Advantages of leasing
Let's consider the main advantages of a financial lease (leasing) in comparison with a loan:
- To purchase property in leasing it is not necessary to have a large amount of own funds. The amount should be sufficient to pay the advance.
- The schedule of leasing payments is convenient and flexible - it can be made taking into account the business characteristics of the Lessee (for example, the factor of seasonality is taken into account). Payment of leasing payments starts from the moment when the equipment is put into operation and can already bring additional income to the company.
- Leasing allows us to apply the mechanism of accelerated depreciation thereby reducing the property tax. Leasing property can be accounted for both on the balance sheet of the Lessor, as well as on the balance of the Lessee. In the case of an ordinary bank loan, tax incentives are not provided.
- Leasing reduces the profit tax. The lessee has the right to classify lease payments for expenses, thereby reducing the taxable base for income tax.
- In the case of leasing, all lease payments initially include VAT. The loan amount does not include VAT. But this tax is paid when purchasing the necessary equipment for credit.
- The time for consideration of the application for leasing and the number of claims to the Lessee is much less than when obtaining a loan. Leasing does not require collateral, since the leasing company is the owner of the leased property until the end of the leasing agreement.
- The average term of the leasing contract is 2 years, but if necessary it can be extended to 3 years.
- At leasing property passes to the ownership of the lessee on the basis of the fulfillment of the terms of the contract. With a loan, the property immediately becomes the property of the borrower, but, as a rule, it does not have the right to dispose of it until the loan is fully repaid.
Due to its efficiency, convenience and simplicity, leasing is the most optimal choice for developing companies, which gives them significant competitive advantages in the market.