*What is leasing?

* 

In brief, leasing is a financial method used by

businesses to obtain equipment or assets with
little capital investment. More often than not,
leasing is the preferred financing option in
industry. The concept has been widely used in
Russia for over 10 years now. 

*FINANCE LEASING* - a leasing contract at the

expiry of which the asset is kept by the
customer (lessee).

*OPERATIONAL LEASING* - a leasing contract at

the expiry of which the customer returns the
asset to the lessor.

*LEASEBACK* - a transaction where an owner sells

an asset and leases it back as a way to secure
financing, meaning that the seller and the
lessee are one person.

*SUBLEASING* - a transaction that involves

leasing out equipment obtained under a leasing
contract. A customer who has leased equipment
becomes the lessor and leases out this equipment
to its own customers.
Merits of leasing
1. Leasing saves you the trouble of tying up
large amounts of capital to buy the required
asset.

 2. Lease payments are distributed in the most

convenient way for the lessee, in sync with the
period when the company starts profiting from
the leased asset that is generating a return on
investment.

 3. Leasing offers savings through tax

preferences (profit tax, VAT deduction, property
tax).

 4. Leasing offers the only possibility to apply

accelerated amortization with a coefficient of
up to 3. As a result, the balance-sheet value of
property decreases at 3 times the normal rate,
resulting in lower property tax.

 5. The repayment schedule (schedule of lease

payments) is highly flexible. The lessee makes
no payments until the leased asset is launched
into operation.

 6. The leased asset may be reflected on the

balance sheet of either the lessee or the
lessor. In the latter case, the lessee has a
chance to improve the structure of the balance
sheet by reflecting the leased asset in off—
balance sheet accounts (this is impossible with
credit or direct purchase).

 7. Also, if the leased asset is reflected on

the balance sheet of the leasing company, the
lessee has no need to reappraise the fixed
assets (in terms of the leased asset).

 8. At the expiry of the lease contract, the

lessee has a chance to receive title to the
leased asset at zero cost.

 9. As a rule, the lease contract is made for 3-

5 years, which roughly corresponds to the
payback period of the leased asset. If the
leased asset is equipment with a long payback
period, the lease contract may be prolonged to
5-6 years. Far from all lending institutions are
prepared to offer such terms.

 10. Securing funding via leasing is much

simpler, and collateral is required much less
frequently, because the leasing company will own
the asset until the expiry of the lease
contract.

 11. Thanks to its simplicity, affordability and

effectiveness, leasing enables lessees to keep
their production assets up to speed with the
modern market requirements, giving them
considerable competitive edge.