Leasing 

The term "lease" is used to refer to the renting of a moveable or unmoveable property when an option to purchase exists.

It is normally used to obtain long-term financing for the SME.

When the term established for the lease has expired, there are three possible options:

• The moveable or unmoveable property can be purchased by paying the "residual value".
• The lease can be renewed.
• The right to purchase is not exercised and the moveable or unmoveable property is handed back to the lessor.

Types

• Financial lease Theleasing company undertakes to deliver the property but is not responsible for maintenance or repairs. The client is obliged to pay the rent while the contract is valid and cannot cancel this without the consent of the other party. When the contract expires, the client may or may not exercise his/her option to purchase.
• Operational leasing: This occurs when property is leased for a period of time, and when the lessor has the right to revoke this at any moment once prior notice is given. Its main function is to facilitate the use of the property in question by providing maintenance and by substituting this as newer, more technologically advanced models appear.
• Lease-back: In this case, one party sells a property to a buyer and the buyer immediately leases the property back to the seller.

Advantages

The following are the most important aspects of leasing:

• The property can undergo accelerated depreciation to suit the company needs as opposed to strictly following Corporate Tax Law. This is especially useful for highly solvent companies and for those that use items subject to tremendous technological change, given that it is possible to adapt the financing period to the economic life of the property and so reduce the risk of technological obsolescence. Nevertheless, a regulation passed in June 1989, established minimum terms: for moveable property the minimum contract is two years; for immoveable property the minimum contract is ten years.
• Payments are deductible.
• Contrary to other sources of finance, with alease it is possible to obtain 100% financing.
• No initial payment is necessary, thus, the company's current assets are not affected.
• The economic profitability on fixed assets is maintained because the lease does not appear on the balance sheet, which means it does not modify the lessee's debt to equity ratio.
• There can be discounts for cash payment.
• Once the contract has expired, the property can be purchased by paying the residual value pre-established in the contract.
• The operation takes less time than when asking for a bank loan.

More information

• Spanish Association of Leasing Companies 

  Claudio Coello number 3 floor 3

  28001 Madrid

  Tel.: 0034 91 426 07 78

  Fax: 0034 91 578 29 92