Tuesday, May 10, 2011

Leasing Advantages and Disadvantages

The principle of leasing is simple: the company who need a well-form application to a leasing company that buys the specified property and leases it for a given period. Leasing may involve equipment (equipment leasing), or property leasing.

The advantages of leasing for the company are numerous. First, it provides full funding of the property value without any input from the business, and enables companies to acquire property without incurring costly debt alleged purchase of the product. Rents paid by the company are also operating expenses deductible from income tax.
The use of leasing also allows the company to avoid cash flow problems generated by the VAT. Indeed, early activity, the input tax on purchases often exceeds the VAT collected on sales, and requires the company to meet this need cash.

However, the main obstacle to the use of leasing is cost. Indeed, it is superior to that of a conventional bank loan, since the leasing company is compensated by its margin on the rent of the lease. On the other hand, it is more difficult to rent property very specific (obsolescence of the property, equipment not resalable ...), the leasing companies were reluctant to acquire such property.

The second risk is default by the tenant. The leasing contract is in effect a final commitment to time-limited undertaking that requires the user to pay rents fixed date. Otherwise, the company will be forced to return the property but will also be required to pay all rent yet due until the end of the contract.


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