What Is a Financial Lease?

Financial leasing refers to the purchase by the lessor of the fixed assets designated by the lessee from the seller designated by the lessee at the request of the lessee in accordance with the advance contract of the two parties. The person pays all the rents as a condition and transfers the ownership, use, and income rights of the fixed asset to the lessee for a period of time.

Financial leasing

Financial lease is a basic form of modern lease. Its main characteristics are:

Financial leasing involves three parties and needs to sign two or more economic contracts. Financial leasing involves not only the lease relationship between the lessor and the lessee, but also the supply relationship between the lessor and the supplier. Therefore, not only is the lessor required to sign a lease contract with the lessee, but the lessor must also sign a supply contract with the supplier. In special cases, other economic contracts need to be signed.

The lessee has the right and responsibility to choose the leased property and the supplier. Financial leasing equipment, production plants and suppliers are selected by the lessee. The lessor will only pay for the leased property at the request of the lessee. Therefore, the lessee is responsible for the quality, specifications, quantity and technical inspection and acceptance of the equipment.

Ownership of leased equipment

Order of the China Banking Regulatory Commission

Number 3, 2014

"Administrative Measures for Financial Leasing Companies" ^[2]

Financial lease finance lease

Meaning: Direct financial leasing is the equipment selected by the lessee. The lessor (rental company) buys the capital and leases it to the lessee. The ownership of the leased property belongs to the lessor during the lease period. Purchase equipment; the lessee pays rent on schedule during the lease period, and depreciation is provided by the lessee.

Product features: Solve the problem of the fixed asset investment of the lessee through direct financial leasing, and can be integrated with other financial instruments to play an irreplaceable role.

Benefits to customers: Complete necessary investment in fixed assets without sufficient funds or occupying funds.

Financial lease subleasing

Meaning: The sublease leases the equipment from the original lessor based on the choice of the equipment by the ultimate lessee (end user), and subleases the transaction arrangement for use by the ultimate lessee. Subleasing is a form of lease where the leasing company has both the lessee and the lessor.

Product features: 1. Control asset-liability ratio. The equipment is reflected on the balance sheet of the leasing company and does not appear on the balance sheet of the leased company.

2. Reduce the debt risk of the leased enterprise.

3. The lessor uses the lease skills or lease permit of the sub-lessor. In some cases, some companies that have financing capabilities or equipment resource advantages, but do not have leasing skills or leasing licenses, can meet the needs of customers' financial leasing through subleasing.

Financial lease sale and leaseback

Meaning: Sale and leaseback refers to the lease form in which the lessee sells his own items to the lessor, signs a lease contract with the lessor, and leases the item back from the lessor.

Product features: It is suitable for customers who have a lot of high-quality fixed assets, but urgently need cash.

Benefits to customers: Customers use this business to turn fixed assets into cash to supplement working capital or purchase new equipment.