In modern times, various investment platforms are introduced to make money besides the conventional ones. A new method of investing is through leasing. Investing is considered significant for improved financial health. Investment via leasing is popularly becoming a preferred option worldwide.
Small businesses require sufficient funds to operate efficiently. At times, they are short on capital to purchase types of equipment and allocate resources. Personal loans in Mumbai help new businesses expand and grow. These loans are a kind of future investment for your business. According to IBEF, India’s leasing investing has seen significant growth over the last few years.Â
For example, Samara owns a logistics company. She requires 50 cars for your business. Thus, she opts for a financial lease as they need not be returned in good condition. For a lessor, the Â
Risks and benefits of assets are given to the lessee. This is done with an exchange of a periodic income.
Let us delve into this blog post to understand more about lease financing.
Introduction to lease
A lease is a legal agreement between two parties. The first is a lessor, who is an owner of the asset being leased. Another is a lessee, which is the one who borrows the asset. This agreement allows lessees to utilise an asset for a predetermined period. It is mainly done in exchange for regular payments, like rental payments.
Lease agreements are made across various classes. Some of them are real estate, furniture, aircraft, equipment and machinery. The real estate space is facilitated by lease agreements of commercial and home rental agreements.
Asset leasing allows investors to diversify into alternative asset classes. You can lease out an asset with a fixed income if you are an investor.
With the wide array of technology, numerous investors pool their funds to acquire assets. The asset is acquired priorly for leasing. For the lessee, it needs a reduced initial investment. This is better than buying an asset, as the lessor benefits from a steady income stream.Â
Kinds of leases
| Financial lease | In this, the company/lessor that offers the product for leasing is the legal owner.
A financial lease is taken for transportation and equipment. For a lessor, a financial lease agreement operates as a tool that transfers risks and benefits of an asset to the lessee. It is done in exchange for periodic income. |
| Operating lease | It is significantly different from financial leases.
In this, the ownership is not transferred from the lessor to the lessee when the term ends. After the leasing period terminates, the asset is rehired for another lease purpose. In other cases, the asset is returned to the lessor. A financial platform allows retail & businesses to invest in assets via lease agreements. An advantage of such an investment is that you don’t require a large sum to begin investing. |
| Leveraged lease | A leveraged lease is taken when a lessor cannot finance the lease themselves.
The investors collectively invest in an asset. Afterwards, the asset is given on lease to a lessee. A leveraged lease is divided into 3 segments. These are as follows: The lessor The lessee The financier or lender With innovation, investors finance a high-value asset. They benefit from proportional lease rents. |
| Tax-Orientated Lease | It is also called a true lease. The lessee is given full possession of the asset with a monthly fee.
As the lease term is over, the asset is returned to the lessor. It is known as a tax-orientated lease. The lessor can claim tax deductions. The lessor can also take advantage associated with leasing. |
| Sales and lease-back | An asset is sold to an investor for immediate cash.
In addition, the company leases the same asset back from the investor. This allows the company to continue using it for operations. If the lease agreement terms are carefully structured. It is usually a win-win for both parties. |
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The conclusion
In a nutshell, lease investments are becoming increasingly popular. It is considered a significant alternative investment avenue. There are various kinds of leases to choose from for investing. An investor must be careful while investing in an asset. A detailed understanding of lease agreements must be done. Each kind of lease investment offers different benefits. Learning about your requirements and then investing can result in profitability.