Father
Professional
- Messages
- 2,602
- Reaction score
- 798
- Points
- 113
When an entrepreneur temporarily needs equipment or transport for his business, he can rent them. If you need them for a long time, it is usually more profitable to buy them, even if you have to take out a loan for this. But getting a loan is not so easy. In this situation, it is more convenient to use a service such as leasing. However, in this case, you need to carefully assess the possible benefits and risks.
John recently opened a hotel on the Black Sea coast. For business, he needs a minibus to meet guests from the airport. But now there is no money for a minibus. John can contact a special company that will buy a minibus for him and allow him to use it for a fee. The contract can be concluded for a long term - for example, for two to three years. And when this period comes to an end, John will already earn a little extra money and will be able to buy a minibus or simply return it.
The company that gives entrepreneurs such an opportunity is called leasing, and the service itself is called leasing.
A leasing company, at the request of a client, purchases the necessary transport, equipment or real estate, and then rents them out to the client for a specified period. At the same time, the entrepreneur has the opportunity at the end of the lease term to redeem this property and become its owner.
For a client, leasing is both a lease and an analogue of a targeted loan. The entrepreneur receives the property that he needs for the business and pays for it gradually, like a loan. At the same time, the terms of leasing are usually more flexible than those of a loan. For example, a leasing company can take into account the seasonality of your business and distribute payments in a way convenient for you.
For John, it is better if the amount of lease payments is higher in the height of the holiday season, when his profit is maximum, and lower in the off-season.
Who is leasing suitable for?
Individual entrepreneurs and legal entities who need special equipment, transport, real estate or business equipment.
Individuals also have the opportunity to arrange leasing - for example, if you need a car for personal purposes. But in this case, it is worthwhile to carefully compare the offers of leasing companies and the conditions for car loans in banks. Often a loan is more profitable, because VAT (20%) is charged on lease payments.
You cannot lease a land plot, a natural object (for example, a field or a lake) and property that belongs to the state and, according to the law, is not subject to free circulation (for example, buildings - cultural monuments). But farmers can lease cows and horses.
Leasing is not very readily approved by companies that have existed for less than a year: there is a great risk that the business will stall and the entrepreneur will not be able to pay. And yet a leasing company is more likely to enter into a deal with a novice businessman than a bank. If the client does not fulfill her obligations, she will simply take the property from him, which remains in her ownership. And then it is easier for her than for a bank to find a new use for this transport or equipment.
For more information on popular reasons why lenders do not lend to small and medium-sized businesses, see the article "Why banks refuse credit to entrepreneurs".
Is there a preferential lease for small businesses?
Yes, there are government programs for preferential leasing.
SME Corporation Program
Interest rates under this program for small and micro enterprises are low: 6% for equipment and 8% for foreign equipment. At the same time, entrepreneurs themselves can choose equipment and its supplier, as well as a convenient payment schedule.
But it is not possible to use preferential leasing under the SME Corporation program in all cases:
Ministry of Industry and Trade programs
The Ministry of Industry and Trade has separate concessional leasing programs for different types of transport. You can use them through the companies - partners of the Industrial Development Fund.
You can study support measures in more detail in the navigator on the website of the Ministry of Industry and Trade.
Maybe it's better to take a loan?
Not always. Getting a business loan can be quite difficult. It will also not work to issue a consumer loan - the law "On consumer credit" prohibits taking such a loan for entrepreneurial activity.
If you take out a consumer loan and spend it on starting your own business, the bank may find out about this and terminate the contract. In this case, you will have to return the full amount ahead of time.
Leasing property is usually much easier. Leasing companies' requirements for entrepreneurs are not as strict as those of banks. The terms of the lease agreement (lease term and payment schedule) are usually more flexible than the terms of the loan agreement. In addition, non-residential premises can be leased. It is much easier than taking out a real estate loan. But these are not all the advantages of leasing.
Leasing advantages
Leasing has many advantages over a loan.
How to draw up a lease agreement?
Leasing something is relatively easy. Usually leasing companies require a small list of documents:
After that, the leasing company will sign a contract with you. Now you will need to make an initial payment - an advance payment for the property.
After making an advance payment, equipment, transport or real estate will be purchased for you and transferred to you. But don't forget to make your lease payments on time.
What to look for when signing a contract?
The main document that a leasing company must sign with you is a leasing agreement. Often additional contracts go with it - for example, an insurance contract, guarantees or sureties. It all depends on what kind of property you are taking and on what terms. In any case, when you enter into a deal with a leasing company, discuss the details:
If you violate the terms of the contract, you may face fines and additional costs. This risk can be protected by voluntary liability insurance.
After you sign the agreement with the leasing company, you should have the following documents in your hands:
When the contract is signed, the leasing company is obliged to:
How do I pay for the lease?
Lease payments are made in several stages:
Sometimes you can pay for leasing with products. For example, if you lease field equipment, the leasing company may agree to accept payment in grain from you. In this case, the price of grain is specified in the contract.
Regular payments are:
What happens if the payment is not made on time or the equipment is not returned?
If you do not make regular payments, the leasing company will terminate the contract with you and take the property. Moreover, all the costs of dismantling and transportation will be borne by you.
Until you buy out the property, it belongs to the leasing company.
But that's not all. According to the law, if you do not pay twice or are late in payment, the leasing company has the right to write off the amount of your debt from the account from which you previously paid for the lease. You can dispute such a write-off of money only through court.
If under the contract you were not going to buy out the property, but took it for a while and did not return it on time, then you will have to pay a forfeit. The leasing company may have their own plans for this property - for example, transfer it to another entrepreneur. And if, because of you, the company violates another contract and pays a fine for this, you will have to reimburse these costs in addition to the forfeit.
Leasing has other pitfalls as well.
Leasing risks
Even if you make payments on time, unpleasant surprises may await you.
Confiscation of property
Some leasing companies may confiscate property even if you pay your bills regularly. This can happen if you violate other important terms of the contract. For example, you travel by leased transport outside the specified region or do not follow the rules for operating the equipment, which may lead to its breakdown or faster wear and tear. Therefore, you need to carefully study all the clauses of the agreement before signing it.
If you think that you have not violated anything and that the leased property was taken away from you is unlawful, you can challenge the company's actions in court.
Refusal to buy out property
Even if you have specified in the agreement that at the end of the lease term you will buy out the property, an unscrupulous leasing company may refuse to give it up or delay the transfer of rights to equipment, transport or real estate.
In such a situation, you can demand through the court to transfer you the property, all the necessary documents and compensate for the losses incurred.
Loss of own property
Unscrupulous companies, under the guise of leasing, offer loans to entrepreneurs and ordinary consumers secured by personal cars or real estate of clients. This is fraught with the fact that at the slightest delay or underpayment, people lose their own cars and apartments. This is called leaseback.
Leasing back is a legal practice in itself. Owners of industrial equipment, ships, aircraft and trains often work with leasing companies in this way.
But recently, firms have appeared that use reverse leasing in order to issue loans to individuals and individual entrepreneurs without a license and without the control of the Bank.
What is Leaseback?
In the case of conventional leasing, the leasing company buys the property using its own or credit money, and then leases it to the entrepreneur. If a businessman, due to financial difficulties, cannot make payments on time, he simply returns the rented transport or equipment or vacates someone else's premises.
In the case of a leaseback, you sell your own property to a leasing company and at the same time enter into a lease agreement for it. That is, you receive a large amount of money and continue to use the same transport, real estate or equipment, but pay rent for them. And you can buy them back at the end of the lease term.
Such a scheme does not violate the leasing law. But some companies are just trying to get around the consumer credit law in this way. Entrepreneurs and consumers are convinced that this is an easy way to get money when they can't get a loan or a loan. At the same time, they assure that no additional risks arise.
Why leasing back can be dangerous?
The amount of fines and penalties that banks, MFIs and CCPs may require in the event of late payments are limited by law. There are no such restrictions for leasing. Therefore, some companies impose draconian fines - for example, the forfeit for each day of delay can be 5% of the loan amount. That is, in case of a delay of 10 days, the client will have to pay a penalty equal to half of the loan.
At the same time, companies that lend to individuals under the guise of reverse leasing are trying to buy out the client's car or real estate at a reduced price. They assure that it is more profitable for a person - after all, in this case, the amount of lease payments will be lower. And at the end of the lease term, it will be easier for the client to buy back his property.
But in reality, everything is not so simple. The company can prescribe in the contract that it has the right to terminate the contract and take the property if the client is late in payment even for a couple of days. At the same time, unscrupulous companies may specifically omit mandatory additional costs in the payment schedule. For example, do not include the cost of insurance. And if the client does not pay for it, this may become a reason for terminating the contract. As a result, a person loses the opportunity to buy his property back at the same low price at which he sold it to the leasing company.
How scammers can hide behind a leasing scheme to cash in on gullible people, see this video:
All these risks usually arise if you enter into an agreement with a company that is only hiding behind a leasing scheme in order to cash in on gullible people. Now you do not need to obtain a special license in order to engage in leasing. Therefore, all responsibility for choosing a reliable partner falls on you.
How to choose a leasing company?
Leasing instructions[
Choose a reliable leasing company. Read reviews, talk to a company representative and its customers, see the company's place in the industry ranking.
Read the contract carefully. Before signing the contract, discuss all of its points: the amount and schedule of payments, terms of redemption or return, insurance, interest and penalties in case of delay in payment or late return of property.
Follow the terms of the contract. Carefully study all the requirements of the leasing company. For example, it may turn out that you cannot drive out of the city by a leased car. Or the machine only needs to run a certain number of hours a day. If you violate these terms, the company may take your property from you.
Follow the payout schedule. If you are late in payments twice, the leasing company can terminate the contract and take back the property that was leased to you.
With the right approach, leasing can be a good investment in your business - new equipment, transport or premises will pay for itself and allow you to earn money.
John recently opened a hotel on the Black Sea coast. For business, he needs a minibus to meet guests from the airport. But now there is no money for a minibus. John can contact a special company that will buy a minibus for him and allow him to use it for a fee. The contract can be concluded for a long term - for example, for two to three years. And when this period comes to an end, John will already earn a little extra money and will be able to buy a minibus or simply return it.
The company that gives entrepreneurs such an opportunity is called leasing, and the service itself is called leasing.
A leasing company, at the request of a client, purchases the necessary transport, equipment or real estate, and then rents them out to the client for a specified period. At the same time, the entrepreneur has the opportunity at the end of the lease term to redeem this property and become its owner.
For a client, leasing is both a lease and an analogue of a targeted loan. The entrepreneur receives the property that he needs for the business and pays for it gradually, like a loan. At the same time, the terms of leasing are usually more flexible than those of a loan. For example, a leasing company can take into account the seasonality of your business and distribute payments in a way convenient for you.
For John, it is better if the amount of lease payments is higher in the height of the holiday season, when his profit is maximum, and lower in the off-season.
Who is leasing suitable for?
Individual entrepreneurs and legal entities who need special equipment, transport, real estate or business equipment.
Individuals also have the opportunity to arrange leasing - for example, if you need a car for personal purposes. But in this case, it is worthwhile to carefully compare the offers of leasing companies and the conditions for car loans in banks. Often a loan is more profitable, because VAT (20%) is charged on lease payments.
You cannot lease a land plot, a natural object (for example, a field or a lake) and property that belongs to the state and, according to the law, is not subject to free circulation (for example, buildings - cultural monuments). But farmers can lease cows and horses.
Leasing is not very readily approved by companies that have existed for less than a year: there is a great risk that the business will stall and the entrepreneur will not be able to pay. And yet a leasing company is more likely to enter into a deal with a novice businessman than a bank. If the client does not fulfill her obligations, she will simply take the property from him, which remains in her ownership. And then it is easier for her than for a bank to find a new use for this transport or equipment.
For more information on popular reasons why lenders do not lend to small and medium-sized businesses, see the article "Why banks refuse credit to entrepreneurs".
Is there a preferential lease for small businesses?
Yes, there are government programs for preferential leasing.
SME Corporation Program
Interest rates under this program for small and micro enterprises are low: 6% for equipment and 8% for foreign equipment. At the same time, entrepreneurs themselves can choose equipment and its supplier, as well as a convenient payment schedule.
But it is not possible to use preferential leasing under the SME Corporation program in all cases:
- It is available only to representatives of priority industries and companies from certain regions .
- You cannot take equipment for trade and transport.
- The agreement can only be concluded with one of the subsidiary leasing companies of the SME Corporation.
Ministry of Industry and Trade programs
The Ministry of Industry and Trade has separate concessional leasing programs for different types of transport. You can use them through the companies - partners of the Industrial Development Fund.
You can study support measures in more detail in the navigator on the website of the Ministry of Industry and Trade.
Maybe it's better to take a loan?
Not always. Getting a business loan can be quite difficult. It will also not work to issue a consumer loan - the law "On consumer credit" prohibits taking such a loan for entrepreneurial activity.
If you take out a consumer loan and spend it on starting your own business, the bank may find out about this and terminate the contract. In this case, you will have to return the full amount ahead of time.
Leasing property is usually much easier. Leasing companies' requirements for entrepreneurs are not as strict as those of banks. The terms of the lease agreement (lease term and payment schedule) are usually more flexible than the terms of the loan agreement. In addition, non-residential premises can be leased. It is much easier than taking out a real estate loan. But these are not all the advantages of leasing.
Leasing advantages
Leasing has many advantages over a loan.
- No deposit required. The equipment itself, transport or real estate is the guarantee that you will regularly pay the leasing company. Otherwise, the rented property will be taken away from you.
- You will save on income tax. Profits, that is, the difference between your income and your expenses, are taxed. If you have leased the property, then you can save on this tax. Lease payments are recorded in the accounting documents as expenses, as well as depreciation of equipment, which means they reduce your tax base.
- The property can be cheaper. Leasing companies are often purchased in bulk, so they can purchase the goods you need at great discounts. Thanks to this, you can gradually redeem vehicles or equipment from a leasing company for a lower amount than if you took out a loan and bought them yourself.
- You don't have to think about the delivery and installation of equipment. The leasing company can take care of all the transportation. If you need foreign equipment, it will greatly save your efforts: delivery from abroad, customs clearance, registration, delivery to your company and even installation can be done by a leasing company.
How to draw up a lease agreement?
Leasing something is relatively easy. Usually leasing companies require a small list of documents:
- application - in it you will indicate what equipment, transport or real estate you want to lease, its desired price, technical characteristics, as well as the address and details of the seller, if you have already chosen it;
- your company's balance sheet for the last quarter or year;
- notarized copies of constituent documents;
- business plan.
After that, the leasing company will sign a contract with you. Now you will need to make an initial payment - an advance payment for the property.
After making an advance payment, equipment, transport or real estate will be purchased for you and transferred to you. But don't forget to make your lease payments on time.
What to look for when signing a contract?
The main document that a leasing company must sign with you is a leasing agreement. Often additional contracts go with it - for example, an insurance contract, guarantees or sureties. It all depends on what kind of property you are taking and on what terms. In any case, when you enter into a deal with a leasing company, discuss the details:
- Record the requirements for the quality of equipment or transport, its configuration and delivery time to you;
- specify what conditions will be considered a violation of the contract (in which case the leasing company can break off relations and take your property from you);
- if you do not plan to buy out the property, discuss with the leasing company its acceptable wear and tear; you are legally required to return equipment or vehicles in working order, subject to "normal" wear and tear;
- negotiate insurance.
If you violate the terms of the contract, you may face fines and additional costs. This risk can be protected by voluntary liability insurance.
After you sign the agreement with the leasing company, you should have the following documents in your hands:
- leasing agreement;
- the act of acceptance and transfer of property between you and the leasing company;
- sale and purchase agreement between the seller of the property and the leasing company;
- an annex to the purchase and sale agreement, which indicates the name of the equipment or transport, their equipment and characteristics or a description of the property;
- technical certificate.
When the contract is signed, the leasing company is obliged to:
- enter information on the conclusion of the agreement in the Unified Federal Register (section "Concessions"). The register must indicate the date of the conclusion of the contract, its number, start and end dates of the lease. Check if the name of the leasing company and your details are correct;
- transfer the property to you in the condition specified in the contract. From this moment on, you have to carry out maintenance of equipment or vehicles at your own expense and repair them, if there are no other conditions in the lease agreement;
- give documents for the property (for example, a technical passport), as well as spare or additional parts, if they come with the equipment.
How do I pay for the lease?
Lease payments are made in several stages:
- An initial fee. Usually it is 20-30% of the property value. But for the most running equipment (for example, popular car brands), the initial payment may be lower - 5-10% of the price.
- Regular payments - usually monthly or quarterly.
- Property redemption payment.
Sometimes you can pay for leasing with products. For example, if you lease field equipment, the leasing company may agree to accept payment in grain from you. In this case, the price of grain is specified in the contract.
Regular payments are:
- annuity - you pay the same amount throughout the entire term of the contract;
- regressive - in the first months you pay more, then the amount of contributions gradually decreases. This is, in fact, a way to redistribute the debt burden.
What happens if the payment is not made on time or the equipment is not returned?
If you do not make regular payments, the leasing company will terminate the contract with you and take the property. Moreover, all the costs of dismantling and transportation will be borne by you.
Until you buy out the property, it belongs to the leasing company.
But that's not all. According to the law, if you do not pay twice or are late in payment, the leasing company has the right to write off the amount of your debt from the account from which you previously paid for the lease. You can dispute such a write-off of money only through court.
If under the contract you were not going to buy out the property, but took it for a while and did not return it on time, then you will have to pay a forfeit. The leasing company may have their own plans for this property - for example, transfer it to another entrepreneur. And if, because of you, the company violates another contract and pays a fine for this, you will have to reimburse these costs in addition to the forfeit.
Leasing has other pitfalls as well.
Leasing risks
Even if you make payments on time, unpleasant surprises may await you.
Confiscation of property
Some leasing companies may confiscate property even if you pay your bills regularly. This can happen if you violate other important terms of the contract. For example, you travel by leased transport outside the specified region or do not follow the rules for operating the equipment, which may lead to its breakdown or faster wear and tear. Therefore, you need to carefully study all the clauses of the agreement before signing it.
If you think that you have not violated anything and that the leased property was taken away from you is unlawful, you can challenge the company's actions in court.
Refusal to buy out property
Even if you have specified in the agreement that at the end of the lease term you will buy out the property, an unscrupulous leasing company may refuse to give it up or delay the transfer of rights to equipment, transport or real estate.
In such a situation, you can demand through the court to transfer you the property, all the necessary documents and compensate for the losses incurred.
Loss of own property
Unscrupulous companies, under the guise of leasing, offer loans to entrepreneurs and ordinary consumers secured by personal cars or real estate of clients. This is fraught with the fact that at the slightest delay or underpayment, people lose their own cars and apartments. This is called leaseback.
Leasing back is a legal practice in itself. Owners of industrial equipment, ships, aircraft and trains often work with leasing companies in this way.
But recently, firms have appeared that use reverse leasing in order to issue loans to individuals and individual entrepreneurs without a license and without the control of the Bank.
What is Leaseback?
In the case of conventional leasing, the leasing company buys the property using its own or credit money, and then leases it to the entrepreneur. If a businessman, due to financial difficulties, cannot make payments on time, he simply returns the rented transport or equipment or vacates someone else's premises.
In the case of a leaseback, you sell your own property to a leasing company and at the same time enter into a lease agreement for it. That is, you receive a large amount of money and continue to use the same transport, real estate or equipment, but pay rent for them. And you can buy them back at the end of the lease term.
Such a scheme does not violate the leasing law. But some companies are just trying to get around the consumer credit law in this way. Entrepreneurs and consumers are convinced that this is an easy way to get money when they can't get a loan or a loan. At the same time, they assure that no additional risks arise.
Why leasing back can be dangerous?
The amount of fines and penalties that banks, MFIs and CCPs may require in the event of late payments are limited by law. There are no such restrictions for leasing. Therefore, some companies impose draconian fines - for example, the forfeit for each day of delay can be 5% of the loan amount. That is, in case of a delay of 10 days, the client will have to pay a penalty equal to half of the loan.
At the same time, companies that lend to individuals under the guise of reverse leasing are trying to buy out the client's car or real estate at a reduced price. They assure that it is more profitable for a person - after all, in this case, the amount of lease payments will be lower. And at the end of the lease term, it will be easier for the client to buy back his property.
But in reality, everything is not so simple. The company can prescribe in the contract that it has the right to terminate the contract and take the property if the client is late in payment even for a couple of days. At the same time, unscrupulous companies may specifically omit mandatory additional costs in the payment schedule. For example, do not include the cost of insurance. And if the client does not pay for it, this may become a reason for terminating the contract. As a result, a person loses the opportunity to buy his property back at the same low price at which he sold it to the leasing company.
How scammers can hide behind a leasing scheme to cash in on gullible people, see this video:
All these risks usually arise if you enter into an agreement with a company that is only hiding behind a leasing scheme in order to cash in on gullible people. Now you do not need to obtain a special license in order to engage in leasing. Therefore, all responsibility for choosing a reliable partner falls on you.
How to choose a leasing company?
- Choose a company with experience. Many large banks and manufacturing enterprises have their own leasing companies. Study their suggestions.
- Contact organizations that do not hide information about themselves - they publish financial statements and information about management on their website.
- Search industry rankings for the company. Comparison of leasing companies is regularly carried out by the Expert RA agency and periodically by ]the National Rating Agency and National Credit Ratings. Pay attention to your credit rating as well. Leasing companies are not required to receive it. But if there is a rating and it is high (with the letters A and B), this indicates the financial stability of the organization.
- Carefully read the reviews of the companies that interest you. Perhaps your friends or colleagues have already worked with these companies and can share their experience.
- Ask the leasing company for the balance sheet. It is not always allowed to see, but it's worth a try. The balance will help to understand where the company has money from: whether it takes loans from banks, issues bonds, or the founders invest their own money in its capital. A company with different funding sources is safer than one.
- Choose a leasing company that specializes in the property you need - for example, cars. When a company has established contacts with car manufacturers and dealers, it will most likely be easier, safer and more profitable to work with it.
- Find out from the representative of the leasing company which business it often works with - small or medium-sized, with legal entities or individual entrepreneurs. Maybe the company focuses on certain industries - for example, agriculture or high technology. Choose the company that is deeply immersed in the specifics of working with enterprises like yours.
Leasing instructions[
Choose a reliable leasing company. Read reviews, talk to a company representative and its customers, see the company's place in the industry ranking.
Read the contract carefully. Before signing the contract, discuss all of its points: the amount and schedule of payments, terms of redemption or return, insurance, interest and penalties in case of delay in payment or late return of property.
Follow the terms of the contract. Carefully study all the requirements of the leasing company. For example, it may turn out that you cannot drive out of the city by a leased car. Or the machine only needs to run a certain number of hours a day. If you violate these terms, the company may take your property from you.
Follow the payout schedule. If you are late in payments twice, the leasing company can terminate the contract and take back the property that was leased to you.
With the right approach, leasing can be a good investment in your business - new equipment, transport or premises will pay for itself and allow you to earn money.