What is Leasing

In the financial world, it's essential to know the available tools. One of these instruments is the leasing contract, a financing alternative that can enhance your financial strategy.

Definition of leasing: Leasing, also known as financial leasing, is a contract where a financial entity (the lessor) grants the use of an asset to a client (the lessee) in exchange for periodic payments, with an option to purchase the asset at the end of the contract for a predetermined residual value.

Key elements of leasing:

• Lessor: Usually a financial entity that acquires the asset and grants its use.

• Lessee: The person or company that uses the asset and pays the agreed installments.

• Leased asset: It can be furniture, machinery, vehicles, or even real estate.

• Residual value: The price at which the lessee can acquire the asset at the end of the contract.

Basic functioning: Imagine you need a car. Instead of buying it, you opt for a leasing contract. The financial entity acquires the car from the manufacturer and grants you its use. You pay monthly installments for a specified period, and at the end, you can decide if you want to buy the car by paying the residual value.

Differences with renting: Although both are forms of leasing, in leasing there is an option to purchase at the end of the contract, while in renting generally there is not. Additionally, leasing is typically aimed at assets that depreciate slowly and have significant residual value.

Types of leasing:

• Financial leasing: The lessee assumes all risks and benefits of the asset, including maintenance and insurance.

• Operating leasing: The lessor is responsible for maintenance and other services, similar to renting.

Tax considerations: Leasing payments can be tax-deductible as operating expenses, providing an additional benefit for companies and independent professionals.

Legal aspects: It's important to carefully read the contract clauses, as there are specific obligations and rights for both parties. Consulting with a legal advisor is recommended to ensure the contract suits your needs.

In conclusion, a leasing contract is a financial tool that facilitates access to necessary goods and equipment for professional and business activities, optimizing resources and offering tax advantages.

How Leasing Works

Understanding how leasing works is essential to leverage its benefits in your financial strategies. Below, we break down the process step by step.

1. Selection of the asset: Identify the asset or equipment you need for your operations, with a car being the most common example.

2. Agreement with the financial entity: Contact a firm that offers leasing. This entity acquires the asset and makes it available to you through a financial lease agreement.

3. Establishing terms:

• Contract term: The duration of the leasing is determined, which can vary between 2 and 5 years, depending on the asset and your needs.

• Periodic payments: Monthly or quarterly payments are set, which include part of the asset's cost plus interest.

• Residual value: The amount you will need to pay at the end of the contract if you decide to purchase the asset is established.

4. Use of the asset: During the leasing period, you use the car as if it were yours, although the legal ownership remains with the financial entity. This allows you to operate without restrictions and benefit from its full functionality.

5. End of contract: At the end of the agreed term, you have three options:

• Exercise the purchase option: Pay the residual value, and the asset becomes yours.

• Renew the contract: Extend the leasing for an additional period, possibly with adjusted payments.

• Return the asset: Return the asset to the financial entity and conclude your obligation.
  

Operational advantages: Leasing allows you to upgrade your equipment at the end of each contract.

Financial considerations:

• Impact on the balance sheet: Leasing may not appear as debt on your balance sheet, improving your financial indicators.

• Preservation of capital: By not tying up resources in assets, you can allocate more capital to other uses.

Risks and precautions: It's important to analyze interest rates and compare offers from different entities to ensure you obtain the most favorable conditions. You should also consider the asset's resale value and technological obsolescence.

Advantages of Leasing

Leasing offers multiple benefits that can strengthen your financial and operational position. Below, we explore the most notable advantages and how they can positively impact your trading and investment activities.

1. Financial Flexibility:

Leasing allows you to access high-value assets without making a significant initial outlay. This preserves your liquidity and gives you the ability to invest in market opportunities that may arise.

2. Tax Advantages:

Leasing payments can be considered as tax-deductible expenses, reducing your tax burden. This translates into savings that you can reinvest in your business or investment portfolio.

3. Better Cash Flow Management:

By setting fixed payments, you can plan your finances with greater accuracy. This facilitates cash flow management and helps you avoid financial surprises.

4. Option to Acquire the Asset:

If the asset remains useful at the end of the contract, you have the option to buy it for the residual value, generally lower than the market value. This can be a smart investment if the asset maintains its utility and value.

5. Improvement in Financial Ratios:

By not recording the asset as an asset or the lease as a debt on your balance sheet, you can present a better financial position to investors and credit entities. This can facilitate access to additional financing in the future.

6. Simplicity in Processing:

Leasing contracts often have more agile processes than traditional loans. This allows you to obtain the asset you need in less time and with fewer bureaucratic procedures.