Leasing from A to Z: how to understand the types of convenient financial instrument

Until recently there was only one way to buy necessary goods in case of lack of necessary sum – the credit. However not so long ago Ukrainians had another financial instrument – leasing. In the West this profitable and convenient for business financial service has been successfully used for already some decades. In Ukraine it only starts to gain momentum.

Subtleties and peculiarities of leasing

Unlike a loan, in which the client receives money to independently purchase the product he needs, and already a movable or immovable object. The lessee himself only chooses the thing he needs and the place to sell it. It can be anything, up to and including real estate:

  • any equipment;
  • any car or other vehicle;
  • various equipment, etc.

After that, the leasing company gets the object the client needs for his own money and gives it to the latter for a certain period specified in the agreement between the lessor and the lessee. In this case, the object of the leasing agreement continues to remain on the balance sheet of the leasing company, and the client regularly pays a specified amount. The lessee can be an enterprise, a firm, a company, an individual.

When the term of the contract has expired, after the repayment of the residual amount, the property becomes the property of the client. There is another option to end the deal – the lessee can return the goods to the leasing company. The above is just a scheme of interaction between the client and the leasing company. In reality, the transactions may differ from each other:

  • form of organization;
  • obligations of the parties;
  • terms of the contract;
  • specific tax preferences;
  • types of payments included in the list and other parameters.

Traditional in world practice are two main types of leasing transactions – financial and operational, each of which has its own distinctive characteristics.

Financial leasing

This type of service is somewhat similar to a long-term loan, because it implies that the client receives the property for a long period of time. The contract usually specifies the period of equipment granting, which coincides in duration with the service life of the leased object.

This period is long enough, so the amount of regular payments does not seriously “hit the wallet” of the client. At least according to your senses. Although, of course, in the end you have to pay more than the initial value of the acquired leased equipment. In addition, the lessee bears the burden:

  • resolution of the warranty issue with the seller;
  • repair of the equipment;
  • service, etc.

Formally, the object of the contract is the property of the leasing company. The client receives only the exclusive right to use it for the period of the contract. It can be reduced in case of early repayment of the debt. Then the goods are considered redeemed, and the ownership rights are transferred to the lessee even before the end of the contract.

Operating leasing

When it comes to equipment with a long service life, necessary to the client for a short period of time, resort to so-called operating leasing. This applies mainly to:

  • Equipment required for one-time use or for a specific project;
  • Equipment that is rapidly becoming “obsolete”.

If financial leasing assumes the term of the contract 1-5 years, the operating leasing is 1-3 years. A client who has taken equipment under an operating lease does not have to pay its entire value.

Features of financial and operational leasing in Ukraine

Despite the fact that the term “leasing” appeared in the lexicon of Ukrainian businessmen and entrepreneurs only five years ago, the topic of leasing services is becoming more and more relevant. Under conditions of deep crisis of Ukrainian economy leasing becomes almost the only effective mean, allowing subjects of economic activity to develop their business successfully. For the regulation of leasing relations there is even a number of regulations.

A number of aspects and factors, important for the specific business, influence the choice of the leasing type. First and foremost are the lessee’s plans for the property at the end of the lease. If he wants to exchange the object of leasing for a new one, but does not want to deal with the sale of the old equipment, the choice is usually an operating lease.

Those who want to try to benefit financially from the independent sale of the goods prefer the financial option of the transaction. Another factor influencing the choice is the dilemma of whether or not to put the equipment on the balance sheet of their company. If the answer is yes, then the financial kind. The reluctance to increase the number of non-production assets entails the need to take the goods on an operating lease.

The tax aspect also plays an important role. The fact that under this type of long-term leasing the lessee is given a tax credit for the full value of the leased asset is in favor of financial leasing for Ukrainian entrepreneurs. He can include all lease payments on leasing in the article “expenses”.

To understand all the intricacies and nuances without professional training on all these issues is quite difficult. The specialists of TEKOM-Lease can help you find the best solution in each specific case, provide you with accompanying services in a complex.