What Is a Finance Lease?

Financial lease (financial lease) is currently the most common and basic non-bank financial form in the world. It means that at the request of the lessee (user), the lessor concludes a supply contract with a third party (supplier), and according to this contract, the lessor invests in the purchase of equipment selected by the lessee. At the same time, the lessor enters into a lease contract with the lessee to lease the equipment to the lessee and collects a certain amount of rent from the lessee. ^[1]

Finance lease

Financial lease (financial lease) is currently the most common and basic non-bank financial form in the world. It means that at the request of the lessee (user), the lessor enters into a supply contract with a third party (supplier), and according to this contract, the lessor funds the purchase of equipment selected by the lessee. At the same time, the lessor enters into a lease contract with the lessee to lease the equipment to the lessee and collects a certain amount of rent from the lessee. ^[1]

Financing lease refers to

In addition to the characteristics of flexible financing methods, financial leasing also has the characteristics of long financing periods, flexible repayment methods and low pressure.
The term of funds enjoyed by SMEs through financial leasing can reach 3 years, which is much longer than that of ordinary bank loans.
In terms of repayment, small and medium-sized enterprises can choose to repay in installments according to their own conditions, which greatly reduces the short-term funding pressure and prevents the SMEs' relatively fragile capital chain from breaking.

Although financial leasing is very suitable for SMEs to solve their own financing problems due to its low threshold and flexible form, it is not suitable for all SMEs.
Financing leases are more suitable for production and processing SMEs. Especially those SMEs with good sales channels and broad market prospects, but who have temporary difficulties or need to purchase equipment in time to expand their production scale.

Lessee's accounting treatment of finance lease

1. Accounting treatment on lease start date

On the lease start date, the lessee should generally lease the asset from the lease start date

first step

The company submits an application for financing lease to XX Center, and fills in the project application form

Second step

XX Center investigates its credit standing, asset and liability status, operating status, solvency, and project feasibility based on the information provided by the enterprise.

third step

If the ×× center survey considers it feasible, its project information is submitted to the financial leasing company for review.

the fourth step

If the financial leasing company requires the project to provide mortgage, pledge or performance guarantee, the enterprise shall provide a list of mortgage or pledge, proof of ownership or proof of consent to mortgage and pledge with the right of disposition, and reach a cooperation agreement with the guarantor on the issuance of the performance guarantee .

the fifth step

After the preliminary examination of the financial leasing company fails, the enterprise shall promptly supplement the relevant information according to the requirements of the financial leasing company. If the requirements of the financial leasing company cannot be met after supplementary information, the project is cancelled and the project data is returned to the enterprise.

Step Six

If a financial leasing project is approved by a financial leasing company, the relevant parties should sign a contract

Step Seven

Go through mortgage, pledge registration, freezing, and stop payment procedures.

Step eight

After the lessee delivers the security deposit, service fee, guarantee fee, and equipment invoice, the financial leasing company begins to invest funds.

Step Nine

The ×× center supervises the operation of the project and urges the lessee to pay the rent on schedule.

Step ten

At the end of the lease, the lessee buys back at a low price.

· Petroleum processing, coking and nuclear fuel processing industries

· Chemical raw materials and chemical products manufacturing

· Equipment manufacturing industry (aircraft, ship, construction machinery, other equipment, etc.)

· Production and supply of electricity and heat

· Water production and supply

· House and civil engineering construction industry

· Rail transport industry · Road transport industry

· Urban public transportation industry

· Air transport industry

Telecommunications and other information transmission services

· Health industry (mainly hospital industry)

· Other industries suitable for leasing

Equipment rental

· Railway transportation equipment: such as locomotive, EMU, etc.

· Power equipment of the power grid: such as transformers, substations, etc.

Equipment used in the thermal power production industry: such as steam turbine units, boiler equipment, generators, etc.

· Equipment used in the hydropower production industry: such as water turbines, generators, etc.

Equipment used in the nuclear power production industry: such as nuclear islands, conventional islands, steam turbines, generators, etc.

· New energy power generation equipment: such as wind turbines, solar generators, etc.

· Aircraft: including mainline and regional aircraft

· Ships and their manufacturing industry: such as CCS class and above ships, shipyard's dock equipment, etc.

· Mechanical equipment: metallurgy, mining, medical, printing equipment, etc.

· Large-scale equipment for airports and ports

· Petrochemical mining and refining equipment, chemical production equipment

· Large-scale engineering construction equipment: such as railway girder cranes, railway beam carriers, excavators, cranes

· Road maintenance equipment

· High-value production lines for manufacturing

· Other large and medium-sized equipment that can be rented

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