What is Leasing for Businesses?
Leasing is a financial tool designed for businesses, allowing them to rent any type of fixed asset—whether it’s machinery, vehicles, real estate, or intangibles—without the need for an initial payment. Instead, they pay a monthly fee over a predetermined period. The financial institution covers all costs of the asset and sets a fee for the business as the rental payment. Once the contract ends, the business can purchase the asset by exercising a buyout option at a set price, return it, or renew the contract.
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Financing up to 100% of the amount
Significant tax savings
Medium and long-term financing
Purchase option at the end of the contract
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How Does Leasing Work?
Leasing for businesses, or financial leasing, is a tool where a leasing financial institution acquires a movable or immovable asset to lease it to a business over a medium or long term. The financial institution covers all acquisition costs, such as VAT, and sets a periodic fee for the business as the rental payment. Additionally, business leasing offers highly advantageous tax deductions, as the asset’s depreciation occurs faster than usual—a process known as accelerated depreciation. Once the leasing contract ends, the business can purchase the asset at a pre-agreed price, return it, or renew the contract for another term, typically at a lower fee than the initial contract. The purchase option is a requirement in a leasing contract, meaning the financial institution must honor the lessee’s decision to buy the asset at the contract’s end.
As a contract between two parties, each has obligations, and failure to meet them terminates the agreement. In a leasing contract, the financial institution owns the asset but only covers its acquisition costs—maintenance and repair expenses fall to the business. Furthermore, the business specifies the asset’s characteristics and suppliers, as they best understand their needs, so quality and performance issues are not the financial institution’s responsibility; it only finances the acquisition. The leased asset can only be used under the contract’s terms, and the financial institution may inspect its operation to ensure compliance.
Through this type of financial leasing, businesses can acquire assets like real estate (offices, industrial plants, commercial spaces), technology (hardware, software), vehicles (for cargo, passengers, or personal use), and production equipment (industrial or specialized machinery). If the asset is located abroad, the parties must agree during contract negotiations who covers transportation costs—the financial institution or the business. The financial institution also arranges delivery with the supplier to a specified location and date, leaving the business to simply receive and use it within the agreed terms.
Frequently Asked Questions About Leasing
Leasing as a Financing Source: How Much Can Be Financed?
It allows financing up to 100% of the investment amount, including VAT. Flexible payments are permitted within the contract’s terms.
What Assets Can Be Included in a Leasing Contract?
A leasing contract can cover any type of capital assets, such as:
– Real estate
– Ground transportation
– Passenger vehicles
– Maritime and air transport
– Equipment
– Office and IT equipment
– Medical equipment
– Other assets
What Is the Term of a Leasing Contract? Are There Minimum or Maximum Terms?
The term is set by the lessor, the entity providing the leasing. One advantage is the flexibility of payments.
– Minimum term: 2 years for machinery and vehicles, 10 years for real estate
How Is It Accounted For?
Two perspectives apply:
– Financial: Treated as a purchase. The asset’s ownership appears in the lessee’s accounting, as if it were a purchase with a loan secured by the asset itself.
– Legal: Treated as a rental. Until the purchase is executed, ownership remains with the lessor.
How Is the Price Determined?
As a private contract, the price is agreed upon by both parties and must be specified in the contract. It includes the periodic payments and the asset’s final price.
Summary of Benefits:
– Finance up to 100%
– Flexible payments
– Long-term financing, with a minimum of 2 years and a maximum of 10
– Quick and flexible process
– Depreciation fees are tax-deductible expenses