Leasing

About leases in brief

Leasing is a form of primarily asset-backed financing in which the Lessor is the owner of the leased asset (vehicle, machinery, equipment or property) for the entire time of the financing. The Lessor acquires ownership of the leased object for the purpose of making it available (leased) to the Lessee for a fee.

In the optimal case, the leased object provides adequate value for the Lessor for the entire term of the lease, while for the Lessee, the asset in use, will be able to produce all the money required for the regular lease payment.

It is advisable to finance investments in a lease if the asset has an adequate value.

Advantages of leasing

• Additional investment financing without large amount of capital commitment
• Due to its asset-backed nature, it requires fewer other collateral elements
• Accounting benefits for certain leasing arrangements
• Tax advantages for some leasing constructions

Leasing types

Finance Leases (Open-End and Closed-End) - On-Balance Sheet Item for the Lessee

Operating lease (permanent lease) - an off-balance sheet item for the Lessee

Comparison of Finance lease and Operating lease

Aspects	Finance leasing (open ended or closed ending)	Operating lease (durable rental)
As intented by the Lessor	The aim is to disburse the available funds Leasing is an additional service related to financial outsourcing Most of the projected income is interest income	It is a complex service and even assumes some operational risk Income is generated mainly by providing leasing service, not by interest income
From the perspective of the Lessee	Fundraising opportunity, planning to purchase a new asset with a delayed payment Acquiring ownership is the primary goal	The primary aim is the use of the asset Acquisition of ownership is not a primary goal
Participants	Lessor, Lessee, Seller	Lessee and Lessor, plus the seller if not the same as the Lessor
Termination before maturity	The lease agreement can be terminated by the Lessee in the same way as credit transactions - only if the entire lease debt has been settled	The lease, like fixed-term leases, cannot be terminated by ordinary termination
Deprecation	The Lessee depreciates in its books with the depreciation rates prescribed in its own accounting policy	It is included in the books of the Lessor and is depreciated
Insurance, service maintenance costs	It is borne by the Lessee	Borne by the Lessor but is built in the lease payments