A leasing company is one that is responsible, at the request of a client, to buy the necessary transport, equipment, or real estate and then rent them for a specified period. At the same time, the entrepreneur has the opportunity, at the end of the lease, to redeem this property and become its owner.
For the customer, leasing is both a lease and an analog of a specific loan. The entrepreneur receives the property he needs for the business and pays it off gradually, like a loan. At the same time, the lease terms are often more flexible than loans. For example, a leasing company may take into account the seasonality of its business and distribute payments in a way that suits it best.
Who is leasing suitable for?
Individual entrepreneurs and legal entities that need special equipment, transportation, real estate, or business equipment.
People also have the opportunity to lease, for example, if you need a car for personal purposes. But in this case, it is worth carefully comparing the offers of leasing companies and the conditions for car loans at banks. The loan is usually more profitable.
Leasing has many advantages over a loan.
- No deposit required. The equipment itself, the transport, or the real estate is the guarantee that you will pay the leasing company regularly. Otherwise, the rented property will be taken away.
- You will save on income tax. Earnings, that is, the difference between your income and your expenses, are taxed. If you have rented the property, you can save on this tax. Lease payments are recorded in accounting documents as expenses, as well as equipment depreciation, which means they reduce your tax base.
- The property can be cheaper. Leasing companies often buy in bulk, so you can get the items you need at deep discounts. As a result, you can gradually buy back transport or equipment from a leasing company for less than if you applied for a loan and bought it yourself.
- You don’t have to think about equipment delivery and installation. The leasing company can take care of all transportation.
Even if you make payments on time, there may be unpleasant surprises awaiting you.
- Property seizure: Some rental companies may seize property even if you pay your bills regularly. This can happen if you violate other important terms of the contract. For example, you travel by rented transport outside of the specified region or do not follow the rules for operating the equipment, which may lead to a breakdown or faster wear and tear. Therefore, you should carefully study all the clauses of the agreement before signing it.
- Refusal to buy back the property: Even if you stipulated in the agreement that at the end of the lease term you will buy back the property, an unscrupulous leasing company may refuse to give it away or delay the transfer of equipment, transportation, or real estate rights.
- Loss of own property: Some businesses, under the guise of leasing, offer loans to entrepreneurs and ordinary consumers secured by personal automobiles or real estate of clients. This is fraught with the fact that at the slightest delay or underpayment, people lose their own cars and apartments. This is called a leaseback.
What is Leaseback?
In the case of conventional leasing, the leasing company buys the property with its own money or on credit and then rents it out to the entrepreneur. If an entrepreneur, due to financial difficulties, cannot make payments on time, he simply returns the transport or rented equipment or vacates the premises of another person.
In the case of a leaseback, you sell your property to a leasing company and simultaneously enter into a contract for it. That is, you receive a large amount of money and continue to use the same transportation, real estate, or equipment, but pay rent for it. And you can buy them back at the end of the lease term.
How to choose a leasing company?
- Choose an experienced company. Large banks and manufacturing companies have their own leasing companies.
- Read carefully the reviews of the companies that interest you. Perhaps your friends or colleagues have already worked with these companies and can share their experience.
- Ask the leasing company for the balance. Viewing is not always allowed, but it is worth a try.
- Choose a leasing company that specializes in the property you need.
- Find out from the representative of the leasing company which businesses you often work with: small or medium-sized, with legal entities or individual entrepreneurs. Perhaps the company focuses on certain industries, for example, agriculture or high technology. Choose the company that is most involved in the specifics of working with companies like yours.
With the right approach, leasing can be a good investment in your business – new equipment, transportation, or facilities will pay off and earn you money.