Advantages and disadvantages of leasing

Leasing has several advantages compared with other forms of financing. Here is a list of the visible advantages described in the literature, which can get the subjects of leasing relations.

Advantages of leasing for tenants:

- Lease requires 100 percent financing and does not require rapid return of all payments;

- Provides funding for tenant rent in strict accordance with the requirements in funded assets. This is particularly beneficial to small borrowers, which is simply impossible for such a convenient and flexible financing through loans or revolving credit, which receive more reputable companies. Lease agreement can be designed with the specific features of the tenants;

- Many tenants have long-term plans for the implementation of their financial capabilities which are largely limited. Leasing allows you to overcome these limitations and thus contributes to greater mobility in investment and financial planning;

- For leasing on the acquisition and financing of assets is solved simultaneously;

- Acquisition of assets through leasing performs the "golden rule of financing," according to which funding should be available during the life of the asset. If you're buying an asset used borrowed capital, it usually requires more rapid repayment of a loan than the life of the asset;

- Leasing tenant more flexibility in decision making. At the time, both for purchase only alternative exists "not to buy" at leasing tenant has a wider selection. Of leasing contracts with various conditions the tenant can choose the one that best meets their needs and capabilities;

- In view of the fact that the lease payments are made on a fixed schedule , the tenant has more opportunities to coordinate financing costs of capital investments and proceeds from the sale of products , thus providing a more stable financial plans than is the case for the purchase of equipment;

- In view of the fact that part of the security for the repayment of invested funds is considered the object of leasing, which is the property of the lessor, it is easier to get a contract for leasing than alternative him a loan for the purchase of the same assets;

- When using a lease, the tenant can use more production capacity than purchasing the same asset. Temporarily freed financial resources lessee can use for other purposes;

- So long as the lease is a means of product sales to production, government policies tend to focus on the promotion and expansion of leasing operations;

- In the case of low returns last tenant can use Leaseback, enabling them to receive preferential tax treatment of profits;

- Leasing allows the tenant who does not have sufficient financial resources to start a major project;

- The possibility of obtaining high resale value of the leased at the end of the contract is, in many cases decisive for the adoption of the lease tenants.

In addition to the above, the tenant has a number of advantages in the accounting of the leased property. Among them:

- Lease payments paid by the lessee are accounted for in the cost of it, it has the means to pay them formed before the formation of the taxable income;

- Leasing does not increase the debt on the balance sheet and the tenant does not affect the relations of equity and debt, ie the possibility of the lessee to obtain additional debt is not reduced;

- Recognition and depreciation of leased assets is made on the lessor's balance sheet. Lease term, generally corresponds to the period of the leased asset depreciation, but the term of the leasing contract is usually lower. The longer the lease, and the lower the value of the property, the freer the operating conditions of the property and its further use.

Advantages of leasing leasing companies:

- Ownership of leased property offers significant tax benefits. Companies with high levels of taxable income do not take part of the tax benefits tenants tax haven profits through lower rental rate than the interest on the loan for the purchase of the same property;

- Because of leased property remains the property of the lessor, the latter may use the property for non-production purposes (for example, as an additional security for the repayment of credit);

- High resale value after accelerated depreciation leasing object. Return it after the implementation of the leasing object can bring a large enough profit;
- Helping to sell the leased asset seller by the lessor. In accordance with such agreements on behalf of the seller lessor offers customers financing the supply of its products by means of leasing;

- Investments in the form of property, unlike monetary credit, reduce the risk of non-repayment of funds, as the lessor retains ownership of the leased property;

- The main role in the preparation and conduct leasing operations remains with the lessor. The cost of these services takes no small share of the commission of the lessor;

- The lessor has the opportunity to seek additional financial resources for the continuation and expansion, laying of leased property or giving the right to claim the lease payments;

- Leasing directs financial resources directly to the acquisition of tangible assets, thereby removing the problem of non-targeted use of credit;

- Investment in production equipment through leasing income generation guarantees covering lease obligations.

Benefits of Leasing for the seller of the leased property:

- The leased asset seller receives additional opportunities to market their products;

- Transaction for the seller looks less risky, as the lessor assumes the risk of the return value of the property through lease payments.

For banks involved in leasing transactions, the following advantages:

- First, as indicated by the banks - is significant tax advantages, which can significantly reduce the cost of the transaction. This factor contributed to the development of leasing in Western countries. Lower cost transaction enables to increase the probability of project implementation and reduces the burden of debt for borrowers, and as a result, increases the quality of the loans;

- Second advantage, operating in Russia at the moment, is that legislation insufficiently elaborated to a procedure adopted by foreclosure of the security is not turned into a baffling process that takes a long time and sometimes end up not bringing a full sense of confidence in a positive result. Leasing, in part, can resolve this issue, because the lender retains ownership of the software. Opportunity to strengthen the bank's right to repossession of collateral should lead to a qualitative improvement of the loan and make a greater number of viable investment projects;

- Leasing of equipment manufactured abroad will attract cheaper funds from foreign financial institutions or monetary fund’s states interested in exporting its industry in Kazakhstan;

- Leasing - a relatively new type of financing for our country, contributing organizations (bank customers) to implement the reorganization of production, without diverting resources from large cash working capital;

- The bank's ability to achieve a higher degree of liquidity of the loan portfolio.
Along with the above benefits, leasing has significant drawbacks, manifested in the financial sphere and unresolved accounting issues. Long-term loan from leasing its increased complexity of the organization, which is a larger number of participants.

Tenant leases can carry a number of disadvantages, such as:

- In financial leasing lease payments do not stop until the end of the contract, even if the scientific and technological progress makes obsolete leased property;

- The tenant does not win on increasing the residual value of the equipment;

- Return international leasing, built on a tax basis, the country turns into a loss for the lessor;

- At international multi leasing transactions are no complete guarantee against currency risk (the problem is transferred from one party to the other).
Simple enumeration of visible advantages and disadvantages of leasing enough to suggest that he (leasing) can be an effective form of investment.

Conclusion

Leasing in Kazakhstan - a relatively new activity. To encourage investment in the manufacturing sector, to upgrade the industrial building for improving the competitiveness of domestic producers of our country needs to develop leasing relationship. But you need to create the appropriate conditions. The experience of other advanced countries, it pays close attention to: legislation, tax incentives, etc.

In the general sense, leasing is the kind of investment activity, this extension not only functioning, but also the advanced capital of the country. It should also be emphasized that leasing is not a cheap substitute for the loan. There are certain advantages of equipment financing fixed assets, but lending skills and evaluation of financial flows is just as critical as in the unsecured loan. In other words, the main attraction is lost for lessees, consisting in to start a business without sufficient funds, but with a highly efficient design, as leasing and banks require collateral (to the leasing transaction may be of value for the project, but do not have the liquidity to the extent to cover the costs of the bank). Leasing has many species, according to the Law "On financial rent (leasing)" basic forms of leasing are domestic and international leasing. For financial and industrial leasing firms - it is cost-effective form of delivery of machine- technical equipment for rent. Leasing provides a high level of profits due to the high technology user manual payment. In view of the established settlement increased depreciation rates facilities, lease, leasing firms invested capital to purchase them back to the investor in the first years of the contract. On the other hand the government introduced tax relief on profits derived leasing companies: tax withdrawn from the part attributable to depreciation. For users of technology leasing is a tool prompt replacement of productive assets due to the acquisition of operating sophisticated and expensive machines without major non-recurring costs. It has a special importance for small and medium-sized firms.

In addition, by means of leasing warned obsolescence operational art. All this becomes an important factor in successful competitive performance of firms in the market. State financial incentives for leasing is a means to stimulate sales of new equipment, prompting leasing firms to increase investment in these operations, and company - user - for constant renewal of production assets. All this makes leasing tool intensive development of the national economy and improve its competitiveness in the world market. Leasing as an effective mechanism for management of industrial decline and revitalization of the investment process in the economy, can greatly affect the development of small and medium enterprises in the Republic of Kazakhstan, and in particular on the development of farming, as it is unable to buy modern equipment because of their low purchasing power. Leasing can be a great help in the further development of private business, and improve business efficiency in production. Kazakhstan must consider international experience, the experience of the developed Western countries to avoid their mistakes and make sure that such a thing as a fictitious leasing in Russia itself did not show. Of course, this is a difficult goal - to take on the lease "all good", while leaving the negative aspects of leasing "overboard." But the goal will pay for itself, given the thrust of Kazakhstan entrepreneurs to seek loopholes breaking tax laws. And then you can say with full confidence that leasing gradually in our country will increase its momentum and will play an increasingly important role in the Kazakhstan economy

References

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