The leasing arrangement can help the company to obtain a greater long-term financial capacity since it involves obtaining the use of specific fixed assets, without actually receiving ownership over them.
A finance lease is a long-term, non-cancellable lease and therefore requires the lessee to make periodic payments for the use of an asset for a specified period, closely related to the useful life of the asset.
The contracts made by the company through leasing arrangements have a great commitment for the company due to its long-term nature, which is why this document will cover the most important aspects of this type of financing that the organization can use..
Financial leasing
It is an alternative financing system that allows the acquisition of new or used productive assets such as machinery, transport equipment, computers, office equipment, etc.
Leasing, or financial leasing, is based on goods acquired in the national market. The lessee selects the supplier and the asset, which is a letter of guarantee that facilitates its future maintenance.
Leasing contracts are determined within a certain period, which is in accordance with the regulations in force in each country and the convenience of the lessee. The terms are equal to or greater than 60 months. The lease fee is agreed between the leasing company and the lessee, according to their preference, and can be fixed, periodically reviewed or increasing, and payment is generally made monthly.
At the conclusion of the leasing contract, the lessee freely chooses or not to exercise the acquisition option, if he exercises it, he pays a defined amount of money from the beginning of the contract.
Primary use
Leasing or leasing is almost always used to lease land, buildings, and large units of fixed equipment
When making financial leasing contracts, the type of contract with the leasing company must be taken into account, referring primarily to the way the company acquires the leased assets, how it is related to their maintenance and the renewal of leases.
Acquisition of leased assets
Companies use two main techniques to obtain items under lease, depending on their prospect of acquiring or not leasing assets. These include:
- Direct leases: This is done when the company acquires the assets that are leased to the leasing company, but these are not owned by them. Subsequent sale and lease: This is done when the lessor buys assets that are already owned by the lessee to return them for lease.
Asset maintenance
Normally a finance lease of this type specifies if the lessee is responsible for the maintenance of the leased assets, in the leasing contracts the lessee pays the maintenance costs.
Since leasing is a long-term contract, it is quite difficult for the lessor to calculate maintenance costs over the life of the asset in a way that could be reflected in the lease payment.
Contract renovation
Generally, the lessee is given the option to renew the contract upon expiration. Lease payments are typically less after lease renewal than during the initial period.
The renewal option does not come into play until the original lease term has expired.
In the leasing contract the total payments during the lease period are greater than the cost of the leasing assets for the lessor
Real estate leasing
It is a financing system that allows the acquisition of productive real estate, new or used in the national market, such as factories, warehouses, offices, commercial premises, doctor's offices, etc. In this type of lease, the lessee also selects the provider and the asset.
When starting the contract, two documents are recorded:
- The deed of sale and purchase, which is considered a public document. The leasing contract, which is a private document and owned by the lessor and the lessee exclusively.
Real estate leasing contracts are equal to or greater than 60 months, the lease fee is agreed between the company providing the leasing service and the lessee as appropriate. This can be fixed, periodically revisable or increasing and as in the financial leasing at the conclusion of the contract, the lessee freely chooses or not to exercise the acquisition option, if he exercises it, he pays a defined amount of money from the beginning of the contract.
Main benefits that leasing offers to the lessee
- An alternative financing finances 100% of the value of the property. It improves the availability of working capital. It does not affect the debt ratio. It does not require reciprocity in the financial service. It does not require parallel guarantees. It is a simple and agile system to process. It offers tax benefits, in accordance with current legislation. The adjustment for inflation is not the responsibility of the lessee. The fees are considered 100% expense and decrease the tax base.
