Lease definition
Leasing represents a modern form of financing, implying the transfer to the User of the right of use together with all the risks and benefits afferent to the property title on the good object of the financing, in exchange of a periodical payment called leasing instalment.
The term lease covers different contract types, the common feature of which is that the lessor retains the ownership of the leased asset throughout the entire lifecycle of the contract.
With a multitude of definitions existing in local GAAP, fiscal legislations and in some cases within specific local legislative frameworks for leasing, the only common definition of a lease that can be given on the European level is that provided by IAS17, the international accounting standard for leases, where a lease is defined as "an agreement whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time".
Leasing advantages
Here are a few leasing advantages:
• The possibility to deduce the leasing payments (VAT, insurance, differences of currency exchange rate);
• Deferred payment of VAT;
• Insuring of the good for all the leasing length, without VAT payments;
• Ensuring of a budget of expenses that is advantageous from the point of view of the acquisitions;
• Avoiding the useless blocking of some funds destined to acquisitions, by deferred payment of leasing instalments which bring fiscal advantages;
• The financing in leasing system, do not touch the credit lines committed with other financial institutions;
• A rapid obtainment of a financing in leasing system, compared to other financial products;
• The payments may be structured in relation to the investment forecasted incomes;
• The possibility to negotiate some discounts in the case
of big acquisitions;
• The payments may be invariable, accelerated or decreasing, with or without grace period, with a fixed
or variable interest rate.
What kinds of assets can be leased?
Leasing is used to finance a vast range of assets and leases can be tailored to meet the needs of clients, implying that almost any kind of good can in principle be leased.
Different kinds of assets can be leased in order to fulfill clients’ needs. In principle, and any kind of good can be leased, but during the time we could notice that the most common leased assets include cars, coaches & busses, machine tools, production plants, rail & rolling stock, retail premises, computers & other IT infrastructure.
Businesses lease from several reasons
- To conserve cash. Rather than pay the entire cost of an asset up front, a lease requires an affordable monthly payment.
- To not be locked into technology. When you lease an asset, you pay only for the period of time you expect to use it.
- Better assets than you could afford to buy. Since you're only paying for a part of the life of the asset, payments are smaller than they would be for a loan.
- Tax advantages. Most leases are structured so the entire payment is an immediately deductible expense. If you purchase the asset, you have to capitalize and depreciate the asset, which conducts to a slower recovery of your costs.
- Book accounting advantages. If a lease is operating, no liability normally needs to be recorded for the future payments due, and you don't have to pay all the cash up front, which tends to improve your ratios of assets to liabilities.
- Incentives. Some leases include maintenance and other services in a single price, so per total a much advantageous bargain.
- European Leasing players
The Leasing market is a highly competitive and cluttered market. With cars sales expected to increase modestly, the growth in this market is expected to come from additional banking services, new mobility services and insurance offerings.
Societe Generale Leasing Solutions, Volkswagen Leasing, Unicredit Leasing, Nordeea Finance, Deutsche Leasing, Raiffeisen Leasing, BNP Paribas, BCR Leasing, Bavaria Leasing, Mercedes-Benz, NBG Leasing, BMW Financial Services are some of the most powerful leasing providers in Europe (and by the way, eight of the mentioned companies are successfully using Charisma Leasing Management from TotalSoft to manage their activity. In some cases it was even decided for Charisma Leasing Management implementation as a standard group solution.)