What does financial leasing mean?

Financial leasing is the most common and basic form of non-bank finance in the world. It means that the lessor enters into a supply contract with a third party (supplier) at the request of the lessee (user), and according to this contract, the lessor invests to purchase the equipment selected by the lessee from the supplier. At the same time, the lessor enters into a lease contract with the lessee, leases the equipment to the lessee, and collects a certain rent from the lessee.

The essential difference between financial leasing and traditional leasing is that traditional leasing calculates the rent based on the time when the lessee rents out the subject matter, while financial leasing calculates the rent based on the time when the lessee occupies the financing cost. It is a highly adaptable financing method when the market economy develops to a certain stage. It is a new way of trading in the United States in the 1950s. Because it meets the requirements of modern economic development, in the 20th century,

It developed rapidly in the world from 1960s to 1970s, and now it has become one of the main financing means for enterprises to update their equipment, and it is known as "sunrise industry". This business model has developed rapidly for more than 30 years since it was introduced to China in the early 1980s. However, compared with developed countries, the advantages of leasing are far from being brought into play, and the market potential is great.

The difference from installment payment (1) Installment payment is a kind of business transaction, and the buyer not only obtains the right to use the traded goods, but also obtains the ownership of the goods. Financial leasing is a kind of leasing behavior. Although the lessee actually bears the costs and risks caused by the leased property, legally speaking, the ownership of the leased property is still nominally owned by the lessor.

(2) Financial leasing and installment payment are also different in accounting treatment. In financial leasing, the ownership of the leased property belongs to the lessor, and the leased property is regarded as a long-term receivable; The lessee is included in the fixed assets for depreciation. Items purchased by installment belong to the buyer, so they are included in the buyer's balance sheet and amortized by the buyer.

(3) The above two items lead to differences in tax treatment. In financial leasing, the lessor can deduct the amortized depreciation from the accrued income, and the lessee can deduct the amortized depreciation from the taxable income. In installment payment, the buyer can deduct the amortized depreciation from the taxable income, and the buyer can also deduct the interest cost from the taxable income. In addition, the purchase of certain fixed assets can enjoy tax-free investment in some western countries.

(4) In terms of term, the payment term of installment payment is often lower than the economic life of the traded goods, while the lease term of financial lease is often equivalent to the economic life of the leased goods. Therefore, the credit period of the same goods obtained by financial leasing is longer than that obtained by installment payment.

(5) Installment payment is not full credit, and the buyer usually pays part of the loan at sight; Financial leasing is a kind of full credit, which provides financing for all rental prices and even additional expenses such as transportation, insurance and installation. Although financial leasing is usually carried out at the beginning of the lease

Pay a certain deposit, but this fee is generally much less than the immediate payment required for installment transactions (for example, in import and export trade, the buyer needs to pay at least 15% of the payment in cash). Therefore, for the same item, the total amount of credit provided by financial leasing is generally greater than that provided by installment transactions.

(6) There are also differences in payment time between financial leasing and installment payment. The latter is usually at the end of each period, and there is usually a grace period before installment payment. Generally, there is no grace period for financial leasing, and the rent is paid after the transaction begins. So the rent is usually paid at the beginning of each period.

(7) When the financial lease expires, the lease item usually has a residual value, and the lessee generally cannot dispose of the lease item at will, and needs to go through the exchange or purchase procedures. The buyer of the installment transaction owns the traded goods after the agreed installment payment, and can dispose of them at will.

(8) The subject matter of financial leasing is generally long-lived and high-value items such as machinery and equipment.