What is Leasing for companies?

He Leasing is a financial instrument for companies that allows renting any type of fixed asset whether machinery, vehicles, real estate and intangibles, without having to make an initial outlay paying a monthly fee during a predetermined period. The financial entity assumes all the costs of the asset and imposes a fee on the company in question as payment for the lease of the asset. Once the contract is finished, the company can acquire the asset by exercising a purchase option for a certain price, or it can return it or renew the contract.

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How does leasing work?

He Leasing for companies or financial lease is an instrument that consists of a leasing financial institution acquires movable or immovable property for the purpose of leasing it medium or long term to a company that needs it. The financial entity is responsible for all the costs of acquiring the product, as is the example of VAT, and stipulates a fee in a certain period to the company as payment of the lease. In addition, the Leasing for companies It has very advantageous tax deductions for companies, since the amortization of the leased asset is carried out in a shorter time than that which usually occurs, which is known as accelerated amortization. Once the leasing contract is finished, the company will have the possibility to buy the good for a price agreed in advance, or you can return it or renew the contract for another determined period of time whose fee is usually less than in the first contract made. The purchase option is an obligation within a leasing contract, so the financial institution that is in charge of acquiring the product must respect the lessee's decision to acquire it at the end of the contract.

Being a contract between two entities, each of the parties has a series of obligations whose non-compliance will mean the end of the contract. In a leasing contract, the financial entity is the owner of the acquired asset but is only responsible for the acquisition costs of the asset in question, so the maintenance and repair costs of the product are borne by the company. Besides, the characteristics and suppliers of the product are stipulated by the company that wishes to acquire it since they are the ones who best decide what suits their needs, so quality and performance issues do not imply any obligation for the financial institution, but rather it only has the power to finance its acquisition. The product acquired by Leasing can only be used in the terms stipulated in the contract, in addition to the fact that the financial institution can request supervision of its operation in order to verify that the clauses of the contract are being complied with.

Through this type of financial lease property can be purchased as real estate (offices, industrial plants, premises…), technology (hardware, software…), vehicles (both cargo and passenger transport, and even individuals), production equipment (industrial or specialized machinery). If it were the case that the property to be acquired is located in another country, during the execution of the contract agreements the parties must agree who is the one who will advance the transfer costs, or the financial institution or the company in question. In addition to this, the financial entity will be the one that will agree with the supplier of the good to deliver it to the company at a certain place and date, therefore the company will only have to take care of receiving it and using it within the clauses that have been agreed.

Leasing FAQ

Leasing as a source of financing How much can be financed?

It allows financing up to 100% of the amount of the investment, including VAT. It allows to contribute flexible quotas within the stipulated in the contract.

What assets can be the subject of a leasing contract?

In a leasing contract, all types of capital goods can be objects of the contract, such as:

  • real estate
  • Ground transportation
  • passenger cars
  • sea and air
  • Equipment goods
  • Office automation and telematics
  • Medical equipments
  • other goods.

How long is the lease? Are there minimum or maximum terms?

The terms will be set by the lessor, the entity that grants the leasing. One of the advantages of this contract is that the fees can be flexible.

A minimum term of two years in machinery and vehicles and ten years in real estate

How is it accounted for?

Two perspectives must be taken into account:

  • Financial: is treated as a sale
    • Ownership of the property appears in the lessee's accounting. In other words, it is treated as a purchase with a loan that has the same good as collateral.
  • Legal: It is treated as a rental.
    • Until the purchase is made, the property belongs to the lessor.

How is the price set?

As it is a private contract, the price is agreed by agreement between the parties and it must be set in the contract. The price must appear the quotas and the final price of the good.

Summary of Advantages:

  • Finance at 100%
  • Fees are flexible
  • Long-term financing, with a minimum term of two years and a maximum of ten.
  • Quick in flexibility
  • The amortization fee is an expense.

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