Buying a new car, a new property or the equipment necessary to set up your own business involves costs that not everyone can afford at once. A good solution in such a situation seems to be the use of a form of financing called leasing. What is leasing and what is worth knowing about it?
Leasing is a civil law contract between a lessor (lessor) and a lessee (lessee). In short, it is a form of financing in which the lessor purchases a fixed asset and then hands it over to the lessee for use.
The whole leasing process can be compared to a long-term rental or hire purchase - the lessee has the right to use the item in return for a monthly payment, regulated by the contract signed with the leasing company. The contract thus combines elements of a loan and a lease.
It is worth noting that throughout the leasing period, the leased item does not become the property of the lessee. At the end of the contract, the lessee may buy the leased object at a lower price than its current market value.
What is the lease for?
The term leasing is usually associated with the automotive industry. Nowadays, however, business people can lease real estate and most of the equipment necessary to develop their business. Increasingly, all kinds of production machinery, furniture and even computers or software are being financed in this way.
Types of leasing
When it comes to leasing for companies, the classic and at the same time most common form is that with a buy-out option. This means that at the end of the contract, the leased item becomes the property of the lessee. On the opposite side is leasing without a buy-out commonly known as long-term rental. Leasing is also available to individuals. This form of financing is called consumer leasing.
There are three varieties of leasing with buy-out:
- Leasing operacyjny
Also known as current leasing. Its form is similar to leasing. It is mainly associated with tax benefits, as the leased item is included in the fixed asset register of the lessee. When opting for an operating lease, the entrepreneur must pay an initial charge (initial rent) and then pay monthly instalments, which also include VAT.
- Leasing finansowy
In tax terms, financial leasing is more akin to credit. This form is treated as the delivery of goods, which involves paying VAT at rates appropriate to the leased item. When the last instalment is paid, the lessee becomes the full owner of the object.
- Leaseback
A sale-and-lease-back can occur in the form of both operating leases and finance leases. This process involves the leasing company buying back the asset from the entrepreneur and then leasing the item back to the entrepreneur. The purpose of such a procedure is to return the cash that the entrepreneur has invested in purchasing the item.
Who can benefit from leasing?
The eligibility for leasing depends primarily on the object leased. In the case of financing a car or van, it is sufficient to have a registered business in order to obtain a lease. However, those wishing to apply for leasing for machinery, office equipment or more expensive means of transport must demonstrate the necessary leasing capacity. The prerequisite for receiving financing therefore becomes that you have been in business for at least six months.
Many start-ups also opt for leasing. They can obtain financing even from the first day of business (leasing for new companies), but this very often involves a higher initial payment.
Leasing versus insurance
It is worth noting that any object that is leased must be fully insured. The cost of such insurance is usually included in the leasing instalment. When it comes to leasing a car, it is necessary to purchase AC. In the case of machinery or office equipment, the lessee must obtain property insurance against theft and any damage.
If damage is caused to a leased item during the entire financing period, the reporting of the insurance claim is exactly the same as for owned items. The only difference is the obligation to inform the leasing company of the entire incident, which, as the owner of the object in question, must agree to the payment of compensation.
In the event that the leased item is completely destroyed, the lease agreement expires and is immediately settled. In this situation, the lessee is still obliged to pay the remaining financing instalments.
Termination of a leasing contract
When deciding on a lease, it is important to realise that ending it early is not straightforward. Although it is possible to return the object to the lessor during the term of the contract, this is usually done under very unfavourable conditions. What is more, the leasing company does not always allow an early redemption of such an object. The best solution, therefore, is to pay all instalments in full and on time and then buy the item back at the end of the term.
