Podcast
Questions and Answers
What is leasing primarily characterized by?
What is leasing primarily characterized by?
Which of the following is a type of leasing contract?
Which of the following is a type of leasing contract?
How does a sale-leaseback transaction benefit a company?
How does a sale-leaseback transaction benefit a company?
What can be considered a risk associated with lease financing?
What can be considered a risk associated with lease financing?
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What distinguishes lease contracts from rental contracts?
What distinguishes lease contracts from rental contracts?
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Which of the following best describes a financial leasing company?
Which of the following best describes a financial leasing company?
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What is a possible benefit of sale-leaseback for the seller/lessee?
What is a possible benefit of sale-leaseback for the seller/lessee?
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What is one way lease financing can benefit a business?
What is one way lease financing can benefit a business?
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Study Notes
Introduction to Leasing
- Leasing is a contract between a lessor (owner) and a lessee (user).
- It involves fixed assets (physical or intangible).
- Leases are for a specific period, with periodic payments.
- Leasing is a flexible, non-banking financial activity practiced by financial leasing companies.
- Leasing contracts differ from rental contracts as they give the lessee the right to buy, re-lease, or return the asset to the lessor.
- Two types of leasing contracts exist: financial and operating.
Sale-Leaseback
- A sale-leaseback is a transaction where an asset owner sells their asset and then leases it back from the buyer.
- The seller (now lessee) continues using the asset.
- The sale proceeds are used to fund operational capital.
- The rental payments cover the asset's use over time.
Benefits of Sale-Leaseback (Seller/Lessee)
- Immediate cash for raw materials, production inputs, and production continuation.
- Additional tax deductions.
- Expansion of the business.
- Reduced asset ownership risks and balance sheet volatility.
- Re-acquisition of the asset at the end of the agreement.
Benefits of Sale-Leaseback (Buyer/Lessor)
- Guaranteed lease payments.
- Return on investment (ROI).
- Stable income stream for a set period.
Selecting a Financial Leasing Company
- Contact potential companies for quotes.
- Compare offered lease terms based on pertinent factors.
- Assess the asset's cash price.
- Evaluate total rental payments and return rates.
- Consider maintenance, insurance, and other expenses.
Challenges and Risks of Lease Financing
- Limited ownership.
- Creditworthiness concerns.
- Hidden fees and charges.
- Asset depreciation.
- Restrictions on use.
- Early termination fees.
- End-of-lease costs.
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