Leasing as one of the forms of entrepreneurship is an investment of capital in the purchase of tangible assets with further transfer to another person for profit. The service is related to lending and leasing relations with the advantages and disadvantages of leasing in relation to the mentioned forms of financial practice.
Functions of Leasing Relations
The general functions of leasing relations are determined from several types of interaction that develop between all parties to the long-term lease agreement with the future transfer of property rights.
The financial function is expressed in the tangible form of lending to the tenant - in the provision of special equipment, automobiles, land, any other asset.
The production function concerns firms that solve problems through the temporary operation of equipment provided on a rental basis. At the same time, there is no need to purchase expensive equipment, and leasing with a full service includes the supply of labor and raw materials, insurance and maintenance.
The sales function is an expansion of the leasing market. Large companies and small entrepreneurs, individuals are involved in leasing. Car leasing was widespread, the pros and cons of which are obvious - owning a car with a rental payment before the time when the amount of payments covers its cost.
The function of obtaining benefits is to reduce taxable profits by transferring payments to the cost of goods and the absence of them on the user's balance.
Types and forms of leasing operations
The composition of participants in leasing relations, the volume of services, the nature of payments and the market sector determine their classification. The owner, who leases his property, carries out direct leasing, and the intermediary between the seller and the buyer - indirect. Leasing is clean when the tenant assumes responsibility for servicing the goods entrusted to him, and with a range of services when the lessor is responsible for the service.
Financial services are provided both in the domestic and international markets, forming the conformity of forms. Payments are paid in monetary terms or products manufactured on leased equipment, while the combination is a mixed lease. Advantages and disadvantages of the compensation form of the equipment cost return are in the preservation of cash, but the loss of goods given for the cost of production.
The benefits of leasing for tenants
Briefly, the advantages and disadvantages of leasing are interpreted as the free temporary operation of fixed assets or goods with the gradual payment of their value in the absence of rights to material assets received. The advantage of this form of financial services is a partial payment for the purchased property, followed by its long-term lease, at the end of which the lessee becomes the owner of the contract object.
The goods are land, cars, real estate, special machinery and equipment - all that have a high cost. The duration of the contract is several years, the higher the price - the longer the rental.
The lessee is individuals and businessmen, depending on the purchased goods and the features of the transaction. The advantages, as well as the disadvantages of leasing a car or apartment, are interesting to an individual, and a businessman with a prospect of buying out expensive factory equipment is interesting.
Disadvantages of leasing for tenants
The leasing form for the purchase of assets or property is not ideal. Often, the legislative acts governing such financial services in part or containing inaccuracies are to blame. In particular, work with non-profit organizations acting as a tenant on a charitable basis is limited, although the owner of the property is able to profit from such transactions.
The disadvantages of leasing, as well as the advantages, affect the activities of both parties. The delay in VAT refunds from budget funds hinders the rapid growth of the leasing company's profit and helps to reduce the number of its assets. This slows down the development of the market, exerting a direct impact on small business, progressing due to small but constant investments.
Car leasing for individuals
The Russian car leasing market is mainly interesting for entrepreneurs who buy trucks and special equipment, which cannot be borrowed with a conventional loan. But the financial services market is developing rapidly, opening up wide opportunities for obtaining goods in other ways than classic banking offers. For individuals, this segment is interesting in the absence of a down payment when renting a vehicle, which cannot be said about a bank loan for a car. Even if there is one, the total cost of all expenses for the purchase and operation of a car is less in the first case, and this is not all the pros and cons of leasing a car.
Advantages of car leasing over credit
Compared to car loans, leasing has several advantages. An important plus is the total reduction in the size of payments and additional costs. The owner of the vehicle for the entire lease term is the lessor, who buys the expensive CASCO policy, although in general the responsibility for safety is transferred to the lessee. It is impossible to get a car loan at a bank without buying insurance. A loan is also issued at a larger percentage, but the salvage value of the car on lease is high and amounts to 80%.
When drawing up the agreement, the lessee receives a car registered with the traffic police, and if necessary, returns it to the owner and selects a new one. On the road, in case of unforeseen situations, the tenant receives maintenance from partners of the leasing company.
An entrepreneur gets a big profit, and the pros and cons of leasing are more noticeable in comparison with services for individuals. Buying special equipment is not possible due to a bank loan due to the lack of such programs. Leasing allows you to purchase trailers, combines, tractors, trucks to expand the business with a delay in debt, directing the released funds to increase the profitability of the enterprise. Such a scheme for the purchase of equipment is characteristic of a company with a small start-up capital and starting a large project.
Disadvantages of car leasing
The purchase of a CASCO and the associated costs of acquiring a car are the undoubted advantages of a leasing car, and the disadvantages of such a financial scheme are not obvious. The cost of servicing a car under an affiliate program, evacuation, insurance and registration of a vehicle are included in the resulting leasing amount, being hidden payments. Penalties for violations are paid by the client, but they come to the owner. Unpaid penalty is deducted from the monthly installment.
Recommendations for choosing a leasing company
When choosing a company, it is important to pay attention to several things. First of all, this is the initial cost of the goods - the less the better. Operating expenses are estimated before renting property. In some cases, they turn out to be great, so it is logical to choose a company that provides leasing with a range of services. An important parameter is the liquidation value, due to which you can return part of the money spent at the end of the contract. It is calculated empirically after studying the sales market of the selected category of used goods.
Various leasing organizations add additional services paid by the tenant to the agreement. Their quantity and cost vary. To agree on additional services should be if the tenant is not able to ensure the normal operation of the leasing facility on their own. You need to pay attention to the terms of the agreement, marked with asterisks and having footnotes. You always need to remember the advantages and disadvantages of leasing , sometimes obtaining a loan is easier and more profitable. In particular, this applies to cases where a bank offer implies a lack of down payment or income statement.
Leasing Market Problems
The main problem of the leasing market is real estate. Demand for rental apartments is high. This gives rise to a proposal, but the legislative framework does not fully interpret this service. The missing procedure for registration of property rights to real estate during leasing is a defect that requires correction. The tax authorities also do not leave tenants alone, disputing the accounting procedure. Leasing is granted to persons with a clean financial history, a tarnished reputation will become a stumbling block when applying.