The advantages of leasing
- No guarantees required; since the lessor retains ownership of the equipment, the equipment itself serves as guarantee;
- Easy assessment. Finalizing a leasing agreement is much easier and much simpler than granting a bank loan. There is no need to examine the customers financial history or the structure of its assets, the leasing company need only make sure that the customer has the capacity to generate enough liquid assets with the equipment on lease. The required documentation need not be too detailed and assessment can be handled fairly quickly.
- 100% financing. Banks usually require that their customers finance part of the investment with their own resources.
- Tax incentives. The tax system promotes leasing. As owner of the equipment, the lessor enters the totality of the leasing fees (capital and interest) as income but deducts the depreciation expense (amortization) for the asset, usually according to an accelerated schedule. The lessee declares the leasing charges and deducts them from his taxable income. The leasing term is generally shorter than the equipment’s economic life, so, as it turns out, the lessee “amortizes” the equipment faster than if he’d bought it. Both parties benefit from tax credits and overall tax deductions on an accelerated basis so that, as a result, the overall tax credits on the leasing are reduced.