipment to the Lessee against the lease payments determined in advance with a contract. The supplier of the equipment is the manufacturer or marketing company providing the equipment subject to the leasing contract (the supplier is determined by Lessor).

The subject to lease must be intangible property - plants, property, buildings, equipment, transportation means, real estate and other property used for business.

In our business environment Leasing can offer more flexible, cost effective and efficient method of equipment finance. It gives companies the ability to renew basic stock/funds, gain additional competitive advantages, lower tax costs and operating costs.

The benefits/advantages of leasing.

There are many good reasons to finance equipment through leasing, including:

1. Leasing Company creates new credit source to finance lease project. Apart that LC provides customers with comprehensive business-plan and feasibility study.
2. Leasing gives the possibility of installment payments for purchase equipment on a long-term base - contrarily the Bank provides relatively short-term loans (up to 6 months only).
3. Leasing Company provides also the following services that enables the Lessee concentrate on its operating activity only:
   • comprehensive marketing analysis
   • find the reliable and appropriate supplier of the equipment
   • settle the supplier agreement (including the agreed delivery terms and conditions)
   • make reclamations upon the supplier agreement
   • customs clearance, payment of taxes and customs duty, follow exchange control regulation, state registration, insurance.
4. With leasing the company can use declining balance depreciation method (with the coefficient 3). These allow to write-off the equipment cost/value quicker and therefore reduce the property tax by three times. This also allows to increase the profitability of the equipment/property utilization or to gain the additional income by selling the equipment for the market price in the end of the lease agreement.
5. Leasing has tax and cash flow benefits under a range of conditions, leasing can minimize tax impact, particularly in businesses with heavy capital expenditures. In terms of cash flow, leasing can incorporate up front costs and can present you with a predictable outflow - something you can easily plan for short-term and long-term. Lease payments are fully deductible for tax purposes. Leasing requires little up front cash expenditure. Leasing also allows to match the cost of equipment utilization with the cash flows derived from contract or limited term jobs or projects.
6. Leasing provides excellent opportunities to upgrade the fixed assets of the company without tying up valuable working capital or credit line.
7. Leasing may provide off-balance sheet financing because it is not capitalized on the balance sheet as a liability, so it does not affect the companies debt ratios. This improves key financial ratios. Most companies are constantly striving to have their financial position look as strong and healthy as possible to shareholders and lenders.
8. Leasing gives the possibility of flexible lease payments terms - the differentiation of approaches to each particular customer allow to find the most appropriate for the customer lease payments scheme and this enables the customer to precisely forecast the cost of using the equipment over the life of the lease contract.
9. With leasing the customer becomes the owner of the equipment paying the residual value only in the end of lease agreement
10. With back to back leasing it is possible to minimize taxes substantially.

See also:

Finance Lease
Back-to-back Lease