Lease vs Loan

Lease vs Loan

Today leasing is one of the most effective ways to invest in equipment and production development and assets acquired under leasing contract - more profitable investment form in comparison with direct purchase and purchase or loan. Leasing allows you to save up to 15 %.

Leasing combines loan and rent. It assists to save working capital as no lump- sum required for the equipment purchase. Unlike tough lending conditions, leasing agreement gives greater flexibility when working with the Client. Lease operations do not affect financial performance and liquidity ratio of the enterprise and are not reflected in the statement of financial position.

Asset Purchase Economic Efficiency Comparison

Asset Cost Incl. VAT,
Thousand RUB
Cost Excl. VAT,
Thousand RUB
Acceleration Depreciation
Factor
Vessels/Equipment 100 000 84 746 3

Asset Purchase Terms

Term Value Unit
Advance payment 20 %
20 000 Thousand RUB
Loan rate 14 %
Raised Funds 80 000 Thousand RUB
Lease/Loan Period 5 Years

Lease/Loan Term Costs

Name Lease Loan
Payments to Supplier (Advance Payment) 20 000 20 000
Lease Payments 119 620
Property Tax 7 768
Loan Amortization 80 000
Interest Payments 28 918
VAT Refund - 21 298 - 15 254
Income Tax Reduction - 23 665 - 12 987
TOTAL COSTS, Thousand RUB 94 660 108 445

Summary

The final values reflect lessor’s cash flow balance for lease / loan agreement (60 months) period according to the above mentioned items. As for direct purchase, expenses are full value payment of an asset and property tax. As company’s net profit is used for the purchase, previously paid income tax will significantly increase direct purchase cost.

According to calculations 60 months period costs for leasing is significantly lower than loan costs

Lease Financial Benefits

  • 1. Purchase any equipment with leasing instead of paying in advance. Do not touch your equity.
  • 2. Arrange rental payments suited for your company's cash flow, investment efficiency and economic life (when company is already profitable from leasing asset, showing investment return).
  • 3. Use the advantage of fixing your rental payments throughout the term of contract for your leasing operations. The client may not perform significant payments prior to the leasing asset commissioning.
  • 4. Catch the advantage of being exempt from all kinds of taxes, duties and fees (income tax, VAT, property tax).
  • 5. Benefit from allocating amortization (coefficient up to 3) and revaluation in all fixed asset investments made with leasing.
  • 6. Keep in mind that you can take over the ownership rights of the investment instrument that you have leased the usage right of by paying a symbolic amount at the end of contract term.
  • 7. The leased asset can be reflected in company’s / client’s balance sheet. If a leasing company holds the balance, then client gets an opportunity to improve the balance structure due to off-balance sheet accounts (not possible when loan or direct purchase).
  • 8. No need for fixed assets revaluation for the client (for leasing asset).
  • 9. Leasing allows for mid- and long-term maturity borrowing (5-7 years) with fixed rental amounts. Prefer leasing for your investments and do not consume your bank credit lines.
  • 10. Financing through leasing is much easier with rare additional collateral requirement. As leasing company stays property owner up to the end of the lease term.
  • 11. Being easy, available and efficient for a company- leasing allows clients to maintain production and funds in accordance with up- to- date market requirements and provides significant competitive advantages.
+7 (495) 540-51-32
Sea Basis Leasing Company (JSC)
Grand Setun Plaza, Office B 501. Gorbunova St., 2, Bld. 3, Moscow, 121596, Russia
INN: 7727389992. KPP: 772701001. OGRN: 1187746751081
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